Alternative Execution Priority Rules in Dark Pools

47 Pages Posted: 27 Jul 2022

See all articles by Alejandro Bernales

Alejandro Bernales

Universidad de Chile

Daniel Ladley

University of Leicester - School of Business

Evangelos Litos

University of Leicester - School of Business

Marcela Valenzuela

Pontificia Universidad Católica de Chile

Date Written: July 22, 2022

Abstract

We examine the effects on market quality of alternative execution priority rules in dark pools. A size execution priority rule in the dark pool improves (reduces) welfare and liquidity (picking-off risk) for the whole lit-dark market, relative to a time execution priority rule. Interestingly, large traders do not always prefer the dark pool to the lit market, even when dark orders follow a size execution priority. Rather, their submission strategies depend mainly on the endogenous liquidity of each venue, with dark volume having a humped shape as a function of volatility.

Keywords: Dark pool, limit order market, execution priority rules, liquidity, welfare

JEL Classification: C63, C73, D40, D81, G11, G14

Suggested Citation

Bernales, Alejandro and Ladley, Daniel and Litos, Evangelos and Valenzuela, Marcela, Alternative Execution Priority Rules in Dark Pools (July 22, 2022). Available at SSRN: https://ssrn.com/abstract=4169352 or http://dx.doi.org/10.2139/ssrn.4169352

Alejandro Bernales

Universidad de Chile ( email )

Diagonal Paraguay 257
Santiago
Chile

HOME PAGE: http://www.alejandrobernales.com

Daniel Ladley

University of Leicester - School of Business ( email )

University Road
Leicester, LE1 7RH
United Kingdom

Evangelos Litos

University of Leicester - School of Business ( email )

University Road
Leicester, LE1 7RH
United Kingdom

Marcela Valenzuela (Contact Author)

Pontificia Universidad Católica de Chile ( email )

Vicuña Mackenna 4860
Santiago, R. Metropolitana 7520421
Chile

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