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The Impact of Dark Trading and Visible Fragmentation on Market Quality


Hans Degryse


KU Leuven - Faculty of Business and Economics (FBE); Centre for Economic Policy Research (CEPR); CentER, European Banking Center (EBC), TILEC, Tilburg University

Frank De Jong


Tilburg University - Department of Finance

Vincent Van Kervel


VU University Amsterdam; Tilburg Law and Economics Center (TILEC)
January 2013

TILEC Discussion Paper No. 2011-026

Abstract:     
Two important characteristics of current equity markets are the large number of competing trading venues with publicly displayed order books and the substantial fraction of dark trading, which takes place outside such visible order books. This paper evaluates the impact on liquidity of dark trading and fragmentation in visible order books. Dark trading has a detrimental effect on liquidity. Visible fragmentation improves liquidity aggregated over all visible trading venues but lowers liquidity at the traditional market, meaning that the benefits of fragmentation are not enjoyed by investors who resort only to the traditional market.

Number of Pages in PDF File: 51

Keywords: Market microstructure, Fragmentation, Liquidity, MiFID, Dark trading

JEL Classification: G10, G14, G15

working papers series


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Date posted: May 19, 2011 ; Last revised: January 7, 2013

Suggested Citation

Degryse, Hans, De Jong, Frank and Van Kervel, Vincent, The Impact of Dark Trading and Visible Fragmentation on Market Quality (January 2013). TILEC Discussion Paper No. 2011-026. Available at SSRN: http://ssrn.com/abstract=1815025 or http://dx.doi.org/10.2139/ssrn.1815025

Contact Information

Hans Degryse (Contact Author)
KU Leuven - Faculty of Business and Economics (FBE) ( email )
Naamsestraat 69
Leuven, B-3000
Belgium
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
CentER, European Banking Center (EBC), TILEC, Tilburg University ( email )
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
Frank De Jong
Tilburg University - Department of Finance ( email )
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
Vincent Van Kervel
VU University Amsterdam ( email )
De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands
Tilburg Law and Economics Center (TILEC) ( email )
Warandelaan 2
Tilburg, 5000 LE
Netherlands
Feedback to SSRN (Beta)


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