Journal of International Money and Finance 19 (2000) 737–751 www.elsevier.nl/locate/econbase Internalization and stock price clustering: Finnish evidence G. Geoffrey Booth a,* , Juha-Pekka Kallunki b , Ji-Chai Lin c , Teppo Martikainen d a Department of Finance, Eli Broad College of Business, Michigan State University, East Lansing, MI 48824-1121, USA b Department of Economics and Business Administration, University of Oulu, P.O. Box 4600, FIN – 90401 Oulu, Finland c Department of Finance, Louisiana State University, Baton Rouge, LA 70803, USA d Department of Accounting and Finance, Helsinki School of Economics and Business Administration, P.O. Box 1210 (Runeberginkatu 22–24), FIN – 00101 Helsinki, Finland Abstract Internalization, the practice of brokers executing trades in-house, is a significant phenom- enon in the Helsinki Stock Exchange. During the continuous trading session, 97.5% upstairs market trades are internalized. The corresponding figure for after-hours upstairs market trades is 73.1%. The prices of internalized trades are somewhat more clustered than the prices of other trades during the continuous trading session, but they are not more clustered than the prices of negotiated trades in the after-hours upstairs market. This suggests that Finnish brokers do not use a more discrete set of prices for internalized trades than for other upstairs trades.  2000 Elsevier Science Ltd. All rights reserved. JEL classification: D23; G18 Keywords: Preference trading; Internalization; Clustering; Helsinki Stock Exchange 1. Introduction Since its recognition in the literature over 30 years ago by Osborne (1962), the tendency for stock transaction and quote prices to cluster on their fractions has * Corresponding author. Tel.: + 1-517-353-1745; fax: + 1-517-432-1080. E-mail address: boothg@pilot.msu.edu (G. Geoffrey Booth). 0261-5606/00/$ - see front matter  2000 Elsevier Science Ltd. All rights reserved. PII:S0261-5606(00)00022-X