Should Dark Pools be Banned from Regulated Exchanges?

Nathalie Oriol, Alexandra Rufini () and Dominique Torre ()

No 2015-21, GREDEG Working Papers from Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France

Abstract: European financial markets experiment a strong competition between historical players and new trading platforms, including the controversial dark pools. Our theoretical setting analyzes the interaction between heterogeneous investors and trading services providers in presence of market externalities. We compare different forms of organization of the market, each in presence of an off-exchange and an incumbent facing a two-sided activity (issuers and investors): a consolidated exchange with the incumbent only, and fragmented exchanges with several platforms, including lit and dark pools, in competition for order ows. By capturing investors from off-exchange, dark trading may enhance market externalities and market stakeholders' welfare.

Keywords: microstructure; dark pools; Over-The-Counter market; liquidity; market externalities; two-sided markets (search for similar items in EconPapers)
JEL-codes: D62 G10 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2015-05
New Economics Papers: this item is included in nep-mst, nep-net and nep-reg
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Related works:
Working Paper: Should dark PoolS be banned from regulated exchangeS? (2016)
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