NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Dark Trading at the Midpoint: Pricing Rules, Order Flow, and High Frequency Liquidity Provision

Robert P. Bartlett, III, Justin McCrary

NBER Working Paper No. 21286
Issued in June 2015
NBER Program(s):Asset Pricing, Law and Economics

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.

download in pdf format
   (1426 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w21286

Users who downloaded this paper also downloaded* these:
Jones w21142 The Facts of Economic Growth
Heutel, Moreno-Cruz, and Shayegh w21355 Solar Geoengineering, Uncertainty, and the Price of Carbon
Novy-Marx w20591 Understanding Defensive Equity
Longstaff w20589 Valuing Thinly-Traded Assets
Mian and Sufi w21203 Household Debt and Defaults from 2000 to 2010: Facts from Credit Bureau Data
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us