Abstract
Investment banks like Goldman Sachs have started a guaranteed business where investors looking to buy or sell shares of a certain stock can get a guarantee from the bank to execute their orders at the close price set on the primary exchange. Daily trading volume through this venue has been increasing rapidly, reaching about one-third of the daily volume through close auction in 2018. Using the TAQ data and a quasi-experimental shock -- NYSE fee cut in 2018, we find that when the fraction of trades through guaranteed increases, the informativeness of close price increases. We develop a model where a bank conducting guaranteed business competes with the exchange on transaction fees, and gains profit from trading strategically utilizing the order flow information. The bank's trading activity concentrates the price-relevant information into the exchange. Consequently, the guaranteed improves price discovery at the market close.
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