Do Dark Pool Operators Exploit Order Flow Information? Evidence from Affiliated Funds

Dark pools have become an integral component of modern capital markets, accounting for a substantial share of trading volume. While the lack of pre-trade transparency allows investors to conceal trading intentions from the market, dark pool operators retain privileged access to order flow information. As many dark pools are operated by financial institutions that also manage investment funds, concerns have emerged that affiliated funds may exploit this information for trading advantages, undermining the fairness and integrity of capital markets. This study aims to investigate whether funds affiliated with dark pool operators utilize order flow information to improve their trading performance. By uncovering this underexplored channel of information leakage and exploitation, this study would inform the regulatory oversight of dark pools and promote stronger safeguards for confidential trading information.