BRUSSELS, Dec 8 (Reuters) - Concerns about U.S. alternative exchanges known as “dark pools” have prompted the European Commission to cut the number which will have access to European Union markets when new rules come into force in January, documents seen by Reuters show.
The European Union and the U.S. have already clinched an informal deal on mutual recognition to avoid disruptions for investors after the European Union’s MiFID II market rules become operational on Jan. 3, EU sources said.
But the EU decision to grant equivalence to U.S. trading venues has been delayed because of opposition in some EU member states to including more than 80 U.S. dark pools, private exchanges usually set up by investment banks to trade large quantities of securities away from the public eye.
Under equivalence decisions, the EU recognises that rules of foreign jurisdictions have the same objectives as EU provisions, granting foreign operators access to its markets and vice-versa.
Dark pools are often criticised for their lack of transparency and to win over resistance the commission has now trimmed the number it regards as equivalent to 33, clearing the main hurdle to completing the bigger deal, which is now considered only a formality, according to several EU officials.
If there was no accord before the end of the year, it would prevent EU investors from accessing more than 20 U.S. regular trading venues, such as Nasdaq and New York Stock Exchange, which will be granted the equivalence status, according to the draft decision which has remained unchanged on this matter.
After pressure from EU states and lawmakers, the Commission decided to include only alternative exchanges that trade in shares “that are admitted to one of the U.S. national exchanges”, an EU executive’s document said.
This “will avoid significant liquidity being diverted away from European exchanges,” vice chairman of the EU parliament’s economic committee Markus Ferber said, adding it “will prevent U.S. dark pools from being the big winners of MiFID II”.
The dark pools of large banks, like JPMorgan, Deutsche Bank and UBS, are still included in the draft equivalence decision.
Alternative venues trading mostly in sovereign bonds and other securities, like the Nasdaq Fixed Income, were excluded, according to the revised list of entities covered.
Equivalence decisions are subject to regular scrutiny and may be revoked if foreign jurisdictions’ rules change in ways that make them incompatible with EU rules.
To quell concerns from some EU states, the commission added a specific clause for “a review process” after one year to assess the impact on liquidity on European exchanges.
A similar equivalence decision for Switzerland’s SIX Swiss Exchange and BX Swiss is still pending, as EU states have not yet approved the draft proposal submitted by the EU executive. (Reporting by Francesco Guarascio; editing by Alexander Smith)