EU makes last-minute dash to close dark share trading loophole

Europe will extend rules on off-exchange share trading for 18 months, making a last-minute change to close an embarrassing loophole that had offered unlimited private share trading.

The European Securities and Markets Authority on Wednesday confirmed it would use fast-track legislation to fix incoming rules which allowed unconstrained trading in business that the EU has sought to limit for the past decade. Without the change, unlimited dark trading would have been allowed to take place in the EU from Thursday.

The urgent rush was prompted by European policymakers’ discovery this year that they had misdrafted their own rules, which are part of a series of measures intended to make the EU capital markets more attractive to investors.

Many stock markets around the region are trading at record highs but have suffered from a dearth of listings and are suffering from falling trading volumes.

Dark pools are a type of trading activity where investors can privately buy and sell blocks of shares without their exposures disturbing the market and being seen by other traders.

Esma confirmed on Wednesday that the rules around dark trading will remain unchanged for 18 months. 

“We are going to maintain everything for the following 18 months and then it will change,” Esma told the FT. “In the meantime . . . the current double volume cap will continue applying,” the Esma statement said.

Under the new rules that come into effect in 2025, Brussels will introduce a cap of 7 per cent on the amount of share trading in one EU-listed company in a dark pool. That will replace a more complex system that had a so-called double volume cap.

European officials had deleted parts of the old rules but not covered the period until late 2025, creating a loophole, the FT previously reported.

Brussels is changing the level of dark trading that can take place in the bloc in order to better reflect the amount of such trading that takes place in the EU after Brexit. The new rules, known as Mifir, come into force on March 28.

Dark trading typically takes place away from exchanges, at venues run by big banks such as Goldman Sachs, which would likely benefit from a rise in trading volumes if the EU’s current rules are left unchanged. Stock exchanges typically dislike dark trading because, they say, it provides less transparency to the market.

One person familiar with the issue said there would be many traders “crying into their beer in the City of London tonight”.