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Informational linkages between dark and lit trading venues

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  • Nimalendran, Mahendrarajah
  • Ray, Sugata

Abstract

We examine the linkages between dark and lit venues using a proprietary data set. We find that algorithmic trades for less liquid stocks are correlated with higher spreads and price impact, as well as contemporaneous trading on the lit venues. Also, signed trades for these stocks predict future returns over the next 15–120 minutes. Trades for liquid stocks, trades by the dark venue brokerage desk, and trades of large blocks transmit less information to lit venues. The results suggest informed agents split orders using algorithms across dark and lit trading venues, with lit orders providing some price discovery.

Suggested Citation

  • Nimalendran, Mahendrarajah & Ray, Sugata, 2014. "Informational linkages between dark and lit trading venues," Journal of Financial Markets, Elsevier, vol. 17(C), pages 230-261.
    • Handle: RePEc:eee:finmar:v:17:y:2014:i:c:p:230-261
    DOI: 10.1016/j.finmar.2013.02.003
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    References listed on IDEAS

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    More about this item

    Keywords

    Crossing networks; Algorithmic trading; Price discovery; Information transmission;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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