Market Competition and Price Clustering:Evidence from the ETF Market

We explore the impact of UTP implementation on ETF price clustering. The empirical results show a discernible reduction in price clustering on the overall market, attributable to improvements in the liquidity of order flow. After UTP trading commenced on the NYSE, large traders can more easily split their orders into smaller sizes and move to the optimal trading venue. These findings show feasible explanations for the relative competitive advantage associated with executing large orders once the NYSE entry reduced negotiation risks due to increasing competition among market makers, public availability of price information, and the alleviation of price risk. Key words: Exchange traded funds (ETFs), price clustering, liquidity, multimarket trading