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

Abstract

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

Nguyen, Nguyet, Informed Trading in Dark Pools: Fair-Access Dark Venue vs. Restricted-Access Dark Venues (April 18, 2021). Available at SSRN: https://ssrn.com/abstract=3830164 or http://dx.doi.org/10.2139/ssrn.3830164

Nguyet Nguyen (Contact Author)

The Brattle Group ( email )

44 Brattle Street
3rd Floor
Cambridge, MA 02138-3736
United States

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