March 26, 2018

As March neared, hopes had run high in some quarters of the financial service industry that the dark pool caps would be delayed yet again. However, that proved to be wishful thinking and on 12th March the European Securities Market Authority flicked on the switch as promised.

In total, 736 securities were restricted from trading in all dark pools across Europe while an additional 19 were limited on individual dark watering holes. This translates into over 80 percent of the most heavily traded shares in Europe including household blue chip names such as British Tobacco, HSBC and Unilever.

Few expect the new rules to spark a revolution as old habits die hard and there are other avenues where traders can still hide their hand. They can either go down the large in scale route, use systematic internalisers or periodic auctions, which hold orders until there is an opposing order to trigger a trade.

Buy and sell-side firms should not be lulled into a false sense of security as the regulator’s intent is crystal clear – a push towards greater transparency and a shift to more lit from dark venues. Change is on the horizon and lessons can be learnt from other industries that ignored at their peril the handwriting on the wall.

Take the high street estate agents who dominated the listings market with often inflated pricing and hyperbolic lingo that described a two bed and an airing cupboard as a “roomy family home” while a property that is virtually falling down is said to be “in need of modernisation”.

Many incumbents dismissed the online upstart, such as Purplebricks, when they entered the market  a few years ago with their completely different online model. Transparency was their mantra and customers were not only won over by the clear-cut language but also novel interactive tools, videos of the property and more granular information on the surrounding neighbourhood. It took time, but today these on-line agents are the first port of call for many buyers and sellers.

The direction of travel is also obvious in trading. Market participants do not have to look very far for an exchange that fits the bill of transparency, innovation and competitive pricing.  Aquis already offers the complete package of a low cost subscription model, deep pools of liquidity and low market impact.

As the estate agents learned the hard way, there is no turning back.

by Lynn Strongin Dodds