Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/200114
Year of Publication: 
2019
Series/Report no.: 
SAFE Working Paper No. 253
Publisher: 
Goethe University Frankfurt, SAFE - Sustainable Architecture for Finance in Europe, Frankfurt a. M.
Abstract: 
We show that "quasi-dark" trading venues, i.e., markets with somewhat non-transparent trading mechanisms, are important parts of modern equity market structure alongside lit markets and dark pools. Using the European MiFID II regulation as a quasi-natural experiment, we find that dark pool bans lead to (i) volume spill-overs into quasi-dark trading mechanisms including periodic auctions and order internalization systems; (ii) little volume returning to transparent public markets; and consequently, (iii) a negligible impact on market liquidity and short-term price efficiency. These results show that quasi-dark markets serve as close substitutes for dark pools and consequently mitigate the effectiveness of dark pool regulation. Our findings highlight the need for a broader approach to transparency regulation in modern markets that takes into consideration the many alternative forms of quasi-dark trading.
Subjects: 
Dark Pools
Dark Trading
Liquidity
Price Efficiency
MiFID II
Double VolumeCaps
JEL: 
G10
G19
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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