EU lawmaker doubts "dark pool" share trading caps can work
(Refiles to correct spelling of lawmaker in headline, remove extraneous letter in fourth-last paragraph)
By Huw Jones
LONDON, April 16 (Reuters) - A European Union law to cap anonymous or "dark pool" share trading may not work due to insufficient data, a senior EU lawmaker said on Thursday in a rethink many banks will welcome.
The 28-country bloc has revised rules on trading securities and its markets watchdog is now finalising the implementing measures.
One revision introduces limits on anonymous trading in any stock to 8 percent of the total EU market, or to 4 percent on any individual trading platform, from January 2017.
Dark pool trades allow investors to trade anonymously to avoid moving prices on exchanges, but proponents of caps say they will increase transparency for all investors.
"I do have some doubts of whether the double volume cap mechanism will work as intended," said Markus Ferber, the German centre-right lawmaker who steered the new law through the European Parliament.
In comments that mark a rethink that banks and some regulators will welcome, he said the key problem is the lack of adequate data, such as on the over-the-counter or off exchange market.
The European Securities and Markets Authority or ESMA, the EU's markets regulator, is also "struggling" to collect data from other trading venues also needed to calculate when the cap would be hit, he said.
Accurate calculations are essential as once the cap is hit, dark pool trading in that stock is suspended for six months.
ESMA declined to comment on Ferber's concerns, saying it expects to issue final rules in June on implementing the cap which the European Commission would then need to endorse, subject to parliamentary scrutiny.
Ferber said it was extremely important to strike the right balance between the need for data and level of detail.
"I can assure you that the European Parliament is taking a thorough look into that matter," Ferber added.
Data published by the London Stock Exchange (Other OTC: LDNXF - news) on Wednesday showed that the proposed caps would have hit nearly every top British stock last year had they been in force.
The second thoughts highlight the perils of lawmakers baking in specific numerical caps into primary legislation rather than leaving it to regulators to implement broader principles.
Martin Wheatley, chief executive of the Financial Conduct Authority which regulates markets in London, the EU's biggest trading centre, has said he was struggling with the practicalities of the caps. (Reporting by Huw Jones; editing by Susan Thomas)