Regulators may tweak new European Union regulations which were meant to increase trading on primary exchanges, as lit volumes are unchanged in the first month of implementation.

One of the aims of MiFID II, the regulation which came into force in the European Union on 3 January, was to boost lit volumes.

MiFID II 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. However the calculation for the caps were meant to be published last month and have been pushed back to March by the European Securities and Markets Authority. There are waivers for large-in-scale (LIS) orders and trading in auctions which led to a boost in volumes of block trades and periodic auctions.

Rebecca Healey, head of market structure and strategy EMEA at institutional trading network Liquidnet, said in a presentation to members last week that there is no difference in volumes of trading in lit venues since MiFID II went live as they still have a 57% share of the total market.

She said: “In general, we have not seen the big shift to lit trading the regulators were hoping for. The question is whether there will be a shift in the landscape once the caps are implemented.”

Liquidnet analysis showed that dark volumes steadily increased  last month from just over 6% of total market volume to a peak of 9.7%, reached on 24 and 30 January, before falling back. “It looks as if a natural threshold for dark activity has now been reached, similar to pre-MiFID volumes,” added Healey.

Although dark volumes are largely flat since MiFID II went live, there have been changes in the composition of dark volumes.

Gareth Exton, global execution & quantitative services at Liquidnet, said in the briefing: “There has been an explosion in periodic auctions which is not unexpected.”

Liquidnet continued that auction volumes more than doubled during the first month of MiFID II to €428m ($531m) on 2 February. However the reporting on periodic auctions does not show the proportion that is broker pre-matched, and so may not be true actionable liquidity. Healey said: “There will be pressure to reveal the pre-matched volume as regulators will want to know.”

Cboe Europe Equities said in a statement that during the first month of MiFID II, the exchange had record volumes for both periodic auctions and LIS trading.

Cboe Periodic Auctions and Cboe LIS see swift uptake in January with more than €11 billion traded on the two platforms #MIFIDII https://t.co/q1YEOzgdyr

— Cboe (@CBOE) February 5, 2018

The Cboe Periodic Auctions book reported a volume of €6.5bn last month with average daily notional value of €296m, up 885.3% over the fourth quarter of last year.

“Data from big xyt shows that trades on the Periodic Auctions book had less market impact than dark venues,” added Cboe.

Liquidnet continued that over the month of January LIS established itself as almost a third of the dark market, with the move to block style liquidity now seemingly established.

MiFID II also prohibits broker crossing networks. Systematic internalisers were originally set up for equities under the MiFID regulations in 2007 for all off-venue trading in the European Union. However only nine banks became SIs and very few trades took place on the back of an SI quote as off-venue trading moved to broker crossing networks. As a result MiFID II has extended SIs to other asset classes in order to capture over-the-counter trading activity and increase transparency.

SI activity reached a peak of €6.4bn on January 30th according to Liquidnet, representing a spike in volumes for two days to more than 12% and 11% of activity. Healey said: “This is the first time we have seen a marked increase from pre-MiFID II broker crossing network activity after taking into account the necessary filtering of activity to exclude non-price forming activity such as after-hours prints.”

However, she also warned that there is confusion over the reporting by SIs and it is unclear whether the volumes represent true over-the-counter activity or are just replacing broker crossing networks. As a result, regulators are likely to review SI activity.

Steve Grob, director of group strategy at Fidessa, also said in an email that there is a lack of transparency in SI reporting.

“This cannot be broken down any further, however, and so volume that was previously lumped into the OTC category is just now in a similarly opaque bucket called SI,” added Grob. “What will be interesting, though, is how the SI volume grows as new electronic market makers enter the SI space.”

Liquidnet added there have been some minor changes in individual dark MTF market share during the first month of MiFID II.

“Liquidnet still represents approximately 10% of market share, Turquoise (22% to 27%) and Cboe LIS (4% to 5%),” added Healey. “There has been a steady decline from Sigma-X, UBS and BlockMatch, as these venues switch to alternative methods of execution.”

Fidessa’s Top of the Blocks report for the week ending 2 February said last week was the busiest for Cboe LIS, in terms of the number of LIS trades, and a record value was also traded on Liquidnet. In addition, a number of countries had record volumes including Belgium, Netherlands, Sweden.

Duncan Higgins, head of electronic products for ITG Europe, said in an email: “Following the caps delay, we’re pressing ahead and shifting our trading to meet the spirit of MiFID II.  Prioritising blocks and periodic auctions to reward firms who also adopt a MiFID II approach.”