Block-Crossing Networks and The Value of
Natural Liquidity

Abstract

This article provides a survey of dark pools, focusing on block-crossing venues. We examine years of data from within a dark pool to quantify econometric characteristics of these pools including their market impact and spread savings, respectively quantifying the benefits of natural liquidity. We also explore and quantify many of the challenges inherent in the block market for both traders and dark pool operators including the basic mechanics of a cross, the effect of limit prices, the network structure of a pool, sparsity, fragmentation and clustering of trades. We conclude with a discussion of current inflection points for the space including regulatory environment and market structure changes including what we believe is the most in-depth treatment to-date of conditional orders.