What Regulatory Frameworks, like MiFID II, Govern Trading in Dark Pools and How Do They Impact Institutional Strategies?

MiFID II (Markets in Financial Instruments Directive II) in Europe introduced significant regulations for dark pools to increase market transparency. It implemented a "Double Volume Cap" (DVC) which limits the amount of trading that can occur in a dark pool for a particular stock to 8% of total volume across all venues and 4% on any single dark pool.

This forces more trading onto "lit" public exchanges. As a result, institutional traders must adapt their strategies, often using a mix of dark pools, lit markets with iceberg orders, and other algorithmic approaches to manage large orders without breaching these caps.