What Is the “Mid-Point Peg” Order Type Commonly Used in Dark Pools and How Does It Function?
A mid-point peg is a passive order type where the execution price is pegged to the midpoint of the National Best Bid and Offer (NBBO) from the public, lit exchanges. The order is not visible and rests inside the dark pool.
It provides price improvement for both the buyer and the seller, as they trade at a price better than either the bid or the ask. This order type is popular because it ensures the trade executes at a fair, market-derived price without revealing any information or impacting the public quote.
Glossar
Peg Order
Order ⎊ This instruction type explicitly links its execution price to a reference price, often the prevailing market mid-point or a specific index value, rather than a fixed static level.
Passive Order Type
Type ⎊ A Passive Order Type, most commonly represented by a limit order, is an electronic trading instruction placed on the order book at a specified price, awaiting a matching counter-order to arrive.
Dark Pools
Venue ⎊ Dark Pools in the cryptocurrency derivatives context are private trading systems that allow institutional participants to execute large orders anonymously, shielded from the public visibility of order books.