Trading InfoSnack: Take Half the Spread – Go Lit or Go Dark?

In our sixteenth Trading InfoSnack Take Half the Spread – Go Lit or Go Dark?, the Quant Research & Data Products team examines order book situations in which the spread is equal to two ticks, i.e. the midpoint price lies on the regular tick grid. In addition to being the most common order book situation during the trading day, it provides a natural experiment to compare lit price‑setting orders and dark midpoint orders – both targeting liquidity at the prevailing midpoint at the moment of order submission.

The analysis suggests that lit price‑setting orders exhibit higher certainty of execution and completion than dark midpoint orders, based on proprietary data from SIX Swiss Exchange. Using complementary data from BMLL, the analysis further compares cross‑venue performance: SIX Swiss Exchange offers the best overall balance between fill probability and mark‑out resilience among lit order books trading Swiss Blue Chips, while Aquis shows the strongest mark‑outs, albeit with lower fill probabilities.

Fabian Ochsner, Senior Quantitative Analyst, Exchanges, SIX, comments: “Lit order books have been steadily losing market share to alternative trading mechanisms in European Equity markets over the recent years. In this InfoSnack, we highlight the trade‑offs between lit and dark trading and show that the lit order book of SIX Swiss Exchange delivers a robust execution profile that goes beyond delivering a high certainty of execution.”

The Trading InfoSnack articles are insightful research features that provide commentary on market relevant trends, models and microstructure that influence the trading of Swiss securities, underpinned by in-depth analysis from the SIX Swiss Exchange Equities team.

To trading and market structure professionals with a focus on the EMEA region, the previous Trading InfoSnacks are also of interest: Mirror, Mirror on the Wall, Cluster-struck, Struck in the Middle (With You), Order Cancellation Patterns, Crumble in the Jungle, The Rule of Three: Analysing the Best Execution Optimisation Problem, Stale Prices and the Price of Being Stale, This Time is Different, Cryptophoria, Last Orders, Size Matters, Liquidity under the Volatility Microscope, Closing Auctions: What’s Hanging in the Balance?, Back to the Future(s) and What’s in a Liquidity Smile?