SIMULTANEOUS TRADING IN ‘LIT’ AND DARK POOLS

Opacity and Exclusivity in Electronic Securities Trading: The Case of Dark Pools

Comparing Market Structures: Allocative and Informational Efficiencies of Continuous Trading, Periodic Auctions, and Dark Pools

This paper compares three market structures in a dynamic dealer-mediated market with asymmetric information about an asset’s value. The compared market structures are (i) the continuous protocol of Glosten and Milgrom (1985), where a just-arrived trader trades immediately at a bid or an ask price publicly posted by the dealer, (ii) the periodic auction, wherein trades are cleared in batches, pu...

Optimal liquidation in dark pools

We consider a large trader seeking to liquidate a portfolio using both a transparent trading venue and a dark pool. Our model captures the price impact of trading in transparent traditional venues as well as the execution uncertainty of trading in a dark pool. The unique optimal execution strategy uses both venues continuously. The order size in the dark pool can overor underrepresent the portf...

Welfare Analysis of Dark Pools∗

We investigate the welfare implications of operating alternative market structures known as electronic crossing networks or “dark pools” alongside traditional “lit” markets. We study equilibria of a market where intrinsic traders and speculators, endowed with heterogeneous fine-grained information, endogenously choose between dark and lit venues. We establish that while the dark pool attracts r...

Do Dark Pools Harm Price Discovery?∗

Dark pools are equity trading systems that do not publicly display orders. Orders in dark pools are matched within the exchange bid-ask spread without a guarantee of execution. Informed traders are more likely to cluster on the heavy side of the market and therefore face a lower execution probability in the dark pool, relative to uninformed traders. Consequently, exchanges are more attractive t...