UBS Plans to Start MiFID Dark-Pool Workaround for Stock Trades

  • More than 600 stocks were barred from dark pools on March 12
  • More trades will flow through periodic auctions, UBS says

UBS Group AG is helping its clients to live without dark pools.

The Swiss bank plans to start a periodic auction service next month, the head of its multilateral-trading facility said in an interview. That will enable companies to trade stocks that have been suspended from dark pools under MiFID II regulations.

“We will see more flow through periodic auctions,” Richard Semark, head of UBS’s multilateral-trading facility, said in the interview. “They give a lot of benefits that dark trading gave historically.”

Periodic auctions provide traders with a legitimate way of hiding orders until there is enough interest to trigger a buying or selling process. That allows fund managers to avoid moving the market to their detriment, as could happen on a stock exchange.

On March 12, regulators banned more than 600 stocks from trading in dark pools amid efforts to increase transparency and bring more buying and selling onto public venues, under Europe’s revised Markets in Financial Instruments Directive.

Cboe Europe, the region’s biggest dark-pool operator, and Investment Technology Group are among firms that already run periodic auctions. On the first day of the dark-pool crackdown, Cboe Europe traded 583 million euros ($719 million) through its periodic auction, 65 percent more than the average daily volume through the service in February.

Traders can also sidestep the dark limits by trading in big blocks, known as large-in-scale transactions, or they can trade through a so-called systematic internalizer operated by banks and speed traders.

“I would expect there to be a similar number of periodic auctions as large-in-scale venues,” Semark said.

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