On 4 March 2021, the FCA published a revised version of its Statement of Policy regarding suspending the use of pre-trade transparency waivers for a trading venue for the purposes of the Double Volume Cap (DVC) under Article 5(3B) of UK MiFIR. The DVC limits the level of dark trading to a certain proportion of total trading in an equity.
UK MiFIR gives the FCA the power to make and renew suspensions of waivers under the DVC without undertaking and publishing the calculations of whether trading has exceeded the 4 and 8 per cent thresholds. Under this power, the FCA may suspend the use of a waiver for a period of up to six months and may renew a suspension where it feels that the circumstances which led it to impose the suspension of a waiver continue to exist.
In December, the FCA announced that it would not automatically apply the DVC to UK equities and it is now extending this to all equities.
The Statement of Policy explains that the FCA may exercise the power to suspend pre-trade transparency waivers to ensure that its use does not unduly harm price formation if it considers it necessary to advance its integrity objective under section 1D of the Financial Services and Markets Act 2000 (FSMA). In deciding whether that test has been met the FCA:
- must take into account –
- its consumer protection objective and competition objective under sections 1C and 1E of FSMA;
- the thresholds applying under Article 5 of MiFIR as it has effect in the EU; and
- the most recent information published by the European Securities and Markets Authority under Article 5(4), 5(5) and 5(6) of MiFIR before the end of the Brexit transition period.
- the FCA may also take into account –
- any relevant information produced under Article 3 of UK MiFIR, or under equivalent pre-trading transparency requirements in other jurisdictions, about the use of the waiver in the United Kingdom, or under equivalent waiver arrangements in any other country, in relation to the financial instrument; and
- any relevant information available in relation to trading volumes in the financial instrument concerned, whether in the United Kingdom or in any other country.
In the revised Statement of Policy the FCA states that it is willing to use its temporary powers flexibly and amend its approach to the DVC if another jurisdiction makes an equivalence decision in respect of the UK.