Canadian dark pool trading fell by nearly half after IIROC introduced stricter trading rules, find researchers studying HFT’s market impact.
The rule, introduced in October 2012, forces traders placing dark orders to improve on the national best bid or offer by at least one trading increment, or half an increment if the spread is only one increment.
In the weeks after the rule was introduced, dark volume on the Canadian market went from 9.3% to 5.4%, the study finds. University of Toronto professors Andreas Park and Katya Malinova and University of Melbourne finance professor Carole Comerton-Forde authored the study as part of IIROC’s ongoing research on high-frequency trading.
Two dark pool markets handle three-quarters of dark trades in Canada, say the researchers. After the rule change, trading in one declined significantly, while the other stayed the same.
The researchers say the new rules have no effect on overall market-wide price efficiency, volatility or trading costs, but may have increased trading costs slightly for retail investors.
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