Differential Access to Dark Markets and Execution Outcomes

55 Pages Posted: 27 Aug 2021 Last revised: 27 Oct 2022

See all articles by James Brugler

James Brugler

University of Melbourne - Department of Finance

Carole Comerton-Forde

University of Melbourne - Department of Finance; Centre for Economic Policy Research (CEPR)

Date Written: September 18, 2022

Abstract

We compare execution outcomes in dark pools that are open to all investors against outcomes in pools that restrict high frequency trader access. Conditional on execution, trades in restricted pools have less order flow information leakage and adverse selection risk than trades in pools with unrestricted access. Dark pools that completely prohibit high frequency traders have less order flow information leakage than those that allow customers to opt-out of interacting with this type of order flow. Differences in execution outcomes are concentrated in smaller trades. We conclude that the ability to segment order flow can improve execution outcomes for investors.

Keywords: Dark trading, execution quality, high frequency trading

JEL Classification: G12, G14

Suggested Citation

Brugler, James and Comerton-Forde, Carole, Differential Access to Dark Markets and Execution Outcomes (September 18, 2022). Available at SSRN: https://ssrn.com/abstract=3910952 or http://dx.doi.org/10.2139/ssrn.3910952

James Brugler (Contact Author)

University of Melbourne - Department of Finance ( email )

Faculty of Business and Economics
Parkville, Victoria 3010 3010
Australia

Carole Comerton-Forde

University of Melbourne - Department of Finance ( email )

198 Berkeley Street
Carlton VIC 3010
Australia

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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