Effects of Lit and Dark Market Fragmentation on Liquidity
Journal of Financial Markets, 35, 1-20, 2017.
63 Pages Posted: 30 Aug 2011 Last revised: 10 Jun 2021
Date Written: February 25, 2017
Abstract
Based on data from eight exchanges and a trade reporting facility for a large sample of LSE- and Euronext-listed equities, this article investigates how lit and dark market fragmentation affects liquidity. Neither dark trading, nor fragmentation between lit order books, is found to harm liquidity. Lit fragmentation improves spreads and depth across markets and locally on the primary exchange, or at worst does not affect them. Benefits are greater for large stocks and stocks with less electronic trading. Lit fragmentation however harms the depth of small stocks. Adverse effects on the depth of large stocks result from algorithmic trading and not from fragmentation.
Keywords: Fragmentation, Liquidity, Multilateral Trading Facility (MTF), OTC trading, Internalization, Dark trading
JEL Classification: G14, G15, G18
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Dynamic Order Submission Strategies with Competition between a Dealer Market and a Crossing Network
By Hans Degryse, Mark Van Achter, ...
-
Dynamic Order Submission Strategies with Competition between a Dealer Market and a Crossing Network
By Hans Degryse, Mark Van Achter, ...
-
Do Dark Pools Harm Price Discovery?
By Haoxiang Zhu
-
Dark Pool Trading Strategies, Market Quality and Welfare
By Sabrina Buti, Barbara Rindi, ...
-
Determinants of Volume in Dark Pool Crossing Networks
By Mark Ready
-
The Impact of Dark Trading and Visible Fragmentation on Market Quality
By Hans Degryse, Frank De Jong, ...
-
The Impact of Dark Trading and Visible Fragmentation on Market Quality
By Hans Degryse, Frank De Jong, ...
-
The Impact of Dark Trading and Visible Fragmentation on Market Quality
By Frank De Jong, Hans Degryse, ...
-
A Glimpse into the Dark: Price Formation, Transaction Cost and Market Share of the Crossing Network
By Mao Ye