Double Volume Caps
What use does Peel Hunt make of trade waivers?
How will the double volume caps affect our trading with Peel Hunt?
What is changing
MiFIDII places restrictions on the use of certain waivers from pre-trade transparency, with a view to restricting ‘dark’ trading, known as the double volume caps (DVC). The fear is that if too much trading occurs away from transparent venues, the price discovery process will be diminished, and end investors will suffer. The two waivers specifically capped are (i) the reference price waiver and (ii) the negotiated trade waiver for liquid instruments. The use of these waivers is capped at 4% of trading for a single venue (e.g. the LSE) or 8% of trading for the whole EU. Once a cap is breached, the use of that waiver is prevented for 6 months.
Peel Hunt Approach
The important point to note is that the DVC affects waivers from pre-trade transparency. As a registered market maker Peel Hunt has an obligation to provide pre-trade transparency and does so through on-venue market making quotes. Therefore, we make very limited use of any waivers from such activity and expect there to be a very limited direct impact on our trading activity with clients.
What does it mean for me?
There will be changes to the general market structure as a result of the DVC, particularly for larger brokers who operate their own dark pools or broker crossing networks, or any brokers trading on own account without being pre-trade transparent. However, from a Peel Hunt point of view, our pre-trade transparent model will continue in the same way it has done for many years.
Explore our articles on the main topics surrounding MiFID II, for a deeper insight into our approach to the new legislation.