* EU lawmaker Ferber expects final MiFID deal by Xmas
By Huw Jones
LONDON Nov 21 The European Union reached an
outline deal on Thursday to try to shine a light on shadowy
areas of the financial markets by capping off-exchange share
trading, known as "dark pools", a senior EU lawmaker said on
The outline agreement is likely to hit the City of London
financial centre, which is home to several "dark pools" or
anonymous trading platforms. But stock exchanges and big banks
will likely benefit.
The deal has prompted concern among investors because of its
potential restrictions on where they can trade.
The outline deal is part of EU efforts to finalise an update
of securities trading rules, known as Markets in Financial
Instruments Directive or MiFID, to reflect lessons from the
2007-09 financial crisis and rapid advances in trading
Markus Ferber, the German centre-right lawmaker who is
leading the negotiations for the European Parliament, said
Thursday's outline deal would form the basis for further
negotiations on how to make it work in practice.
"There are still some questions open. The whole system has
to be made functional," Ferber told Reuters.
"My planning is to have a deal before Christmas," Ferber
said, referring to the MiFID reform as a whole.
The main advantage to dark pools is that investors do not
have to make their orders public. This helps to prevent other
market participants knowing who is behind a large trading
position and make it possible to bet against it.
Under the outline plan, trading in a stock anonymously will
be capped at 8 percent of the total amount traded of that stock
in the EU, meaning that most of the trading would have to be on
exchanges or similarly "lit" as opposed to "dark" trading
So-called dark pool trading in a stock on an individual
platform would be restricted to no more than 4 percent of the
total EU market for that stock.
TABB Group, a consultancy, has estimated dark pool share
trading is equivalent to 11 percent of the European stock
market, meaning the caps as proposed would end some anonymous
The EU's executive European Commission will conduct further
work on how the caps would work in practice, such as what
happens when a cap is breached, and how often the data on dark
pool trading is published.
Ferber said he would be concerned if checks on whether the
caps are busted were only done on the basis of monthly data, a
period seen as too long.
The European Securities and Markets Authority would collate
data on share trading gathered by national authorities.
Britain's Investment Management Association said the caps
would ultimately hit end investors and pension funds as it poses
a restriction on the industry's ability to get the best price
for their clients.
"It would be far better to address and rectify any concerns
with regards to the practice of 'dark trading' if the industry
and regulators can work together to come up with positive
solutions," IMA markets expert Arjun Singh-Muchelle said.
The TABB Group said regulators seemed determined to restrict
the ability of investment funds to deliver the best deal for