European Union Plans To Limit Dark Pool Trading first appeared on FloatingPath
The European Union is said to have reached an outline of a deal to limit the volume of trading executed on dark pools.
Under the proposal, trading in any stock on dark venues will be limited to 8% of its volume across EU nations. Additionally, no single dark pool will be allowed to execute more than 4% of the daily EU volume in a given name. German lawmaker, Markus Ferber has been anointed as the lead negotiator for the plan.
“There are still some questions open. The whole system has to be made functional,” Ferber told Reuters. ”My planning is to have a deal before Christmas,” Ferber said, referring to the MiFID [Markets in Financial Instruments Directive] reform as a whole.
According to the TABB Group, dark pools in the European Union currently account for, on average, about 11% of the volume of every stock. As it stands now, current trading would certainly be altered by this proposal. In comparison, about 40% of total trading volume in the U.S. has moved to dark pools.
While dark pools do not completely insulate large institutional orders from the nefarious ways of HFT, they can stand to mitigate the risk of exposure to them. The rapid growth of dark pool trading in the HFT-dominated U.S. markets serves as proof of this.
The main advantage to dark pools is that investors do not have to make their orders public. This helps to prevent other market participants knowing who is behind a large trading position and make it possible to bet against it.
Setting arbitrary caps on the amount of volume able to trade on a dark (or lit for that matter) exchange seems to be a classic case of treating a symptom rather than the illness.
