ESMA set to implement single-volume reporting requirement within MiFID II framework review.
The European Securities and Markets Authority (ESMA), the EU's financial markets regulator, is set to switch from the double volume cap mechanism (DVCM) to a single volume cap mechanism (VCM) in October 2025 as part of the Markets in Financial Instruments Regulation Review (MiFIR Review).
The new VCM aims to make trading more transparent and efficient by creating a more level playing field for assessing dark trading activity. It also seeks to simplify trading restrictions and reduce market fragmentation.
Under the VCM, trading under the reference price waiver will be limited to 7% of the total aggregated trading volume in the EU over the preceding 12 months for each equity and equity-like instrument. If this limit is exceeded, trading venues must suspend the use of the waiver for the affected instrument for three months.
A key change in the transition is the shift from venue-reported data to regulator-sourced transaction data collected by National Competent Authorities (NCAs). This move is expected to streamline the European equity market structure and reduce the reporting burden on entities.
The existing DVCM reporting system will be decommissioned in January 2026, shortly after the VCM is implemented. ESMA has submitted amendments to the Regulatory Technical Standards (RTS 3) to reflect these changes, but the VCM transition will proceed even if these amendments are not yet adopted by October 2025.
ESMA encourages all stakeholders to prepare for the change to the new system by Q4 2025. The first publication of VCM calculation results is expected on 9 October 2025.
The new VCM data system is expected to enhance transparency in the European equity market, providing a clearer, consolidated limit on trading under the reference price waiver. This aims to create a level playing field for market participants and improve oversight by the regulator.
The MiFIR Review is part of a wider push to simplify how markets work, improve investor protections, and ensure fairer access to data and trading across Europe. It is the EU's effort to modernize its financial markets rulebook.
In summary, ESMA’s switch to a single volume cap mechanism is designed to streamline trading restrictions, enhance transparency across the EU equity markets, and reduce the compliance burden through data centralization and regulatory simplification.
A separate debate is ongoing between ESMA and Efama (European Fund and Asset Management Association) over fund cost analysis.
The new VCM data system is also expected to reduce fragmentation in the European equity market, contributing to a more unified and efficient market structure.
Firms and trading venues are encouraged to ready themselves for the Q4 implementation to ensure a smooth transition to the new system.
Technology plays a significant role in the transition to the new VCM, as ESMA shifts from venue-reported data to regulator-sourced transaction data collected by National Competent Authorities (NCAs). This change is expected to streamline the European equity market structure and reduce the reporting burden on entities through data centralization.
Furthermore, the MiFIR Review, of which the VCM transition is a part, aims to modernize the EU's financial markets rulebook by simplifying how markets work, improving investor protections, and ensuring fairer access to data and trading across Europe, all through the lens of technology and regulation.
