According to ESMA, the current quality and completeness of the data does not allow for a sufficiently meaningful and comprehensive publication of double volume cap calculations, as required under the second Markets in Financial Instruments Directive (MiFID II) and Markets in Financial Instruments Regulation (MiFIR)”.
ESMA made the decision based on the analysis it has collected since 3 January on the quality and completeness of the data received from trading venues to perform DVC calculations.
The DVC requires all trading venues listing a particular equity instrument to provide data on trading activity for the complete previous year. A failure to provide such information would lead to incompleteness in the relevant data for that instrument.
According to Steve Grob, director of Fidessa, a British software firm, ESMA may be facings its first MiFID II “Heisenberg moment”. Grob suggested that the delay reflects similarities to the famous Uncertainty Principle.
He said: “Anyone who has watched the cult TV series Breaking Bad knows that Heisenberg was the clandestine alias adopted by the show’s chief protagonist, Walt White. The ‘original’ Heisenberg was, of course, the German theoretical physicist who developed the Uncertainty Principle.”
“Simply stated it says that one can know either the position of a particle or its velocity but not both. Or, put more colloquially, the harder you try and measure something the less likely you are to be successful.”
He added: “I wonder, therefore, whether ESMA is facing its first MiFID II ‘Heisenberg moment’ as it realises the difficulty in calculating something as seemingly simple as the dark pool caps.”
ESMA received files from 75 percent of trading venues but only received complete data for approximately 650 instruments, which accounted for around 2 percent of the expected total.
Also, the data they received did not cover the entire 12-month period from January to December 2017, which is relevant for the DVC calculations in January 2018.
ESMA stated that the DVC IT system is more complex compared to the other MiFID II IT systems.
Commenting on this, Grob sympathised with ESMA, he said: “It’s not the fault of ESMA, however, but their political masters who have sought to dumb down financial markets into juicy sound-bites in order to show that they are being ‘firm but fair’.”
Grob also added that the case for dark pool caps and their levels were never made, which he said would make the data meaningless, because last year’s reporting regime overlaps with the 2018 version.
He said: “So, just one week in, we are starting to see that simply shipping truckloads of data from participants to regulators is no slam-dunk for greater transparency, safer markets or better trading outcomes.”
ESMA has now predicted that the publication of DVC data will now be in March and explained it would be working with national competent authorities and trading venues to address data quality and submission issues — to “close the gaps in reporting as soon as possible”.