Dark Trading at the Midpoint: Pricing Rules, Order Flow, and High Frequency Liquidity Provision / Robert P. Bartlett, III, Justin McCrary.

Format:

Book

Author/Creator:

Bartlett, Robert P, III.

Contributor:

National Bureau of Economic Research.

McCrary, Justin.

Series:

Working Paper Series (National Bureau of Economic Research) no. w21286.

NBER working paper series no. w21286

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Dark Trading at the Midpoint

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2015.

Summary:

Using over eight trillion observations of market data, we use a regression discontinuity design to analyze the effect of increasing the minimum price variation (MPV) for quoting equity securities in light of recent proposals to increase the MPV from $0.01 to $0.05. We show that a larger MPV encourages investors to trade in dark venues at the midpoint of the national best bid and offer. Enhanced order flow to dark venues reduces price competition by exchange liquidity providers, especially those using high frequency trading (HFT). Trading in dark venues due to a wider MPV reduces volatility and increases trading volume.

Notes:

Print version record

June 2015.