13 November 2013

The Trade: Disagreement over waivers risks pushing MiFID decision to 2014

A lack of consensus over dark pools and pre-trade transparency waivers risks pushing a conclusion to the trialogue on MiFID II into the first quarter of next year, according to those familiar with the situation.

In October, Markus Ferber MEP, who is coordinating the European Parliament’s contribution to the trialogue process that will create the final text of MiFID, hailed a major breakthrough in settling some of the many differences between the Parliament and the European Council.

However, many industry members fear that a lack of agreement on dark pool regulation and the waivers that enable dark trading, could delay implementation of the Directive. Some MEPs are thought to have been impressed by a recent proposal by a number of influential industry groups, including asset manager Fidelity, the Investment Management Association (IMA) and the London Stock Exchange, which called on European regulators to adopt a similar approach to Canada and Australia, where waivers are only allowed if meaningful price improvement has been achieved.

The proposal was made to allay concerns that pre-trade transparency waivers have been widely overused, but still enable dark pool trading to continue in Europe where appropriate.

It is thought that Ferber, along with fellow ECON committee members Kay Swinburne and Sharon Bowles, support the proposal and circulated a discussion document suggesting such a measure would be more effective in achieving the European Commission’s overall objective than the cap initially put forward by the Irish presidency. However, it is thought that some MEPs and the European Council have rejected the proposal, arguing it is creating an incentive to trade in the dark. Industry participants fear there has not been enough understanding of the use of waivers in the market.

Dark pool trading currently accounts for around 11 per cent of executable liquidity in Europe in 2013 so far, according to a recent report from Tabb Group. The European Council had suggested implementing caps on dark trading relative to the size of the market as whole, suggesting 8 per cent would be an appropriate level. However, it is rumoured the Commission may be about to write to MEPs to withdraw that proposal.

European Parliament elections are due to take place in May 2014 and if the trialogue is unable to agree on MiFID’s text before MEPs leave Brussels to begin their election campaigns then it will need to be returned to the new Parliament for debate.

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