Occasional Paper No. 29: Aggregate market quality implications of dark trading

In this paper, we examine the impact of dark trading on aggregate market quality in the UK.

Occasional Paper No. 29 (PDF)

We have published this Occasional Paper alongside an Insight article - Dark trading and market quality

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Over the last decade, regulatory changes, coupled with technological advancements, led to the proliferation of new classes of trading venues. One of the most prominent new trading venue types is a class of venues known as 'dark pools'. Trades executed on dark pools have no pre-trade transparency. Other market participants apart from the submitter and the pool operator are not aware of orders submitted to a dark pool before their execution.

This study contributes to the dark pools debate by presenting the first evidence on the impact of dark trading on aggregate market quality in Europe. The study is also the most comprehensive examination to date of dark trading in Europe, since we explore dark trading across all the major trading venues in the UK.

We find that, at current levels, dark trading does not appear to be harmful to market quality in the aggregate UK equity market. Our results imply that there is a threshold at which dark trading may start to negatively affect market quality.


Matteo Aquilina, Ivan Diaz-Rainey, Gbenga Ibikunle and Yuxin Sun. 

Matteo Aquilina works in the Economics Department of the FCA. Ivan Diaz-Rainey is an Associate Professor at the University of Otago. Gbenga Ibikunle is an Associate Professor at the University of Edinburgh. Yuxin Sun is a Research Associate and Doctoral Researcher at the University of Edinburgh’s Business School.


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