Informed Trading in Dark Pools: Fair-Access Dark Venue vs. Restricted-Access Dark Venues
35 Pages Posted: 20 Apr 2021
Date Written: April 18, 2021
Prior empirical studies find that dark pools are, on average, associated with uninformed order flow. The “exemption from fair-access requirement” has been conjectured as a necessary condition for dark venues to segment uninformed order flow. This study presents direct evidence contrasting a dark venue that offers equal access to all market participants to other dark pools which have the ability to subjectively exclude order flow. Using the period leading up to surprise corporate earnings news, I document robust evidence of informed trading taking place in the fair access dark venue. I do not find such evidence in other dark venues.
Keywords: Dark trading, Informed trading, Fair-access requirement, Order flow segmentation
JEL Classification: G14
Suggested Citation: Suggested Citation