Into the Light: Dark Pool Trading and Intraday Market Quality on the Primary Exchange
38 Pages Posted: 25 Jan 2015 Last revised: 14 Sep 2015
Date Written: September 11, 2015
This paper uses regulator-provided transaction data to investigate how trading in dark pools affects intraday market quality on the limit order book of the primary exchange for members of the FTSE 100 index. Using trading patterns from execution algorithms as instrumental variables, I show that dark trading leads to improved liquidity on the primary exchange, both in absolute terms and relative to trading on the limit order book. Although these relationships differ across stocks of different sizes, dark trading does not lead to worse market quality at the intraday level for either small or large stocks during the sample period.
Keywords: Dark pool, dark trading, market quality
JEL Classification: G10, G12, G14, G18
Suggested Citation: Suggested Citation