The Impact of Dark Trading and Visible Fragmentation on Market Quality* | Zendy

Hans Degryse | Zendy; Frank de Jong | Zendy; Vincent van Kervel | Zendy

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The Impact of Dark Trading and Visible Fragmentation on Market Quality*

Author(s) -

Hans Degryse,

Frank de Jong,

Vincent van Kervel

Publication year - 2014

Publication title -

european finance review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 4.933

H-Index - 61

eISSN - 1573-692X

pISSN - 1382-6662

DOI - 10.1093/rof/rfu027

Subject(s) - dark liquidity , market liquidity , fragmentation (computing) , business , flash trading , algorithmic trading , equity (law) , order (exchange) , secondary market , high frequency trading , monetary economics , financial economics , financial system , economics , finance , political science , computer science , stock exchange , law , operating system

Two important characteristics of current equity markets are the large number of competing trading venues with publicly displayed order books and the substantial fraction of dark trading, which takes place outside such visible order books. This article evaluates the impact on liquidity of dark trading and fragmentation in visible order books. Dark trading has a detrimental effect on liquidity. Visible fragmentation improves liquidity aggregated over all visible trading venues but lowers liquidity at the traditional market, meaning that the benefits of fragmentation are not enjoyed by investors who choose to send orders only to the traditional market

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