ESMA to Introduce Unified Limit for MiFIR Regulation
The European Securities and Markets Authority (ESMA) has announced a significant change in the regulatory landscape of European equity markets. Starting October 2025, the organisation will transition from the current double volume cap mechanism (DVCM) to a single volume cap mechanism (VCM) as part of the MiFIR Review [1][2][3].
This move is designed to streamline regulatory processes, improve transparency, and protect market integrity in European equity markets. The new VCM will cap trading under the reference price waiver at 7% of the total aggregated annual trading volume for each equity or equity-like instrument across the EU [1][2]. If this limit is breached, trading venues must suspend the use of the waiver for the affected instrument for three months [1][2][3].
Simplification and Harmonization
The move from DVCM to a single cap consolidates previous multiple caps into one, simplifying compliance and monitoring for institutional investors and market venues [1][2]. This simplification will reduce fragmentation and create a more level playing field for assessing dark trading activity [3].
Data Reporting Changes
Volume cap calculations will shift from venue-reported data under the DVCM to transaction reporting data collected by National Competent Authorities (NCAs), reducing reporting burdens on venues and increasing accuracy and regulatory oversight. The DVCM reporting system will be decommissioned by January 2026 [1][2][3].
Transparency and Market Integrity
The cap on reference price waiver usage aims to prevent excessive off-order-book trading, thereby improving transparency and price formation in European equity markets, which benefits institutional investors by fostering fairer, more efficient markets [2].
Preparation for Market Participants
ESMA has called on trading venues and firms to prepare for the new VCM requirements ahead of Q4 2025, with the first VCM calculation results expected on 9 October 2025 [1][2][3]. Mark Montgomery, chief commercial officer at capital markets analytics firm big xyt, stated that the shift is a clear signal of ESMA's intent to streamline the European equity market, simplify trading restrictions, and enhance transparency [3].
This shift is significant for institutional investors seeking to understand pan-European trading activity across both lit and dark venues. The switch is mandated under the Markets in Financial Instruments Regulation (MiFIR) Review and is expected to have a profound impact on the European equity market ecosystem [1][2][3].
Esma, the EU's financial markets regulator, is responsible for ensuring stability, transparency, and investor protection across member states [4]. Under the new rules, trading venues will be allowed to execute up to 7% of an equity or equity-like instrument's total annual trading volume under the reference price waiver [1][2]. If the limit is exceeded, trading venues will need to suspend the use of the waiver for the concerned instrument for three months [1][2][3].
The debate over fund cost analysis involves Esma and Efama (European Fund and Asset Management Association) [5]. The shift away from venue-level caps towards a market-wide threshold is a key change in the European equity market structure [6].
References: [1] https://www.esma.europa.eu/press-news/esma-news/esma-publishes-final-report-review-double-volume-cap-mechanism-dvcm-under-mifir [2] https://www.esma.europa.eu/regulation/mifid/double-volume-cap-mechanism [3] https://www.big-xyt.com/blog/esmas-single-volume-cap-mechanism-to-boost-transparency-and-streamline-trading-in-eu-equity-markets/ [4] https://www.esma.europa.eu/about-us/esma [5] https://www.efama.org/ [6] https://www.esma.europa.eu/regulation/mifid/double-volume-cap-mechanism-dvcm-under-mifir-review
- This change from the double volume cap mechanism (DVCM) to a single volume cap mechanism (VCM) in European equity markets, as part of the MiFIR Review, will also affect the finance sector, as institutional investors and market venues will need to adjust their business operations and technology systems to comply with the new regulations.
- The transition to the VCM is expected to have a significant impact on the technology infrastructure of trading venues and firms, as they prepare for the requirement of shifting from venue-reported data under the DVCM to transaction reporting data collected by National Competent Authorities (NCAs), a change that aims to increase accuracy and regulatory oversight.
