Dark trading and financial markets stability

Jorge Gonçalves, Roman Kräussl and Vladimir Levin

No 691, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: 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.

Keywords: Market microstructure; financial market stability; mini-flash crash; dark trading; speed bump; investor protection (search for similar items in EconPapers)
JEL-codes: G10 G14 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-mst
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:691

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