ESMA’s move from the double to single volume cap was promoted as an easing in regulation. But systematic internalisers say the move will result in dark volume moving to periodic auctions, harder to tailor liquidity provision in bilateral relationships, and an equally opaque post-trade liquidity picture.
ESMA’s latest equity-market transparency package is now in its implementation phase. It brings two interconnected changes to European equities trading: the double volume cap has been retired for a single EU-wide volume cap on dark trading and increases pre-trade quoting obligations for the new “opt-in” systematic internalisers (SIs) have been upgraded.
Under previous versions of MiFID II, investment firms could be pushed into SI status once their dealing activity passed ESMA’s quantitative thresholds. Under the revised framework, firms can now choose to declare themselves an SI for a given instrument or class. Optiver did so in March 2025.
When it proposed the new pre- and post-trade transparency regime, ESMA said: “[The package] aims to contribute to a more informative pre-trade and post-trade transparency regime.”
While the move to a single volume cap reduces reporting burden and makes it easier for dark trading caps to be put in place directly by venues, in the UK, the FCA has removed the volume cap altogether. The FCA has not moved like ESMA in upgrading the standard market size requirements in pre trade transparency.
The new single-volume cap pushes dark volume to periodic auctions
The main change for venues and brokers is the replacement of the double volume cap with a single cap for trading under the price waiver, allowing stocks to trade in dark. Instead of checking both a per-venue 4% limit and an EU-wide 8% limit on trading under the reference-price waiver, ESMA now aggregates all European trading volume from every venue to determine if more than 7% of stocks have traded in dark. Once an instrument breaches that level, use of the waiver is suspended across the Union for 3 months.
Several electronic liquidity providers have pointed out to us that this dark volume moves straight into periodic auctions. One SI active in streaming to the buyside put it bluntly: “You’re not shrinking dark demand; you’re just relocating it to something ESMA hasn’t capped.”
This can already be seen in the data since the new single-volume cap list got posted on 10 October. Since the new cap was introduced, the proportion of addressable liquidity traded in periodic auctions, according to BMLL Vantage, has risen by a third from 6.3% to 8.1%. Mirroring this change, dark volumes have fallen from roughly 8% to 6%
New pre-trade transparency requirements impact ELPs’ ability to tailor the size of their streamed quotes
The most operationally burdensome piece is the new pre-trade transparency requirement for SIs.
ESMA’s stated goal was to enhance pre-trade transparency for systematic internalisers because it said that:” allowing SIs to quote at 10% of SMS “has led to very low levels of pre-trade transparency.”
ESMA has changed the standard market sizes (SMS) that define how much an SI must be prepared to show on both sides of the market while streaming quotes. In the past, SIs had to bid and offer everyone at least 10% of the SMS and be prepared to fill all orders up to 100% of the SMS at that quote.
They now are forced to stream quotes at the full SMS, on a more granular scale, especially for smaller stocks with SMS sub-€10k. SIs must fill orders at that quote up to 2 times the SMS.
The Sis / ELPs we talked to said it would not be an issue to fulfil these new liquidity conditions, but it might make it harder to tailor the risk-adjusted liquidity profile they want to offer for individual clients.
By 2 March 2026, SIs will also have to comply with the new tick-size requirements, forcing them to match those mandated by ESMA for venues.
New transparency requirements don’t bring a clearer liquidity picture
The ELPs we talked to, who wished to remain anonymous, said that while all these changes were costly in terms of constant compliance changes, they were ultimately not a threat to their bilateral liquidity provision ability.
They pointed out that, for a transparency package, they did not address the difficulty to understand the actual accessibility picture of European stocks liquidity: A large proportion of what is reported under the SI category is still broker internalisation of agency and swap flows that will continue to be reported off-book on exchange. Coupled with inconsistent flagging as coherent FIX flags are still not mandated by the regulator, prints that do not represent a genuine economic interest will likely continue to be accounted alongside genuine accessible liquidity and will not become more transparent because an SI somewhere else has lifted its SMS.
Read more: Aquis study prompts calls for standardised FIX flags
For liquidity providers that do run genuine bilateral risk, the new rules “make it harder to provide genuine risk” because they lock in a bigger public commitment without distinguishing between principal SIs and banks internalising for clients.
ESMA declined to comment for this article.
