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

See all articles by James Brugler

James Brugler

University of Melbourne - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: September 11, 2015

Abstract

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

Brugler, James, Into the Light: Dark Pool Trading and Intraday Market Quality on the Primary Exchange (September 11, 2015). Bank of England Working Paper No. 545, Available at SSRN: https://ssrn.com/abstract=2554621 or http://dx.doi.org/10.2139/ssrn.2554621

James Brugler (Contact Author)

University of Melbourne - Department of Finance ( email )

Faculty of Business and Economics
Parkville, Victoria 3010 3010
Australia

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