MiFID 2 – Study on the volume cap mechanism

Article 5 of MiFIR introduces a volume capping mechanism for trading in equities and equity-like instruments that applies at the level of the individual venue and at EU level. If thresholds are exceeded, trading in the affected instruments is suspended at both levels. AMAFI carried out a study (AMAFI 19-103) to assess how the volume cap mechanism is affecting market microstructure, a year on from its introduction. The study looked at lit order books, considering the change in spreads and interest at the best limit. It also examined the market impact of orders.

The findings revealed a small positive impact on lit order books but this was surely because, among other things, the study period featured low volatility. The volume cap mechanism does not appear to have had a significant effect on the market impact of orders. The results thus appear marginal as regards the effect on market microstructure, even though the industry has had to make significant adjustment efforts in order to implement this provision.