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Market quality and dark trading in the post MiFID II era: What have we learned so far?

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  • Anagnostidis, Panagiotis
  • Papachristou, George
  • Varsakelis, Christos

Abstract

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.

Suggested Citation

  • Anagnostidis, Panagiotis & Papachristou, George & Varsakelis, Christos, 2019. "Market quality and dark trading in the post MiFID II era: What have we learned so far?," Economics Letters, Elsevier, vol. 184(C).
    • Handle: RePEc:eee:ecolet:v:184:y:2019:i:c:s0165176519303106
    DOI: 10.1016/j.econlet.2019.108630
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    References listed on IDEAS

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    1. Foley, Sean & Putniņš, Tālis J., 2016. "Should we be afraid of the dark? Dark trading and market quality," Journal of Financial Economics, Elsevier, vol. 122(3), pages 456-481.
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    5. Alex Boulatov & Thomas J. George, 2013. "Hidden and Displayed Liquidity in Securities Markets with Informed Liquidity Providers," The Review of Financial Studies, Society for Financial Studies, vol. 26(8), pages 2096-2137.
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    More about this item

    Keywords

    Dark trading; MiFID II; Chi-X; Volatility; Price efficiency;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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