US buy-side reject dark pool caps similar to MiFID II

Survey of US equities traders finds only 6% believe US markets should apply dark pool caps to markets.

An overwhelming 85% of buy-siders in the US have stated regulators should not introduce dark pool caps similar to those proposed under European regulation MiFID II.

A poll of US equities traders carried out by Greenwich Associates earlier this month, found only 6% believe US markets should apply dark pool caps.

The report explained despite US traders being relatively supportive of a rule that would change behaviour and would result in less dark pool trading, they are against hard caps that would reduce dark trading.

“The reality is that while many traders will bemoan the proliferation of dark venues, they still value highly the ability to trade anonymously in dark pools,” the report said.

MiFID II - due to come into effect on 3 January 2018 - includes dark pool caps of 4% of volume on any individual venue and 8% on the market as a whole. 

“The European dark pool caps are quite arbitrary—it’s not clear why 8% and 4% were chosen, as opposed to, say 9% and 5%. As such, they are a blunt tool, and U.S. traders seem to prefer more targeted regulation to realign incentives,” the report added.

In February this year, Credit Suisse and Barclays settled investigations by US regulators into their dark pools by agreeing to pay a combined $154.3 million in fines.

Barclays and Credit Suisse both admitted to making false statements in connections with the marketing of their dark pools and other electronic trading services.

Director of the SEC’s enforcement division, Andrew Ceresney, said at the time of the settlements: “Dark pools have a significant role in today’s equity marketplace, and the firms that run these venues must ensure that they do not make mis-statements to subscribers about their material operations.

“These largest-ever penalties imposed in SEC cases involving two of the largest ATSs show that firms pay a steeprice when they mislead subscribers.”

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