Should dark PoolS be banned from regulated exchangeS?

Date: 2016-01-12
By: Nathalie Oriol (GREDEG – Groupe de Recherche en Droit, Economie et Gestion – CNRS – Centre National de la Recherche Scientifique – UNS – Université Nice Sophia Antipolis)
Alexandra Rufini (GREDEG – Groupe de Recherche en Droit, Economie et Gestion – CNRS – Centre National de la Recherche Scientifique – UNS – Université Nice Sophia Antipolis)
Dominique Torre (GREDEG – Groupe de Recherche en Droit, Economie et Gestion – CNRS – Centre National de la Recherche Scientifique – UNS – Université Nice Sophia Antipolis)
URL: http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01254447&r=net
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 incum- bent 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.
Keywords: Microstructure, dark pools , Over-The-Counter market, liquidity, market externalities, two-sided markets