The 1.4m paragraphed Markets in Financial Instruments Directive or MiFID II has been delayed from deployment, and this allows many speculators, companies, and exchanges a breather before greater transparency and oversight come into play.
The MiFID II is a rulebook that will standardize the EU financial markets, making it resemble the US markets in size and scope. It will also ease regulatory control in 28 countries when all countries speak the same financial nomenclature and regulate with the same rules. The delay will be around 3 months, and this gives dark pools and shadow economies more time to adapt to or leave the EU markets.
Ever since the announcement of the MiFID II, a lot of dark pool sites started to transfer their base of operations and servers outside the EU. Shadowed companies (shares), cryptocurrency exchanges (CCEX) and a few hybrid Forex have also left the EU. The reason for the delay was due to the European Securities and Markets Authority (Esma) decision to allow many blue-chip companies that have not yet provided all the relevant data that would protect them during the change, which is to regulate dark pools. Currently, dark pools hide prices until a trade has been completed, under the new MiFID II rules, full transparency means that prices are always available at every stage of the trade, before, during and after. Dark pools are private trading venues that have not been included in previous regulations.
The new MiFID II will regulate dark pools with a twin volume cap. This means that only 4% of total trading in any individual stock can occur in any single dark pool within a 12-month period. During this rolling 12-month period, any stock may be traded but is limited to 8% of the total volume. When a dark pool breaches the rules, then the stock in question will be suspended from trading for six months on either the dark pool it was traded on or on all exchanges. Dark pools became popular since many traders and brokers preferred to trade large blocks outside public stock markets, which would have an immediate effect on investor relations to the stock. Since transparency is a major factor in legislated trading, the use of dark pools is an affront to the rule of transparency and is why MiFID II concentrated on eliminating this sector.
Regulators and Esma showed concern that their control would not be effective as they hoped. Where only 650 instruments have provided complete data, this represents only 2% of the market! One of the major private exchanges; Cboe Europe is one of the 650 that complied but stated that although they complied they do not know how they will implement the changes and how they will deal with the volume caps.
While companies such as Cboe Europe are complying with MiFID II, most are not, and they are bolstered by the thousands of speculators that do not wish to be governed by a regulatory system. This is one of the reasons why Cryptocurrencies are so popular; they are managed on public blockchain networks and CCEX that are not governed by any regulatory institution or instrument. Where 2% of the market is conforming with MiFID II, over 90% are seeking ways to circumvent the new rules and speculators are helping them by remaining loyal.