Are You Playing in a Toxic Dark Pool?

Abstract

This article begins with a taxonomy of dark pools today, a close look at information leakage and its impact, and a guide for evaluating the quality of dark pools. Ultimately, traders need to understand the implications of the liquidity characteristics of dark pools and dark pool aggregators so that they can make the most effective use of them while avoiding price impact, adverse selection, and possible gaming. Finally, the article provides some rules of thumb for evaluating the toxicity and effectiveness of a dark pool.