Price Formation and Discovery within and across Dark and Lit Markets

Speaker: Dr Shino Takayama

Affiliaiton: The University of Queensland

Location: Level 6 Boardroom (629), Colin Clark Building (#39), St Lucia Campus

Zoom: https://uqz.zoom.us/j/82603079317

Abstract: Market fragmentation--where the same asset trades concurrently across multiple venues--now characterizes modern markets, with nearly one trillion U.S. shares dispersed across 13 exchanges annually as of 2019 (Budish et al., 2022). Traders routinely split orders across venues and time to mitigate price impact (van Kervel et al., 2023), yet the consequences of such splitting need not be uniform across markets or horizons. We develop a game-theoretic framework in which an informed trader optimally allocates order flow across market systems and periods, allowing for heterogeneous execution technologies and information environments. The model delivers sharp comparative statics on venue and timing choice, characterizes the resulting cross-venue and intertemporal price impacts, and identifies when fragmentation accelerates versus dampens information revelation. By linking strategic order to price formation, our analysis clarifies how fragmentation shapes information efficiency--complementing regulatory and depth concerns raised in Budish et al. (2022), Duffie (2012, 2022), and Chen and Duffie (2021)--and offers testable predictions for the dynamics of informational spillovers within and across trading venues.