Regulatory placebo effect

 by Christian Voigt

With great anticipation the industry awaits the announcement of the estimates for the double volume caps, now expected in March. Irrespective of the fact that ESMA has already missed one deadline, and with some in the industry waiting to see if there is any substance to a rumoured further delay, it’s evident that the looming caps have already impacted trading behaviour.

The double volume caps aim to restrict dark trading, making it less attractive. It’s no great surprise, then, that we’ve seen a decrease in the size of dark trading relative to lit since October 2017.

If trading on exchange in transparent books (e.g. auctions) or OTC via Systematic Internalisers are not options, then you could still try to shift your trades onto those dark pools focusing on blocks, as trades above Large in Scale thresholds are not affected by the double volume caps. Again, that is exactly what we’ve seen throughout 2017.

The boost in block trading at the start of 2018 was quite a feat considering that the LIS thresholds increased and the dark cap regime doesn’t actually restrict anything yet. But I guess rather like a placebo, once your head is convinced the rest falls into place automatically.