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Dark Pool Exclusivity Matters

48 Pages Posted: 11 May 2012 Last revised: 19 Dec 2013

Leslie Boni

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

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

Boni, Leslie and Brown, David C. and Leach, J. Chris, Dark Pool Exclusivity Matters (December 19, 2013). Available at SSRN: https://ssrn.com/abstract=2055808 or http://dx.doi.org/10.2139/ssrn.2055808

Leslie A Boni

University of New Mexico - Department of Finance, International, and Techology (FIT) ( email )

MSC 05-3090
U of New Mexico
Albuquerque, NM 87131
United States
505-277-1485 (Phone)

David C. Brown (Contact Author)

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-626-0746 (Phone)

HOME PAGE: http://www.davidclaytonbrown.com

J. Chris Leach

University of Colorado at Boulder - Department of Finance ( email )

Campus Box 419
Boulder, CO 80309-0419
United States
303-492-5665 (Phone)
303-492-5962 (Fax)

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