Abstract
We examine the impact of a rule in the Canadian equities market that requires dark orders to offer price improvement over displayed orders. We show that this rule eliminated the intermediation of retail orders in the dark and shifted retail orders onto the lit market with the lowest take fee. Intermediaries shifted liquidity supply to this venue leading to an increase in displayed liquidity. We conclude that reducing retail order segmentation enhances lit liquidity. However, retail traders receive less price improvement, retail brokers pay higher exchange fees, and institutions incur higher implementation shortfall. High frequency traders earn higher fee revenues.
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