The Role of Reputation in Financial Markets: The Impact of Broker Dark Pool Scandals on Institutional Order Routing

55 Pages Posted: 3 Aug 2022 Last revised: 13 Oct 2023

See all articles by Robert H. Battalio

Robert H. Battalio

University of Notre Dame - Department of Finance

Shane A. Corwin

University of Notre Dame - Mendoza College of Business

Robert H. Jennings

Indiana University - Kelley School of Business - Department of Finance

Antonino Emanuele Rizzo

Nova School of Business and Economics

Rafael Zambrana

University of Notre Dame - Mendoza College of Business

Date Written: October 2023

Abstract

Over the past decade, several brokers have been fined for making misrepresentations to institutional investors about how their dark pools operated. Using hand-collected commission data, we find that when a breach of trust becomes public, both mutual funds and pension funds react by reducing the commissions routed to the affected broker. We document stronger reactions when breach of trust generates large fines, when the offending broker only offers execution services, and when the broker and fund share a stronger relationship prior to the scandal. Together, our results suggest institutional investors rely on trust when making order routing decisions.

Keywords: Reputation, Dark Pool, Broker, Institutional Investor, Pension Fund, Mutual Fund

JEL Classification: G10, G23, G24, L14

Suggested Citation

Battalio, Robert H. and Corwin, Shane A. and Jennings, Robert H. and Rizzo, Antonino Emanuele and Zambrana, Rafael, The Role of Reputation in Financial Markets: The Impact of Broker Dark Pool Scandals on Institutional Order Routing (October 2023). Available at SSRN: https://ssrn.com/abstract=4172424 or http://dx.doi.org/10.2139/ssrn.4172424

Robert H. Battalio

University of Notre Dame - Department of Finance ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States
574-631-9428 (Phone)
574-631-5255 (Fax)

Shane A. Corwin (Contact Author)

University of Notre Dame - Mendoza College of Business ( email )

240 Mendoza College of Business
Notre Dame, IN 46556-0399
United States

Robert H. Jennings

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-2696 (Phone)
812-855-5875 (Fax)

Antonino Emanuele Rizzo

Nova School of Business and Economics ( email )

Campus de Carcavelos
Rua da Holanda, 1
Carcavelos, 2775-405
Portugal

Rafael Zambrana

University of Notre Dame - Mendoza College of Business ( email )

Notre Dame, IN 46556-5646
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
171
Abstract Views
838
Rank
322,819
PlumX Metrics