How Imported Midpoint Prices Govern Dark Pool Matches
Summary
The document distinguishes dark pools that form prices internally from pools that import prices from visible markets. Internally price-forming pools resemble hidden limit order books and may execute at the best bid or ask when resting orders permit. The more common imported-price model uses an external visible order book, or a combination of books, to determine a midpoint, touch, or other permitted price limit.
In an imported-price pool, resting orders become eligible to match when they are compatible with the externally derived price limit. This gives participants a bound on the worst price they may receive. The supplied example asks how hypothetical orders would match, but the answer does not calculate specific fills or prices. The explanation is conceptual, and actual matching rules depend on the pool and applicable market structure.
Key ideas
- Dark pools may form prices internally or import prices from visible markets.
- Imported-price pools derive their midpoint or other price limits from external order books.
- Resting orders become matchable when they meet the imported price constraints.
- Matching details depend on the pool’s rules, and the example receives no specific fill calculations.
Tags
Full text
# Dark Pool Midpoint Order Matching # Dark Pool Midpoint Order Matching Orders in some dark pools seem typically matched at the midpoint price, and matching prioritized in size, price, time. Market orders execute at the midpoint. Limit orders execute at the midpoint only if the midpoint is equal to or better than the specified limit price. Consider the following dark pool orderbook... | Buy Qty | Buy Px | Sell Px | Sell Qty | | 200 | 10.20 | 10.25 | 300 | | 100 | 10.15 | 10.30 | 500 | | 400 | 10.10 | 10.35 | 200 | | 300 | 10.05 | 10.40 | 100 | The midpoint price of the dark orderbook is calculated as follows using the top of the orderbook; i.e. (10.20 + 10.25) / 2 = 10.225 However, dark orderbooks obtain their midpoint price from visible orderbooks, and match orders based on the visible orderbook's midpoint price. - Do the Buy orders only match at the midpoint price, or can they match lower than the midpoint price ? - Do the Sell orders only match at the midpoint price, or can they match higher than the midpoint price ? - If a Buy Market order with quantity 500 was entered, which Sell order(s) would it match against, and at what price ? - If a Buy Limit order with quantity 500 and price 10.30 was entered, which Sell order(s) would it match against, and at what price ? - What other examples of new Buy orders entered into this orderbook would cause matches ? ## Answer by lehalle (score 1) https://quant.stackexchange.com/a/83876 They are mainly two kinds of Dark Pools - Dark Pools hosting price formation - Dark Pools importing the price (acting under the imported price waiver for the European regulation). DP of the first kind are very rare, and are usually for Large in Scale orders (LiS for the European regulation). They are like a hidden Limit Orderbook, they do not execute at mid-price but simply at the best bid or ask, if there is enough (hidden) quantity given the resting orders properties. You are most probably talking about importing price DP: here the mid, the touch, or any other price limits are computed using an external visible limit orderbook (or a combination of external limit orderbooks). The principle is that you (as a client of the DP) obtain a kind of "What You See Is What You Get" in term of the worst price you will get. It means that resting orders in the DP become "match-able" when they are compatible with the imported price limit. (for more details have a look at C-A L and S Laruelle, 2018 (2nd edition). Market microstructure in practice. World Scientific)
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