Dark Trading and Financial Markets Stability

44 Pages Posted: 11 Jun 2019 Last revised: 5 Feb 2021

See all articles by Jorge Goncalves

Jorge Goncalves

University of Luxembourg

Roman Kräussl

Universite du Luxembourg - Department of Finance; Hoover Institution, Stanford University

Vladimir Levin

Luxembourg School of Finance

Date Written: June 24, 2020


This paper examines how the implementation of a new dark order - Midpoint Extended Life Order (M-ELO) on NASDAQ - impacts financial markets stability in terms of occurrences of mini-flash crashes in individual securities. We use high-frequency order book data and apply panel regression analysis to estimate the effect of dark order trading activity on market stability and liquidity provision. The results suggest a predominance of a speed bump effect of M-ELO rather than a darkness effect. We find that the introduction of M-ELO increases market stability by reducing the average number of mini-flash crashes, but its impact on market quality is mixed.

Keywords: Market microstructure, financial market stability, mini-flash crash, dark trading, speed bump, investor protection

JEL Classification: G10, G14

Suggested Citation

Goncalves, Jorge and Kraeussl, Roman and Levin, Vladimir, Dark Trading and Financial Markets Stability (June 24, 2020). Available at SSRN: https://ssrn.com/abstract=3384719 or http://dx.doi.org/10.2139/ssrn.3384719

Jorge Goncalves

University of Luxembourg ( email )

6, avenue du Swing
Belvaux, 4367

Roman Kraeussl

Universite du Luxembourg - Department of Finance ( email )

L-1511 Luxembourg

Hoover Institution, Stanford University ( email )

Stanford, CA 94305
United States

Vladimir Levin (Contact Author)

Luxembourg School of Finance ( email )

6,Rue Richard Coudenhove-Kalergi
L-1855 Luxembourg
+352 466644-5826 (Phone)

HOME PAGE: http://vladimirlevin.com

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