More on CESR’s Dark Pool Regs

I recently wrote a little piece about CESR, the EU Securities Regulator, and their update to Dark Pools regulations.  It got quite a reaction, including feedback from some of the dark pools regulators themselves, who 'corrected' the view that the Best Bid-Offer had been updated by making it clear that nothing had actually changed recently.

For example, the document has been updated only to reflect how reference prices are formed in a negotiated trade waiver (Page 11).  In fact, the clarification provided for me is that there are various price waivers allowed under MiFID:

(1) The Reference Price Waiver

This is allowed in various ways:

(a) all orders are submitted to the system for execution/crossing at the midpoint of the European Best Bid and Offer (EBBO); or
(b) all orders are submitted for execution/crossing at the midpoint of EBBO or the European Best Bid or the European Best Offer; or
(c) all orders are submitted for execution/crossing at the midpoint of the primary market BBO or the primary market's Best Bid or Best Offer; or
(d) all orders are matched and executed at the official closing price published by the primary market; or
(e) the trading platform offer continuous trading based on the volume weighted average price (VWAP) on the relevant primary market.

(2)The Negotiated Trade Waiver (this was the change made on March 9th)

In this case, the trading system formalises negotiated transactions at or within the volume weighted spread, so that trading participants individually agree on the price and volume of the trade before transmitting it to the trading platform. The system then ensures that all negotiated transactions are at or within the volume weighted spread on the public order book of the trading platform.

(3) The Order Management Facility Waiver

In this case the dark order system displays a part of the order (a peak) whilst the rest of the total volume of that order is not displayed, resting in the order management facility. After the displayed portion of the order has been executed, a new peak is sent to the order book with a new time stamp, and the non-displayed portion of the order is decreased accordingly.

(4) The Large-in-Scale Waiver

An order is 'large in scale' when compared with normal market size, if it is equal to or larger than the minimum size of order specified in Table 2 in Annex II of the Commission Regulation 1287/2006. 

That last bit is complex and CESR can't agree on it, by the way.

In fact, the whole darned lot is pretty complicated, but the point is that nothing much changed in recent days, apart from a new 'Negotiated Trade' Waiver.

What is clear is that this whole area will be under intense review when CESR draft MiFID II.  As a result, it would do FSClub and Finanser readers no harm to attend our meeting on 4th May.

What’s in MiFID Wave 2?

A panel discussion with:

• Andrew Allwright, Business Manager, MiFID Solutions, Thomson Reuters
• Andrew Bowley, Head of Electronic Trading Product Management, Nomura
• Hirander Misra, CEO of Algo Technologies Ltd and former COO, Chi-X
• Peter Randall, CEO, Equiduct 
• Philippe Guillot, Global Head of Trading and Execution, CA Cheuvreux

The European Commission plans to expand MiFID trading rules to tackle issues missed by the original document, as calls mount for a second version of the controversial directive.
The European regulator had been set to undertake a small-scale “technical” review of the 2007 directive, which outlawed rules forcing firms to use stock exchanges. However, sources familiar with the situation said the study might now include “more wide-ranging elements”.
Among changes that could be on the agenda are new rules on over-the-counter and structured products, a pulling together of trade-reporting requirements and tighter rules around the definition of “best execution”.

If you want to come, then register.