U.K. Stocks Face the Most Disruption From MiFID Dark Trading Ban

(Bloomberg) -- Monday morning could be more difficult than usual for some fund managers to trade U.K. stocks.

About 320 equities listed in Britain -- including HSBC Holdings Plc and Unilever Plc -- will be banned from trading on dark pools for six months from March 12 by European regulators. That puts the U.K. on the receiving end of the harshest crackdown on the venues seen anywhere in the world.

Fund managers who used dark pools to avoid moving the market against themselves when they bought or sold large blocks of shares will be forced to change their trading practices, potentially tapping alternative venues run by banks and high-speed traders for the first time.

Traders of French and Swedish equities also face upheaval after the European Securities and Markets Authority announced that the shares of more than 60 companies in both countries will be banned from dark pools for the next six months. Any stock that has had more than 8 percent of its volume traded in the dark over the last 12 months will be forced to trade on lit markets, such as stock exchanges, from March 12. Similarly, if an individual dark pool has traded more than 4 percent of a stock, it will be unable to trade that security until at least September.

The European Union’s top markets regulator is clamping down on dark pools as it tries to increase transparency in equities dealing under the revised Markets in Financial Instruments Directive. The data are still not complete, but it’s of “utmost importance” that the measure takes effect after it was temporarily delayed in January, the European Securities and Markets Authority said on Wednesday.

This won’t be a one-time event. Periodically, ESMA will update a list of stocks that can no longer trade in the dark. Shares in companies such as Koenig & Bauer AG, a German maker of printing equipment with a market value of 1.2 billion euros ($1.5 billion), only just avoided being named in the list. Such firms would be suspended from the dark pools if their trading goes up in those venues even slightly.

The smaller the company, the harder it is for a buyer or seller to avoid making a big move in the stock on lit markets -- and the more the ESMA restrictions are an issue: investors in small- and mid-size equities appear to rely heavily on dark pools. Such stocks are at the top of a pan-European list tracking equities traded in dark pools as a percentage of their total EU trading volume.

Brait SE, an investment firm whose biggest shareholder is South African investor Christo Wiese, ranks No. 1 on the list, with all of its trading in the dark over the 12 months through January. Two Dutch firms -- Philips Lighting NV, the maker of light bulbs and LEDs, and ASR Nederland, an insurer, are in the top 15.

To contact the reporters on this story: Will Hadfield in London at whadfield@bloomberg.net, Silla Brush in London at sbrush@bloomberg.net, Viren Vaghela in London at vvaghela1@bloomberg.net, James Batty in London at jbatty4@bloomberg.net.

To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Keith Campbell, Neil Callanan

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