[ A D V E R T O R I A L ]
Evolutionary
strategies: How to
handle MiFID II DVC
threshold rules
As MiFID II arrives, Rebecca Healey, head of market structure and strategy
for Liquidnet EMEA, highlights the ways to avoid Double Volume Cap
thresholds through a few simple changes in trading behaviours.
T
he closure of broker cross-
ing networks (BCNs) under
MiFID II will trigger the next stage
in the evolution of dark trading,
and market participant behaviour
will need to adapt as a result. Large
in Scale (LIS) venues have already
seen a rise in popularity and this
looks set to increase further as
participants want to ensure they
do not fall subject to the Double
Volume Cap (DVC). However, the
benefits of ensuring dark trad-
ing continues to exist to protect
institutionalised order sizes may
deliver a significant proportion of
instruments from the threat of the
DVC. Recent analysis shows that
as a result of the recent increase
in LIS activity, just 51% of stocks
20
TheTrade
Winter 2017
capped out on the 12-month look-
back. If market participants merely
adjust their trading behaviours,
they can have a direct impact on
whether the DVC threshold is
triggered or not.
DVC + LIS
MiFID II’s new DVC rules limit
a single off-exchange venue to
4 per cent of total trading in an
individual stock and dark trading
across all venues at 8 per cent of
overall volume where the Refer-
ence Price and Negotiated Trade
Waivers are used. One way to avoid
these thresholds being triggered
is by trading Large in Scale, taking
advantage of the waiver exempting
blocks from the venue caps.
According to Liquidnet’s recent
analysis , just 51% of stocks
across the FTSE 100, FTSE 250
and STOXX 600 will be capped
out on the 12-month look-back
when looking at adjusted trading
volumes relative to the implemen-
tation of DVC. Moreover, 30% of
the capped stocks were within just
1% of the 8% threshold. Further
detailed analysis will be required
to understand the true impact of
the DVC rules, but it appears that
market participants have the ability
to impact the outcome. Not all in-
struments, or all markets have the
same proportion of dark versus lit
trading, but if market participants
were to adjust trading behaviours
by trading in bigger blocks, there is