Volumes in periodic auctions and large block trades will continue to increase despite European regulators delaying the introduction on volume caps on equity trading in dark pools.

MiFID II, the regulation which came into force on 3 January 2018, places volume caps on trading of 4% of daily volume in an individual stock on any single dark venue as well as 8% of total average daily volume across all European dark pools. There are waivers for large-in-scale orders and trading in auctions.

Duncan Higgins, head of electronic products for broker ITG in Europe, Middle East and Africa told Markets Media: “There’s been an increase in block trading as a share of dark trading since MiFID II went live. It is good to see that clients were confident that they were prepared and able to carry on trading.”

Broker ITG launched Posit Auction, a lit segment on the broker’s Posit multi-lateral trading facility, when MiFID II went live. Posit Auction runs periodic auctions, of between 50 and 100 milliseconds, where there are opportunities for matching orders. The randomised length of auctions makes it harder for them to be targeted by aggressive trading strategies.

“Posit Auction went live on January 3 and we expect volumes to increase as the industry focuses on blocks and auctions, adopting the principals of MiFID despite the delay of the dark pool caps,” added Higgins.

He continued that blocks as a share of dark trading were 12% in January 2016 and have risen to 29% citing a Fidessa report.

The European Securities and Markets Authority yesterday announced a delay in the double volume caps calculations which were due to be released on January 12.

“The current quality and completeness of the data does not allow for a sufficiently meaningful and comprehensive publication of double volume cap calculations, as required under MiFID II/MiFIR, and Esma has taken this decision to avoid creating an unlevel playing field,” said the regulator.

Esma continued that it had expected to receive data from trading venues for around 30,000 instruments in order to perform the double volume cap calculations but has only received complete data for approximately 650 instruments. In addition, these 650 instruments are relatively illiquid and have a limited amount of dark trading. The regulator said it expects to be able to publish the volume cap data in March.

“Esma acknowledges that trading venues only had limited time to compute and submit all data as the relevant reporting period only closed on 31 December 2017 and the data had to reach Esma by close of business on 5 January 2018,” added the regulator.

Cboe Europe said in a statement: “Cboe Europe submitted on-time to the FCA all data required by Esma in order to calculate the double volume caps. At this point, it is unclear how the full application of the double volume caps from January 2018 will be implemented retrospectively when the double volume caps are activated. We will work closely with the FCA and Esma on this matter.”

Esma said in its statement that it is aware of the legal obligation to apply the double volume caps from January 2018.

Cboe Europe has been setting records in its periodic auctions book and in large-scale trading, both in the run-up to MiFID II, and since the regulation came into force:

Two new records yesterday for Cboe Europe. Record value traded of €259.2 million for our Periodic Auctions book. Record value traded of €291.9 million for Cboe LIS. #MiFIDII

— Cboe (@CBOE) January 10, 2018

Turquoise, the MTF owned by the London Stock Exchange Group, said:

Following ESMA's announcement to delay the publication of the data on DVC until March 2018; Turquoise will continue to accept orders of all sizes above & below LIS for all securities into Turquoise Plato™ and those orders = or > 25% of LIS into Turquoise Plato Block Discovery™.

— Trade Turquoise (@tradeturquoise) January 10, 2018

The continued demand for block trades was shown by Turquoise Plato Block Discovery setting  a new record €535m of daily value traded today, up from its previous high of €458m on 25 October 2017.

Steve Grob, director of group strategy at Fidessa, said in a blog that ESMA is facing its first MiFID II ‘Heisenberg moment’, based on the theoretical physicist’s Uncertainty Principle which states that one can know either the position of a particle or its velocity but not both:

ESMA's first Heisenberg Moment – thoughts on dark pool capshttps://t.co/JX3Tf3XLYH

— Steve Grob (@SteveGFidessa) January 10, 2018

He continued: “Or, put more colloquially, the harder you try and measure something the less likely you are to be successful. So, just one week in, we are starting to see that simply shipping truckloads of data from participants to regulators is no slam-dunk for greater transparency, safer markets or better trading outcomes.”

Markus Ferber, MEP, who guided the MiFID II legislation through the European Parliament as rapporteur, is unhappy with the delay according to Bloomberg:

Ferber unhappy with @ESMAComms delay/problems with #MiFIDII dark-trading caps pic.twitter.com/o9QOw0uflN

— Silla Brush (@sabrush) January 10, 2018

Mark Spanbroek, vice chair of FIA EPTA, which represents European firms who trade with their own capital, tweeted:

Not good news. Open access delayed as well. @ESMAComms should not be too flexible. Market makers and liquidity providers were all ready for Jan 3. Why others not? https://t.co/Ruh3jmL8k6

— Mark Spanbroek (@spanbroekmark) January 9, 2018