Dark Pool Exclusivity Matters
University of New Mexico - Department of Finance, International, and Techology (FIT)
David C. Brown
University of Arizona - Department of Finance
J. Chris Leach
University of Colorado at Boulder - Department of Finance
December 19, 2013
Recent dark pool proliferation has magniﬁed regulatory and academic concerns about equal access and market quality implications. Some dark pools, hoping to create an environment more amenable to buy-side institutional investors, craft their rules to discourage – or even exclude – brokers, high frequency traders and order-ﬂow-information traders. We examine the role participation constraints play in large trade execution and ﬁnd that a dark pool targeting buy-side counterparties experiences less serial correlation in returns, less volume and volatility increase pre-trade, and more trade clustering within and across days. Exclusivity inﬂuences execution quality. Not all dark pools are created equal.
Number of Pages in PDF File: 48
Keywords: Dark pools, exclusivity, market microstructure, institutional trading, block trades
JEL Classification: G12, G14, G18working papers series
Date posted: May 11, 2012 ; Last revised: December 19, 2013
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