Assessing IT-Supported Securities Trading: A Benchmarking Model and Empirical Analysis

Abstract

Information technology plays a major role to support the process of securities trading. Tactical trading decisions can be implemented more efficiently by gaining access to alternative trading systems, which provide access to additional liquidity and potentially better execution prices. This paper explores the business value provided by to so-called dark pools of liquidity, which can be accessed by adjusting the trading process and adopting new IT. With limited access to large investors, dark pools represent alternative trading systems with a focus on very large volumes between selected institutions. We aim at exploring the potential business value provided to investors deciding to implement the necessary requirements. Therefore, a benchmarking approach is presented to compare dark pool executions with prices which were available at traditional stock exchanges. The empirical results provide evidence for significant price improvements which can be realized when gaining access to darks pools, especially when trading very large orders.