Volumes on European dark pools in April reached the largest share of on-exchange trading in the post-MiFID II era, according to an analysis by TABB Group.
The analysis found that dark pool volumes accounted for 9.1% of all on-exchange activity during April, the highest level that dark pool volumes have reached since October 2017, prior to the implementation of the regulatory regime, when they accounted for 9.2% of activity.
“While the amount of dark trading fell in the early months of MiFID II, it has gradually risen since the first set of caps expired in September 2018, reaching its highest level in April since before the implementation of the new regulatory regime,” said Tim Cave, analyst at TABB Group.
MiFID II’s double volume caps (DVCs), first introduced in March 2018 following an initial delay to implementation, are the biggest factor affecting volumes in dark pools in Europe. The DVCs trigger bans on dark trading when a transaction accounts for 4% of the total activity on a single dark venue, or 8% of total trading market-wide.
TABB Group’s analysis found that there has been a steady decline in the number of stocks affected by the caps, with 287 instruments suspended from dark trading as of May this year compared with a substantial 1476 stocks that were suspended in May last year.
At the same time periodic auctions, often seen as an alternative to dark pools, much to the dismay of regulators, saw market share decline from 2.9% of on-exchange activity in August 2018 to 2.2% in March this year as the number of instruments suspended by the DVCs has fallen. In April, periodic auction market share grew slightly to 2.4% and saw average daily above €1 billion for the first time since October 2018.
Market participants have criticised the move by regulators in Europe to curb dark trading, which allows for minimal market impact and in some cases can provide the best price for clients. Ahead of the implementation of the DVCs under MiFID II, major stock exchanges and institutions launched various periodic auction and block trading venues.
Block trading volumes also surged in April, according to TABB Group, reaching the third-highest level recorded with daily notional of €1.38 billion. Block trades accounted for 35% of all dark multilateral trading facility (MTF) trading in April, compared to 34% the month prior.