Should we be afraid of the dark? Dark trading and market quality

Foley, S; Putniņš, TJ

Should we be afraid of the dark? Dark trading and market quality

Foley, S Putniņš, TJ

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Publication Type:: Journal Article
Citation:: Journal of Financial Economics, 2016, 122 (3), pp. 456 - 481
Issue Date:: 2016-12-01

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Field	Value	Language
dc.contributor.author	Foley, S	en_US
dc.contributor.author	Putniņš, TJ https://orcid.org/0000-0001-5731-499X	en_US
dc.date.available	2020-05-25T19:28:30Z
dc.date.issued	2016-12-01	en_US
dc.identifier.citation	Journal of Financial Economics, 2016, 122 (3), pp. 456 - 481	en_US
dc.identifier.issn	0304-405X	en_US
dc.identifier.uri	http://hdl.handle.net/10453/96160
dc.description.abstract	© 2016 We exploit a unique natural experiment—recent restrictions of dark trading in Canada and Australia—and proprietary trade-level data to analyze the effects of dark trading. Disaggregating two types of dark trading, we find that dark limit order markets are beneficial to market quality, reducing quoted, effective, and realized spreads and increasing informational efficiency. In contrast, we do not find consistent evidence that dark midpoint crossing systems significantly affect market quality. Our results support recent theory that dark limit order markets encourage aggressive competition in liquidity provision. We discuss implications for the regulation of dark trading and tick sizes.	en_US
dc.relation	http://purl.org/au-research/grants/arc/DE150101889
dc.relation.ispartof	Journal of Financial Economics	en_US
dc.relation.isbasedon	10.1016/j.jfineco.2016.08.004	en_US
dc.rights	info:eu-repo/semantics/openAccess
dc.subject.classification	Finance	en_US
dc.title	Should we be afraid of the dark? Dark trading and market quality	en_US
dc.type	Journal Article
utslib.citation.volume	3	en_US
utslib.citation.volume	122	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
utslib.for	1402 Applied Economics	en_US
utslib.for	1606 Political Science	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
utslib.copyright.status	open_access	*
pubs.issue	3	en_US
pubs.publication-status	Published	en_US
pubs.volume	122	en_US

Abstract:

© 2016 We exploit a unique natural experiment—recent restrictions of dark trading in Canada and Australia—and proprietary trade-level data to analyze the effects of dark trading. Disaggregating two types of dark trading, we find that dark limit order markets are beneficial to market quality, reducing quoted, effective, and realized spreads and increasing informational efficiency. In contrast, we do not find consistent evidence that dark midpoint crossing systems significantly affect market quality. Our results support recent theory that dark limit order markets encourage aggressive competition in liquidity provision. We discuss implications for the regulation of dark trading and tick sizes.

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http://hdl.handle.net/10453/96160