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Simultaneous Market Making in Dark Pools and Lit Exchanges

Article Quant Q&A · Author: MagicMike
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Summary

The document asks whether high-frequency market-making systems commonly post liquidity in dark pools and lit exchanges at the same time, and whether dark-pool trading can affect inventory and displayed exchange prices. The response answers affirmatively and points to outside articles and discussions as supporting context.

The material offers no operational description of how a market maker coordinates quotes across venues, measures inventory effects, or manages adverse selection. It also presents no data or evidence within the document to quantify how common the practice is or how dark-pool activity changes exchange quotes. The useful takeaway is limited: dark and displayed venues may be connected through market makers’ inventory decisions, so trading in one venue can be relevant to liquidity provision in another. The claim is brief and relies on cited sources that are not summarized here, so readers should not treat it as a detailed empirical finding.

Key ideas

  • Market makers may provide liquidity in dark pools and displayed exchanges simultaneously.
  • Dark-pool executions can affect a market maker’s inventory.
  • Inventory changes may influence the quotes a market maker displays on exchanges.
  • The response asserts the practice but supplies no quantitative evidence or implementation details.

Tags

Market makingMarket microstructureHigh-frequency tradingExecution
Full text
# HFT market-making in dark pools?


# HFT market-making in dark pools?












Is it now common practice for HFT market-making algorithms to post liquidity in dark pools and exchanges at the same time?

I ask because I have been reading some documentation (https://squeezemetrics.com/monitor/docs#dpi) on a service which is claiming that market-maker inventory is affected by dark pool buying/selling activity (and that this then affects exchange quotes/prices).

Yet last I heard about this in the news people were getting freaked out about letting HFT into dark pools and fining people or something.

## Answer by LazyCat (score 5, accepted)

https://quant.stackexchange.com/a/31259

Yes, it is. There is plenty of information about it online. E.g. here's a related very recent article: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2874957, here's a link to a discussion on Barclays lawsuit with nice liquidity charts: https://jackgavigan.com/2014/06/30/barclays-smoking-chart/ You can also find related discussions on http://tabbforum.com/

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.