The Impact of Dark Trading and Visible Fragmentation on Market Quality

Hans Degryse, Frank de Jong and Vincent van Kervel

Review of Finance, 2015, vol. 19, issue 4, 1587-1622

Abstract: Two important characteristics of current equity markets are the large number of competing trading venues with publicly displayed order books and the substantial fraction of dark trading, which takes place outside such visible order books. This article evaluates the impact on liquidity of dark trading and fragmentation in visible order books. Dark trading has a detrimental effect on liquidity. Visible fragmentation improves liquidity aggregated over all visible trading venues but lowers liquidity at the traditional market, meaning that the benefits of fragmentation are not enjoyed by investors who choose to send orders only to the traditional market.

Date: 2015
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Related works:
Working Paper: The impact of dark trading and visible fragmentation on market quality (2014)
Working Paper: The impact of dark trading and visible fragmentation on market quality (2011)
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