New way to measure information leakage (Hint: It’s not reversion)
Ben Polidore, Managing Director, ITG Algorithms
Fangyi Li, Assistant Vice President, ITG Algorithms
Zhixian Chen, ITG Algorithms
In a recent poll of 80+ buy-side professionals, 37% attributed more than half of their trading cost to information leakage. It’s something that traders feel, but accurately measuring it is much more difficult. Many brokers use post-trade reversion to rank dark pool performance, but looking only at adverse selection while ignoring information leakage doesn’t give the full picture. ITG’s study of controlled measurement of information leakage in dark pools shows that dark pools with the worst information leakage have unremarkable adverse selection scores.