Dark Pool Exclusivity Matters
48 Pages Posted: 11 May 2012 Last revised: 19 Dec 2013
Date Written: December 19, 2013
Abstract
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.
Keywords: Dark pools, exclusivity, market microstructure, institutional trading, block trades
JEL Classification: G12, G14, G18
Suggested Citation: Suggested Citation
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