Banning dark pools: Venue selection and investor trading costs

Christian Neumeier, Arie Gozluklu, Peter Hoffmann, O’Neill, Peter and Felix Suntheim

Journal of Financial Markets, 2023, vol. 65, issue C

Abstract: We analyze the relation between transaction costs and venue choice using proprietary transaction-level data from institutional trade executions in the U.K. equity market. We show that, for a given investor, a higher share of dark trading (midpoint dark pools) is associated with lower execution costs. In the context of a recent ban on dark trading, we provide evidence consistent with migration towards substitute trading venues such as periodic auctions, which has mitigated adverse effects on trading costs for large investors. We also provide micro-evidence on Menkveld et al.’s (2017) pecking order theory of venue choice over the life-cycle of large parent orders.

Keywords: Dark trading; Execution costs; Implementation shortfall (search for similar items in EconPapers)
JEL-codes: G10 G18 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:65:y:2023:i:c:s1386418123000290

DOI: 10.1016/j.finmar.2023.100831

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