Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2023-04-25
Number: 23-020/IV
Author-Name: Paul J. Irvine
Author-Workplace-Name: Egle Karmaziene
Author-Name: Egle Karmaziene
Author-Workplace-Name: Vrije Universiteit Amsterdam
Title: Competing for Dark Trades
Abstract: We use recent European restrictions to evaluate how traders substitute across available dark
pools. Our findings suggest that restricting dark trading at the most prominent platform has a
detrimental effect on dark trading activity. Annual dark trading in a restricted stock decreases
by more than 50% over the six-month restriction period. Consistent with investors’ sticky
relationships with specific dark pools, our results suggest that substitution across dark pools
is remarkably low. Despite the availability of alternative dark pools, traders are unwilling to
trade elsewhere. Our study provides evidence that dark trading is not a market of exchanges,
but rather a collection of independent silos. This fact has implications for the vulnerability of
dark trading to the introduction of an HFT into the pool, and sharpens our understanding of
how the pecking order theory of trading actually functions.
Classification-JEL: G12, G14, G18, D47
Keywords: MiFID II, dark pool trading, competition
File-URL: https://papers.tinbergen.nl/23020.pdf
File-Format: application/pdf
File-Size: 583.583 bytes
Handle: RePEc:tin:wpaper:20230020