Dark Pools

2014 ◽  
Author(s):  
Erik Banks
Keyword(s):  
Dark Pools

Dark Pools

2010 ◽  
Author(s):  
Erik Banks
Keyword(s):  
Dark Pools

The Future of Dark Pools

Dark Pools ◽  
2014 ◽  
pp. 204-220
Author(s):  
Erik Banks
Keyword(s):  
The Future ◽  
Dark Pools

Short selling and dark pool volume

2020 ◽  
Vol 46 (10) ◽  
pp. 1263-1282
Author(s):  
Thomas Jason Boulton ◽  
Marcus V. Braga-Alves
Keyword(s):  
Fixed Effects ◽  
Trading Volume ◽  
Limited Information ◽  
Financial Industry ◽  
Content Type ◽  
Short Sellers ◽  
Informed Traders ◽  
Dark Pool ◽  
Short Interest ◽  
Dark Pools

PurposePrior research posits that traders with short-lived information favor lit exchanges over dark pools due to execution certainty. This paper aims to focus on the relation between informed trading based on firm fundamentals and dark pool volume because the preferred venue for traders with longer-lived information is less certain.Design/methodology/approachThe authors examine the effect of short interest, a proxy for informed traders with long-lived information, on dark pool volume using fixed effects, first difference and instrumental variable approaches. They examine the effect of dark pools on the profitability of long-lived information using market- and characteristic-adjusted returns.FindingsThe proportion of trading volume executed in dark pools is positively correlated with short interest. This result is stronger for stocks that suffer from greater uncertainty and stocks targeted by transient institutional investors. Short sellers profit substantially from their information as subsequent returns are lower for heavily shorted stocks with greater dark pool volume.Research limitations/implicationsIn 2014, the Financial Industry Regulatory Authority began making trading data available for dark pools. Before that, only limited information was publicly available. The authors use that data to shed more light on dark pools activity.Practical implicationsThe evidence presented in the paper helps inform the current discussion about the role and regulation of dark pools.Originality/valueThis is the first study to show that informed traders with long-lived information favor dark pools due to their opacity and the possibility of price improvement.

OPTIMAL LIQUIDATION AND ADVERSE SELECTION IN DARK POOLS

2016 ◽  
Vol 28 (1) ◽  
pp. 177-210 ◽  
Author(s):  
Peter Kratz ◽  
Torsten Schöneborn
Keyword(s):  
Adverse Selection ◽  
Optimal Liquidation ◽  
Dark Pools

scholarly journals SIMULTANEOUS TRADING IN ‘LIT’ AND DARK POOLS

2016 ◽  
Vol 19 (08) ◽  
pp. 1650055 ◽  
Author(s):  
M. ALESSANDRA CRISAFI ◽  
ANDREA MACRINA
Keyword(s):  
Optimal Allocation ◽  
Trading Strategy ◽  
Limit Order Book ◽  
Order Book ◽  
Optimal Trading ◽  
Bid Price ◽  
Dark Pool ◽  
Finite Period ◽  
Dark Pools ◽  
The Value Function

We consider an optimal trading problem over a finite period of time during which an investor has access to both a standard exchange and a dark pool. We take the exchange to be an order-driven market and propose a continuous-time setup for the best bid price and the market spread, both modeled by Lévy processes. Effects on the best bid price arising from the arrival of limit buy orders at more favorable prices, the incoming market sell orders potentially walking the book, and deriving from the cancellations of limit sell orders at the best ask price are incorporated in the proposed price dynamics. A permanent impact that occurs when ‘lit’ pool trades cannot be avoided is built in, and an instantaneous impact that models the slippage, to which all lit exchange trades are subject, is also considered. We assume that the trading price in the dark pool is the mid-price and that no fees are due for posting orders. We allow for partial trade executions in the dark pool, and we find the optimal trading strategy in both venues. Since the mid-price is taken from the exchange, the dynamics of the limit order book also affects the optimal allocation of shares in the dark pool. We propose a general objective function and we show that, subject to suitable technical conditions, the value function can be characterized by the unique continuous viscosity solution to the associated partial integro-differential equation. We present two explicit examples of the price and the spread models, derive the associated optimal trading strategy numerically. We discuss the various degrees of the agent's risk aversion and further show that roundtrips are not necessarily beneficial.

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