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Fifty-shades of grey: Competition between dark and lit pools in stock exchanges

Nathalie Oriol, Alexandra Rufini and Dominique Torre ()

Information Economics and Policy, 2018, vol. 45, issue C, 68-85

Abstract: Debate on financial market fragmentation has been revived by the rise of dark pools. Our theoretical setting analyzes the interaction between single-homing heterogeneous investors and trading services providers in the presence of market externalities. We compare different forms of regulated exchanges challenged by Over-The-Counter (OTC) facilities: a consolidated trading organization involving only one market firm, and fragmented ex-changes involving spatially differentiated platforms including lit and dark pools competing for order flows. By capturing OTC users, dark trading can enhance market externalities and market stakeholders' welfare. This result contributes to the ongoing regulatory debate on market structure regulation.

Keywords: Microstructure; Dark pools; Over-The-Counter (OTC) market; Regulated market; Market externalities (search for similar items in EconPapers)
JEL-codes: G10 D62 (search for similar items in EconPapers)
Date: 2018
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Working Paper: Fifty-shades of grey: competition between dark and lit pools in stock exchanges (2018)
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