Alternative Execution Priority Rules in Dark Pools

We examine the effects on market quality of alternative execution priority rules in dark pools. A size execution priority rule in the dark pool improves (reduces) welfare and liquidity (picking-off risk) for the whole lit-dark market, relative to a time execution priority rule. Interestingly, large traders do not always prefer the dark pool to the lit market, even when dark orders follow a size execution priority. Rather, their submission strategies depend mainly on the endogenous liquidity of each venue, with dark volume having a humped shape as a function of volatility