Non-Execution and Market Share of Crossing Networks

Abstract

We examine the non-execution probability and market share of crossing networks (dark pool) using SEC 605 data for NYSE and NASDAQ stocks. We find that crossing networks have lower effective spread and price impact of trade, but they also have lower execution probability and speed of trade. Non-execution is positive correlated with price impact, decreases in trading volume and increases in volatility. Crossing networks have higher market share for stocks with lower volatility and higher volume. We also find that the underlying assumption in previous literature, that stocks with higher effective spreads have higher reductions in effective spread by trading in crossing networks, is not supported by data.

Keywords: Dark Pool, Crossing Network, Non-execution, Execution Probability, Transaction Costs

JEL Classification: G10, G20