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Off-exchange trading in equity markets, including broker/dealer internalization and dark pools, has grown in recent years. An examination of the relationship between dark trading and market quality suggests that as dark trading increases, the marginal benefit from it declines. Beyond a certain threshold, increases in dark trading may be associated with deteriorating market quality. The level of this threshold is related to the type of dark trading and the market capitalization of the stock.

About the Author(s)

Rhodri Preece
Rhodri G. Preece CFA

Rhodri Preece is Head of Industry Research for CFA Institute. He is responsible for building and maintaining the global thought leadership function at CFA Institute, including leading the planning, coordination and creation of research content across CFA Institute research platforms including the Financial Analysts Journal, the Research Foundation, and the Future of Finance initiative.

Rhodri formerly served as head of capital markets policy EMEA at CFA Institute, where he was responsible for leading capital markets policy activities in the Europe, Middle East and Africa region, including content development and policy engagement.

Prior to joining CFA Institute, Mr. Preece was a manager at PricewaterhouseCoopers LLP where he specialized in investment funds.

Sviatoslav Rosov
Sviatoslav Rosov PhD, CFA

Sviatoslav Rosov, PhD, CFA, is director, capital markets policy, EMEA, at CFA Institute. He is responsible for developing research projects, policy papers, articles, and regulatory consultations that advance CFA Institute policy positions, focusing on market structure and wider financial market integrity issues.