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http://ssrn.com/abstract=1630499
 
 

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Dark Pool Trading Strategies, Market Quality and Welfare


Sabrina Buti


University of Toronto - Rotman School of Management

Barbara Rindi


Bocconi University and IGIER

Ingrid M. Werner


The Ohio State University - Fisher College of Business

October 2014

Charles A. Dice Center Working Paper No. 2010-10
Fisher College of Business Working Paper No. 2010-03-010

Abstract:     
We build a model of a limit order book and examine the consequences of adding a dark pool. Starting with an illiquid book, we show that book and consolidated fill rates and volume increase, but the spread widens, depth declines and welfare deteriorates. When book liquidity increases, more orders migrate to the dark pool and large trader's welfare improves; but while the spread increase is dampened, the depth-reduction is amplified and small traders are still worse off. All effects are stronger for a continuous than for a periodic dark pool and when the tick size is large.

Number of Pages in PDF File: 59

Keywords: Dark pools, fragmentation, market quality, price discovery, market efficiency, SEC, microstructure

JEL Classification: G10, G12, G14, G18, G20

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Date posted: June 26, 2010 ; Last revised: November 11, 2014

Suggested Citation

Buti, Sabrina and Rindi, Barbara and Werner, Ingrid M., Dark Pool Trading Strategies, Market Quality and Welfare (October 2014). Charles A. Dice Center Working Paper No. 2010-10; Fisher College of Business Working Paper No. 2010-03-010. Available at SSRN: http://ssrn.com/abstract=1630499 or http://dx.doi.org/10.2139/ssrn.1630499

Contact Information

Sabrina Buti
University of Toronto - Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6
Canada
+1 416 946 0551 (Phone)
Barbara Rindi
Bocconi University and IGIER ( email )
Via Roentgen 1
Milan, 20136
Italy
+39 58365328 (Phone)
HOME PAGE: http://faculty.unibocconi.eu/barbararindi
Ingrid M. Werner (Contact Author)
The Ohio State University - Fisher College of Business ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-6460 (Phone)
614-292-2418 (Fax)

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