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Prof. Mao Ye
Associate Professor of Finance
Cornell University

Trading on off-exchange platforms as a whole is commonly referred to as dark trading. However, it encompasses ATSs (alternative trading systems) and Non-ATSs, each of which is subject to different regulations. Unlike Non-ATSs, ATSs are legally classified as market places and therefore must adhere to pre-determined non-discretionary meth-ods for executing orders. In this study, we examine two exogenous transparency shocks and show that legal distinctions between ATSs and Non-ATSs can result in significant economic disparities in their market quality. Specifically, we find that ATSs generally demonstrate inferior market quality compared to Non-ATSs. Moreover, transparency magnifies these disparities in market quality, except for execution speeds. Transparency leads to improved execution speeds on both ATSs and Non-ATSs. However, it notably diminishes other market quality metrics on ATSs, while remarkably enhancing them on Non-ATSs. Our results provide insight into an ongoing debate surrounding the accuracy of (Boehmer, Jones, Zhang, & Zhang, 2021)’s (BJZZ) method in identify-ing retail trades, partially elucidating the disparities between BJZZ’s findings and its critiques. Additionally, our paper is closely tied to a recent SEC proposal aimed at enhancing the disclosure of order execution information, thereby carrying significant policy implications.