Determinants of Liquidity and Execution Probability in Exchange Operated Dark Pool: Evidence from the Australian Securities Exchange

23 Pages Posted: 8 Dec 2011

See all articles by Peng William He

Peng William He

The University of Sydney

Andrew Lepone

University of Sydney; Financial Research Network (FIRN)

Date Written: December 6, 2011

Abstract

This study investigates the determinants of liquidity and execution probability in an operated dark pool. We analyze a unique set of data collated from the Australian Securities Exchange (ASX) that allows the identification trades and orders in its Centre Point dark pool. This study contributes to the understanding of what factors influence traders’ preference to transact through an exchange operated dark pool, what affects the execution probability of Centre Point orders, and what impact does dark pool trading have on market quality. The results show that the level of trading activity in the dark pool is higher for larger stocks with lower prices. Dark pool’s share of total volume is higher when quoted spreads are wider, best depth is thicker, and when order imbalance, volatility and adverse selection are lower in the central limit order book. Execution probability of Centre Point orders increases when dark pool trading is most active and when average Centre Point order size is greater. We find no evidence of dark pool trading being detrimental to market quality on the main exchange.

Keywords: dark pool, market microstructure, centre point trading, execution probability, market quality

Suggested Citation

He, Peng William and Lepone, Andrew, Determinants of Liquidity and Execution Probability in Exchange Operated Dark Pool: Evidence from the Australian Securities Exchange (December 6, 2011). Available at SSRN: https://ssrn.com/abstract=1969190 or http://dx.doi.org/10.2139/ssrn.1969190

Peng William He (Contact Author)

The University of Sydney ( email )

University of Sydney
Sydney, NC NSW 2006
Australia

Andrew Lepone

University of Sydney ( email )

University of Sydney
Sydney NSW 2006, NC
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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