Work

Differential access to dark markets and execution outcomes

Year: 2025

Type: article

Abstract: Dark pools can restrict access for specific trader types. We compare execution outcomes between dark pools that restrict high frequency trader access and those that do not. We find that trades executed in dark pools with more access restrictions have less order flow information leakage, adverse selection risk and post-trade order imbalances than trades in less restricted pools. Evidence from exogenous dark pool closures demonstrates that these differences are causal. The ability to segment order flow can benefit investors because it allows them to make trade-offs between execution risk and information leakage across different dark venues.

Source: Journal of Financial Economics

DOI: 10.1016/j.jfineco.2025.104086

Authors: James Brugler, Carole Comerton-Forde

Institution: The University of Melbourne

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Reduced inequalities

Open Access status: hybrid

Estimated APC paid: $4,740