Dark trading and financial markets stability

  • This paper examines how the implementation of a new dark order - Midpoint Extended Life Order on NASDAQ - impacts financial markets stability in terms of occurrences of mini-flash crashes in individual securities. We use high-frequency order book data and apply panel regression analysis to estimate the effect of M-ELO trading on market stability and liquidity provision. The results suggest a predominance of a speed bump effect of M-ELO rather than a darkness effect. We find that the introduction of M-ELO increases market stability by reducing the average number of mini-flash crashes, but its impact on market quality is mixed.

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Author:Jorge GonçalvesGND, Roman KräusslORCiDGND, Vladimir Levin
Series (Serial Number):CFS working paper series (No. 691)
Publisher:Center for Financial Studies
Place of publication:Frankfurt, M.
Document Type:Working Paper
Date of Publication (online):2023/02/21
Date of first Publication:2023/02/21
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2023/02/27
Tag:Market microstructure; dark trading; financial market stability; investor protection; mini-flash crash; speed bump
Page Number:50
This work was supported by the Luxembourg National Research Fund.
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
JEL-Classification:G Financial Economics / G1 General Financial Markets / G10 General
G Financial Economics / G1 General Financial Markets / G14 Information and Market Efficiency; Event Studies
Licence (German):License LogoDeutsches Urheberrecht