Quasi-dark trading : the effects of banning dark pools in a world of many alternatives
- We show that "quasi-dark" trading venues, i.e., markets with somewhat non-transparent trading mechanisms, are important parts of modern equity market structure alongside lit markets and dark pools. Using the European MiFID II regulation as a quasi-natural experiment, we find that dark pool bans lead to (i) volume spill-overs into quasi-dark trading mechanisms including periodic auctions and order internalization systems; (ii) little volume returning to transparent public markets; and consequently, (iii) a negligible impact on market liquidity and short-term price efficiency. These results show that quasi-dark markets serve as close substitutes for dark pools and consequently mitigate the effectiveness of dark pool regulation. Our findings highlight the need for a broader approach to transparency regulation in modern markets that takes into consideration the many alternative forms of quasi-dark trading.
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| Author: | Thomas Johann, Tālis Putniņš, Satchit Sagade, Christian Westheide |
|---|---|
| URN: | urn:nbn:de:hebis:30:3-504422 |
| DOI: | https://doi.org/10.2139/ssrn.3365994 |
| Parent Title (English): | SAFE working paper series ; No. 253 |
| Series (Serial Number): | SAFE working paper (253) |
| Publisher: | SAFE |
| Place of publication: | Frankfurt am Main |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2019 |
| Year of first Publication: | 2019 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2019/06/27 |
| Tag: | Dark Pools; Dark Trading; Double Volume Caps; Liquidity; MiFID II; Price Efficiency |
| Issue: | This version: April 30, 2019 Preliminary and incomplete. |
| Page Number: | 62 |
| HeBIS-PPN: | 451460022 |
| Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
| Wissenschaftliche Zentren und koordinierte Programme / Institute for Law and Finance (ILF) | |
| Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
| Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE) | |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Deutsches Urheberrecht |
