The EU’s financial regulator, the European Securities and Markets Authority (ESMA), has highlighted that it does not intend to introduce restrictions on trading that has come under criticism for supposedly undermining stock market transparency regulations.
ESMA has been assessing the issue of so-called ‘periodic auctions’, which allow fund managers to trade larger blocks of shares while limiting the amount of order information revealed to the market before trades take place.
These have grown in popularity since the introduction last year of Mifid II, as an alternative to venues such as dark pools. But they have been condemned by some critics as an attempt to circumvent Mifid II’s transparency rules, leading to concerns among some operators that they could be banned.
In a recent report published by ESMA, however, the regulator says it intends only to set out guidelines for ensuring auctions meet Mifid II rules on price formation and transparency.
A number of leading exchanges and brokers are already running periodic auctions, including Cboe Global Markets – the group that owns and operates the Chicago Board Options Exchange – Goldman Sachs’ electronic trading business Goldman Sachs Sigma X MTF, London broker ITG, Nasdaq, the London Stock Exchange’s Turquoise and the UBS-owned trading facility UBS MTF. Periodic auctions accounted for about 2.2 percent of European trading volumes last month, according to TABB, the capital market research group.
ESMA’s decision to investigate the approach for share dealing follows comments from German MEP Markus Ferber – credited with devising the ‘technical wording’ of Mifid II – who said the auctions were a ‘blatant attempt to undermine [EU regulations]’.
Ferber’s worry was that periodic auctions were being used to copy dark pools – which had caps placed on them by Mifid II – in an attempt to move more trading onto traditional stock exchanges, which offer more pretrade transparency.
