Dark Pools Hurt Markets

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    The increased fragmentation of U.S. equity markets from the use of dark pools is harming market quality, says Australia’s Capital Markets Co-operative Research Centre. Its study looked at the impact of dark pools in the U.S. and found that the order segmentation caused by dark venues is damaging overall price discovery and market quality (except for large transactions). It says that the features that allow dark pools to actively entice orders away from primary markets results in higher transaction costs across all venues and lower price efficiency overall. To address these issues, it recommends making the tick size (the smallest increment (tick) by which the price of stocks, futures contracts, or other exchange-traded instrument can move) harmonized; modifying fair access requirements; and requiring market participants to demonstrate meaningful price improvement due to dark executions.