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Should Dark Pools be Banned from Regulated Exchanges?

Author

Listed:
  • Nathalie Oriol

    (University of Nice Sophia Antipolis, France
    GREDEG CNRS)

  • Alexandra Rufini

    (University of Nice Sophia Antipolis, France
    GREDEG CNRS)

  • Dominique Torre

    (University of Nice Sophia Antipolis, France
    GREDEG CNRS)

Abstract

European financial markets experiment a strong competition between historical players and new trading platforms, including the controversial dark pools. Our theoretical setting analyzes the interaction between heterogeneous investors and trading services providers in presence of market externalities. We compare different forms of organization of the market, each in presence of an off-exchange and an incumbent facing a two-sided activity (issuers and investors): a consolidated exchange with the incumbent only, and fragmented exchanges with several platforms, including lit and dark pools, in competition for order ows. By capturing investors from off-exchange, dark trading may enhance market externalities and market stakeholders' welfare.

Suggested Citation

  • Nathalie Oriol & Alexandra Rufini & Dominique Torre, 2015. "Should Dark Pools be Banned from Regulated Exchanges?," GREDEG Working Papers 2015-21, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    • Handle: RePEc:gre:wpaper:2015-21
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    References listed on IDEAS

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    More about this item

    Keywords

    microstructure; dark pools; Over-The-Counter market; liquidity; market externalities; two-sided markets;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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