Is the DVC a ban in disguise?

If you had asked me last year what the actual impact of the double volume cap (DVC) would be, I would have said that it’s ridiculously complex to operate but wouldn’t matter all that much because it would likely only impact a few stocks. Seems I was wrong, judging by yesterday’s announcement from ESMA. Combining the statistics for January and February 2018, a total of 755 ISINs are going to be capped due to the 4% or 8% thresholds starting 12th March, including 685 ISINs deemed liquid by ESMA. Whilst that is just 2.5% of all equities that ESMA lists in its transparency calculations, it represents a whopping 35% of all the liquid instruments listed, where the DVC matters more.

Yesterday’s announcement will probably give another boost to the growth in periodic auctions, block trading and Systematic Internalisers, as they all provide MiFID II compliant alternatives. But what will happen in six months when the first wave of forced suspensions are lifted? Will trading revert to the old ways and the market manage to stay below the thresholds? Or does this herald a permanent change in market behaviour and a move away from anything related to double volume caps? In which case, you might wonder what the difference is between the DVC and a simple ban.