Written answers

Tuesday, 8 July 2014

Department of Finance

Dark Pool Trading

Photo of Kevin HumphreysKevin Humphreys (Dublin South East, Labour)
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206. To ask the Minister for Finance if dark pool trading, private forums for trading securities that is not openly available to the public, regulated here; and if so by whom; the number of operations that are based here; and if he will make a statement on the matter. [29641/14]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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The Markets in Financial Instruments Directive ("MiFID")  - transposed into Irish law via the European Communities (Markets in Financial Instruments) Regulations 2007 - establishes a regulatory framework throughout the European Union for the provision of investment services in financial instruments, for the operation of regulated markets by market operators and also establishes the powers and duties of national competent authorities in relation to these activities.

Dark pool trading is a commonly used term, but not in itself provided for in statute. What is commonly referred to as dark pool trading usually has two forms:

(1) trading through private electronic trading platforms operated by broker-dealers or

(2) trading through a multilateral trading facility (MTF) that execute trades under the use of a waiver from the normal pre-trade transparency rules, where approval has been received from the national competent authority for the use of that waiver.  

(1) Private electronic trading platforms operated by broker-dealers are not categorised under MiFID . These platforms are currently not subject to authorisation requirements. However, the revised MiFID ("MiFID II") - adopted in 2014 and scheduled to be transposed throughout the European Union by 2016 - will introduce a range of measures to deal with concerns in relation to so-called dark pools and require more trading activity to take place on regulated trading venues or systems.

(2) Under the current MiFID rules, MTFs are subject to authorisation requirements throughout the EU, including Ireland. The authorisations are granted by the Central Bank of Ireland. An authorisation has been granted by the Central Bank of Ireland under the MiFID Regulations to Investment Technology Group Limited to operate a MTF called POSIT and the Central Bank has also approved the use of a waiver from pre-trade transparency which POSIT currently uses .

The use of pre-trade transparency waivers will be restricted under MiFID II by virtue of the tightening of the conditions around when such waivers can be used, and also via the volume cap mechanism.  The European Securities Markets Authority (ESMA) will undergo a process of reviewing all waivers from pre-trade transparency across Europe to ensure compliance with MiFID II once it comes into force on 3 January 2017.

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