3rd CEPR-Imperial-Plato Market Innovator (MI3) Conference 2019 – Quasai-dark trading: The effects of banning dark pools in a world of many alternatives

  

 

3rd CEPR-Imperial-Plato Market Innovator (MI3) Conference 2019

Quasai-dark trading: The effects of banning dark pools in a world of many alternatives

 

Thomas Johann (University of Mannheim)
Tālis J. Putniņš (University of Technology, Sydney)
Satchit Sagade (University of Frankfurt and Research Center SAFE)
Christian Westheide (Research Center SAFE and University of Vienna)

 

Thomas Johann is an Academic Staff Member at the Chair of Finance, University of Mannheim. Before that he was a PhD Student in Finance, Graduate School of Economic and Social Sciences, University of Mannheim and a Master of Science with a focus in Finance, University of Mannheim

 

Tālis J. Putniņš is a Professor in the Finance Discipline Group at UTS and a member of the Quantitative Finance Research Centre. He has also held positions at the Stockholm School of Economics in Riga and the Baltic International Centre for Economic Policy Studies, and has been a Visiting Scholar at Columbia University and New York University.

 

Dr. Satchit Sagade is a post-doctoral research fellow at the Center for Financial Studies and the Sustainable Architecture for Finance in Europe (SAFE) project of the University of Frankfurt. Satchit obtained his PhD in Finance from ICMA Centre, Henley Business School at the University of Reading in UK

 

Christian Westheide is an assistant professor of finance at the University of Vienna. Conducting mostly empirical research in market microstructure and asset pricing, in connection with behavioural finance and corporate governance. Interested in research collaboration with academics and practitioners.

 

About the paper

 

This paper examines the effects of banning and/or heavily regulating dark pools on European trading activity and overall market quality following the announcement and implementation of MiFID II, the DVC (double volume caps) and MiFIR by the European Commission.

 

The research was primarily looking to discover where traders migrate following implementation of regulations, and the key implications for primary market liquidity and efficiency. It did so through a Quasi-Experimental approach, looking at Semiparametric Difference-in-Differences, Regression Discontinuity Design, analysis of stock that were incorrectly not banned due to failed reporting, and the effect on the market of announcement.

 

Main Takeaways

 

The research observed Liquidity, Market Shares, and Price Efficiency over key trading formats including Dark LIS, Periodic Auctions, Continuous Lit trading, Call Auctions, SI (systematic internalisers) and OTC (over the counter / off-exchange trading), tracking relative Tick size, Tick Constraint, log MV, Reference Price Waiver and Unconditional.

 

 

Images: Muhammad Ashraf ©2019