Market quality and dark trading in the post MiFID II era: What have we learned so far?
2019
Anagnostidis, Panagiotis | Papachristou, George | Varsakelis, Christos
In this letter, we use the implementation of the Dark Volume Cap (DVC) Rule on 12∕03∕2018 for the suspension of European securities from dark trading as a natural laboratory to investigate the effect of dark pools on lit market price quality. We empirically demonstrate that the DVC rule has led to an increase of lit price volatility for suspended securities, while it has induced significant lit price inefficiencies for non-suspended securities. Our results suggest that the adverse effects of the DVC rule on lit market price quality are likely to be driven by the migration of a considerable fraction of small and uniformed traders from the dark to the lit market.
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