5.II.2.5.2.3 FCA Occasional Paper on Dark Liquidity

The fact that the double volume cap mechanism is solely apparent in the Level 1 text, instead of also on Level 2, is controversial. No Level 2 assessments have been conducted on the double volume cap thresholds of four and eight percent. The UK Financial Conduct Authority (FCA) issued an occasional paper on the matter. In short, the FCA concluded that the thresholds at which dark trading may start to negatively affect market quality is considerably higher than the thresholds of the double volume cap (based on the FCA data anywhere between 11 and 17, depending on the market quality proxy being examined, instead of the 8 percent thresholds apparent in the MiFID II double volume cap).1

The occasional paper of the FCA illustrates the contentious nature of the thresholds, both their introduction and actual figure (four and eight percent). The actual figure of the thresholds is an economic assessment, which is hard to assess from a legal point of view. But what is evident, is that the double volume cap thresholds are politically controversial. The political controversy is reflected in the fact that - in contrast to the other data driven MiFID II concepts (e.g. ‘liquid market’ or ‘large in scale’) - no level 2-assessments are in place. Instead, the double volume cap thresholds are apparent in the Level 1 text.2