Grey rhinos in financial markets and venue selection: the case of COVID-19

We investigate the effects of the COVID-19-induced shock in financial markets on aggregate venue selection/market share and market quality. We find that the shock is linked with an economically significant loss of market share by dark pools to lit exchanges. In line with theory, the loss appears linked to an increase in lit market volatility and a search for immediacy by traders active in stocks with dark trading access. The market quality implications of the reduction in dark trading are mixed: while it tempers COVID-19-linked liquidity decline in the lit market, it exacerbates the loss of informational efficiency. JEL classification: G12, G14, G15, G18