The increased fragmentation of U.S. equity markets is harming market quality, concludes a new paper from Australia’s Capital Markets Co-operative Research Centre (CMCRC).

The study looks at the impact of dark pools in the U.S., and finds that the order segmentation caused by dark venues is damaging overall price discovery and market quality (except for large transactions). It says that the features that allow dark pools to actively entice orders away from primary markets results in higher transaction costs across all venues, and lower price efficiency overall.

“These findings contradict some common beliefs that dark orders have no negative spillover effects on the broader market,” it notes. Moreover, the study concludes that dark trading is the cause of reduced market quality, not simply correlated with it.

The report proposes several policy recommendations to address these issues, including that tick size be harmonized; that the fair access requirements be modified; and that regulators require that market participants demonstrate meaningful price improvement due to dark executions, and look at ways to effectively prioritize lit orders.