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Dark matters: The effects of dark trading restrictions on liquidity and informational efficiency

Gbenga Ibikunle, Youwei Li, Davide Salvatore Mare and Yuxin Sun

Journal of International Financial Markets, Institutions and Money, 2021, vol. 75, issue C

Abstract: We exploit the implementation of the double volume cap regulation introduced under the Markets in Financial Instruments Directive II in the European equity markets to investigate the impact of dark trading on liquidity and informational efficiency. We show that stocks subject to trading suspension in dark pools suffer a deterioration in liquidity compared to those that are not. The limiting of trading in dark pools also tends to reduce informational efficiency. Our results support recent theory arguing that dark pools encourage inter-venue order flow competition, underscoring the significance of dark trading for market quality.

Keywords: Dark trading; MiFID; Liquidity commonality; Double volume cap; Market efficiency (search for similar items in EconPapers)
JEL-codes: G10 G14 G15 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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DOI: 10.1016/j.intfin.2021.101435

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Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely

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