Dark Pools, Minimum Price Improvement and the resulting Market Quality Measures

This case study is intended to show the impact the introduction of a new regulation for dark pools in Canada, and the resulting impact on the broader TSX 250 constituent market quality. The introduction of minimum price improvement rules for dark trading in Canada (October 2012), require that dark trades provide one full tick of price improvement (or half a tick if the spread is constrained at one tick). What resulted was an overnight drop in the volume of dark trading in Canada, and in deterioration in market quality and informational efficiency. This case study uses a 4 month window to show the before and after effects of the event (minimum price improvement regulation), and displays the changes in market quality, in particular, the deterioration of quoted, effective and realised spreads and informational efficiency.
Choose the instrument groups to display in the charts below from this menu:
Overall score
This table gives an indication of the change in direction in the score for each market and metric after the speed bump event on 2012-10-15. All days in the selected date range are used.
  • An increasing arrow indicates an increasing score. A higher score may be associated with increased market share, or a decreased spread, for example.
  • Custom weights can be specified in the text boxes to alter the impact of that metric in the overall score per market and group.

How is the overall score calculated?

The chart below shows the change in overall score over the entire date range.
Effective Spread – How much the actual trade price deviates from the mid-point. It represents the actual, round-trip cost of trading to the liquidity demander.
Quoted Spread – The difference between each exchange's bid and ask price over the midpoint of the quote measured in basis points. This metric is value weighted.
Realised Spread – How much the actual trade price deviates from the mid-point after 10 minutes. It represents the actual, round-trip cost of trading to the liquidity demander.
Quoted Depth – The average time adjusted quoted bid size plus ask size when each lit trading venue is at the national best bid offer (NBBO).
On-market Trade Volume – The daily total on-market trading volume for each group.
On-market Trade Value – The daily total on-market trading value for each group.
Intraday Volatility – The intraday mid-point price return volatility (with configurable grace period).
Autocorrelation – The intra-day autocorrelation of mid-point price return (with configurable grace period).