Download Dark Pools: The Structure and Future of Off-Exchange Trading by Erik Banks (auth.) PDF

By Erik Banks (auth.)

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Extra info for Dark Pools: The Structure and Future of Off-Exchange Trading and Liquidity

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We summarize our discussion, in Chapter 8, by considering the future of dark pools in light of pros/cons, consolidation, and technological advances. CHAPTER 2 Market Liquidity and Structure In Chapter 1 we introduced the concept of dark liquidity and the reasons why it has expanded and developed in recent years. But dark liquidity does not exist on its own—it is part of an entire spectrum of trading liquidity which is built atop specific market microstructures. In this chapter we take a broader perspective on the topic of liquidity and secondary trading in securities, starting with a review of the need for market liquidity and the issues of market impact and information leakage in relation to block liquidity.

If the parties have encountered each other at some point during the search, but opted to continue their searches, there can be no guarantee that one or the other party will still be present at the end of the search. Taken against this theoretical background, it is clear that any mechanism or process that helps achieve a search for liquidity so that an order can be filled is a necessary and practical requirement. Different types of orders, different market structures, and different forms of technology are all integral to this effort.

99. , the ELOB) for future execution; some of these can, of course, be dark orders. While it is in the process of being filled, it is considered to be a working order. As we might expect, the more “aggressive” the limit order—that is, the closer the limit price to the market bid or market offer—the greater the probability of execution. Such orders are considered to be “top of book” and are almost certain to be filled in the short-term. A marketable limit order is an order that can be executed immediately; a buy order is at or above the best offer, while a sell order is at or below the best bid.

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