Why do traders choose dark markets?

Ryan Garvey, Tao Huang and Fei Wu

Journal of Banking & Finance, 2016, vol. 68, issue C, 12-28

Abstract: We examine U.S. equity trader use of dark and lit markets. Marketable orders executed in the dark have lower information content and smaller fill rates. Dark orders take longer to execute, but they execute at more favorable prices. Traders are more likely to go dark when the bid-ask spread is wider and those with higher dark participation are more sophisticated. Although market regulators have expressed concern over the rise in dark trading, our results indicate that dark markets provide important benefits to traders that lit markets do not.

Keywords: Trading; Dark pools; Order execution quality (search for similar items in EconPapers)
JEL-codes: G10 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:68:y:2016:i:c:p:12-28

DOI: 10.1016/j.jbankfin.2016.02.011

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