Two shades of opacity: Hidden orders and dark trading

Hans Degryse, Nikolaos Karagiannis, Geoffrey Tombeur and Gunther Wuyts

Journal of Financial Intermediation, 2021, vol. 47, issue C

Abstract: Regulators are concerned that large volumes of trading outside lit venues (i.e., dark trading) harms the functioning of financial markets. In contrast, regulators are neutral about hidden-order trading as these occur on lit venues and are associated with positive effects on market quality. An unanswered economic question concerns the interrelation between these two types of opaque trading, i.e., hidden orders and dark trading. Employing two different empirical methodologies we find that dark and hidden-order trading are substitutes. We also show that both types of opaque trading increase when markets are volatile and fewer algorithmic trading occurs. Smart order routing increases dark trading but reduces hidden-order activity.

Keywords: Dark trading; Hidden orders; Dark pools; OTC Trading; Opacity; Transparency (search for similar items in EconPapers)
JEL-codes: G10 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 (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:47:y:2021:i:c:s1042957321000206

DOI: 10.1016/j.jfi.2021.100919

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