Europe sees DVC suspensions rise in first quarter as regulators clamp down on dark trading, finds report

AFME’s report noted 62 new suspensions in Europe for surpassing pre-determined thresholds in April alone.

Europe has seen a sharp rise in double volume cap (DVC) suspensions in the first quarter of this year as regulators clamp down on non-transparent forms of trading.

The report found that in April alone 62 new suspensions were recorded – totalling 838 in the first quarter – in Europe under the price disclosure waiver after surpassing pre-determined trading thresholds.

Of the total suspended instruments, 562 had UK International Securities Identification Numbers (ISINs). A further 189 of the suspended instruments had non-EU and UK ISINs.

DVCs limit the amount of dark trading that can take place under EU law in a bid to boost the amount of trading that is executed on more transparent, lit venues.

The subject has proved to be a divisive issue post-Brexit for the UK and Europe, both of which have taken opposite approaches to how they implement them with the UK moving to ban them all together and Europe introducing a new blanket DVC of 7% in November.

AFME’s report found that on-venue trading represented over two thirds of total addressable liquidity in Europe in the first quarter of this year with lit order book trading rising 4% from the fourth quarter to 41%.

Off-venue volumes – including systematic internalisers – made up the remaining 23%, while pure over the counter (OTC) trading volumes saw a 5% decrease to 11%.

Also in a bid to foster more volumes on lit and transparent markets, European regulators moved to limit the capabilities of systematic internalisers (SIs) in November as part of an update to the Capital Markets Union (CMU) including their ability to match at midpoint below large in scale (LiS) and use of the reference price waiver to execute small trades.

The proportion of on-venue trading relative to total addressable liquidity increased the start of this year, which AFME attributed to participants appetite for immediacy of execution as opposed to minimal price impact during volatility.

Volatility also saw bid-ask spreads for selected European equity indices widen throughout 2022, however, not to the extent seen during the outbreak of Covid-19 in 2020.

Elsewhere, AFME highlighted that equity trading in the form of block trades reached €135 billion in the first quarter – an increase of €25 billion compared to the fourth quarter of last year and near the figure reached following the Covid-19 outbreak.