The impact of dark trading and visible fragmentation on market quality

Frank de Jong, Hans Degryse and Vincent van Kervel

No 8630, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Two important characteristics of current equity markets are the large number of trading venues with publicly displayed order books and the substantial fraction of trading that takes place in the dark, outside such visible order books. This paper evaluates the impact of dark trading and fragmentation in visible order books on liquidity. We consider global liquidity by consolidating the limit order books of all visible trading venues, and local liquidity by considering the traditional market only. We find that fragmentation in visible order books improves global liquidity, whereas dark trading has a detrimental effect. In addition, local liquidity is lowered by fragmentation in visible order books, which suggests that the benefits of fragmentation are not enjoyed by market participants who resort only to the traditional market.

Keywords: Market microstructure; Fragmentation; Dark trading; Liquidity (search for similar items in EconPapers)
JEL-codes: G10 G14 G15 (search for similar items in EconPapers)
Date: 2011-11
New Economics Papers: this item is included in nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (40)

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Related works:
Journal Article: The Impact of Dark Trading and Visible Fragmentation on Market Quality (2015)
Working Paper: The impact of dark trading and visible fragmentation on market quality (2014)
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