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Differential access to dark markets and execution outcomes

Author

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  • Brugler, James
  • Comerton-Forde, Carole

Abstract

Dark pools can restrict access for specific trader types. We compare execution outcomes between dark pools that restrict high frequency trader access and those that do not. We find that trades executed in dark pools with more access restrictions have less order flow information leakage, adverse selection risk and post-trade order imbalances than trades in less restricted pools. Evidence from exogenous dark pool closures demonstrates that these differences are causal. The ability to segment order flow can benefit investors because it allows them to make trade-offs between execution risk and information leakage across different dark venues.

Suggested Citation

  • Brugler, James & Comerton-Forde, Carole, 2025. "Differential access to dark markets and execution outcomes," Journal of Financial Economics, Elsevier, vol. 171(C).
    • Handle: RePEc:eee:jfinec:v:171:y:2025:i:c:s0304405x25000947
    DOI: 10.1016/j.jfineco.2025.104086
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