Dark liquidity impairs lit market liquidity, especially in non-US markets. That is according to Alex Frino, the dean of the Macquarie Graduate School of Management, also associated the Capital Markets Cooperative Research Centre.
His findings have just been released by the organisers of Asia’s TradeTech conference, in anticipation of the November event in Singapore.
His study was titled ‘Liquidity: the holy grail of markets, how to build it and find it’ covering dark pools, fragmentation and high-frequency trading. His analysis covered whether dark pools enhanced or impair liquidity, if there was such a thing as too much fragmentation and the impact of high-frequency trading on volatility.
The result of this research was his conclusion that dark liquidity can impair lit market liquidity – especially in non-US markets and that dark liquidity is also impairing lit market liquidity in Australia. The implication he drew from this is that the aim of price improvement is therefore meaningless.