{"id":19319,"date":"2021-08-10T07:54:44","date_gmt":"2021-08-10T07:54:44","guid":{"rendered":"https:\/\/analystprep.com\/study-notes\/?p=19319"},"modified":"2026-03-26T13:00:54","modified_gmt":"2026-03-26T13:00:54","slug":"describe-market-fragmentation","status":"publish","type":"post","link":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/describe-market-fragmentation\/","title":{"rendered":"Market Fragmentation"},"content":{"rendered":"<script type=\"application\/ld+json\">\r\n{\r\n  \"@context\": \"https:\/\/schema.org\",\r\n  \"@type\": \"QAPage\",\r\n  \"mainEntity\": {\r\n    \"@type\": \"Question\",\r\n    \"name\": \"Which of the following choices is the most fundamental reason for market fragmentation?\",\r\n    \"text\": \"Which of the following choices is the most fundamental reason for market fragmentation?\\n\\nA. To reduce the number of customers in a franchise.\\n\\nB. To create a small customer base and enhance innovation.\\n\\nC. To reduce competition from businesses that trade the same instruments.\",\r\n    \"answerCount\": 1,\r\n    \"acceptedAnswer\": {\r\n      \"@type\": \"Answer\",\r\n      \"text\": \"The correct answer is B.\\n\\nMarket fragmentation subdivides a homogeneous market into smaller segments, making it easier to manage customers and encouraging innovation. Smaller, specialized firms can emerge and compete more effectively by focusing on distinct characteristics of trade instruments.\\n\\nOptions A and C are incorrect because fragmentation does not aim to reduce customers or competition.\"\r\n    }\r\n  }\r\n}\r\n<\/script>\r\n<script type=\"application\/ld+json\">\r\n{\r\n  \"@context\": \"https:\/\/schema.org\",\r\n  \"@type\": \"QAPage\",\r\n  \"mainEntity\": {\r\n    \"@type\": \"Question\",\r\n    \"name\": \"Which of the following best describes market fragmentation?\",\r\n    \"text\": \"Which of the following best describes market fragmentation?\\n\\nA. It is a method of estimating transaction costs by comparing the average fill prices to average market prices during a period surrounding the trade.\\n\\nB. It involves measuring the total cost of implementing an investment decision by capturing all explicit and implicit trading costs.\\n\\nC. It is the splitting of trading in any given instrument across multiple venues as the number of venues trading the same instruments has proliferated.\",\r\n    \"answerCount\": 1,\r\n    \"acceptedAnswer\": {\r\n      \"@type\": \"Answer\",\r\n      \"text\": \"The correct answer is C.\\n\\nMarket fragmentation refers to the splitting of trading activity for a given financial instrument across multiple trading venues as the number of venues increases.\\n\\nOption A is incorrect because it describes the VWAP (Volume Weighted Average Price) method.\\n\\nOption B is incorrect because it refers to the implementation shortfall method.\"\r\n    }\r\n  }\r\n}\r\n<\/script>\r\n\r\n<p><iframe loading=\"lazy\" src=\"\/\/www.youtube.com\/embed\/-REW7IWLGsM\" width=\"611\" height=\"343\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\r\n<p><strong>Market fragmentation<\/strong> implies that a market is composed of several heterogeneous segments. Fragmentation in a market can be caused by several market needs, reduced levels of innovation, and economies of scale. Market fragmentation enables businesses to reach the right consumers. Remember, however, that it reduces the effectiveness of mass marketing.<\/p>\r\n<p>Moreover, market fragmentation means that the liquidity of an asset represents a fraction of the total cash for the item. Trading the same commodity in several places enhances price and liquidity variation because the traders involved are not at the same place. The challenges caused by fragmentation can be managed using electronic algorithmic trading techniques such as liquidity aggregation and smart order routing.<\/p>\r\n<blockquote>\r\n<h2>Question 1<\/h2>\r\n<p>Which of the following <em>best<\/em> describes market fragmentation?<\/p>\r\n<ol type=\"A\">\r\n\t<li>It is a method of estimating transaction costs by comparing the average fill prices to average market prices during a period surrounding the trade.<\/li>\r\n\t<li>It involves measuring the total cost of implementing an investment decision by capturing all explicit and implicit trading costs.<\/li>\r\n\t<li>It is the splitting of trading in any given instrument across multiple venues as the number of venues trading the same instruments has proliferated.<\/li>\r\n<\/ol>\r\n<h4>Solution<\/h4>\r\n<p><strong>The correct answer is C.<\/strong><\/p>\r\n<p><strong>A is incorrect<\/strong>. It refers to the VWAP method.<\/p>\r\n<p><strong>B is incorrect<\/strong>. It refers to the implementation of the shortfall method.<\/p>\r\n<h2>Question 2<\/h2>\r\n<p>Which of the following choices is the <em>most fundamental<\/em> reason for market fragmentation?<\/p>\r\n<ol type=\"A\">\r\n\t<li>To reduce the number of customers in a franchise.<\/li>\r\n\t<li>To create a small customer base and enhance innovation.<\/li>\r\n\t<li>To reduce competition from businesses that trade the same instruments.<\/li>\r\n<\/ol>\r\n<h4>Solution<\/h4>\r\n<p><strong>The correct answer is B.<\/strong><\/p>\r\n<p>Subdividing a homogenous business into several different segments enables the market to manage its customers easily. Moreover, it makes the new small businesses bring more innovations into the market because the trade instruments are grouped according to their distinct characteristics<\/p>\r\n<\/blockquote>\r\n<p>Reading 46: Trading Cost and Electronic Markets<\/p>\r\n<p><em>LOS 46 (e) Describe market fragmentation.<\/em><\/p>\r\n","protected":false},"excerpt":{"rendered":"<p>Market fragmentation implies that a market is composed of several heterogeneous segments. Fragmentation in a market can be caused by several market needs, reduced levels of innovation, and economies of scale. Market fragmentation enables businesses to reach the right consumers&#8230;.<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[102,473],"tags":[216,564],"class_list":["post-19319","post","type-post","status-publish","format-standard","hentry","category-cfa-level-2","category-portfolio-management","tag-cfa-level-2","tag-portfolio-management","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Market Fragmentation and Its Causes<\/title>\n<meta name=\"description\" content=\"Learn what market fragmentation is, its causes, and how divided market segments affect competition, innovation, and economies of scale.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/describe-market-fragmentation\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Market Fragmentation and Its Causes\" \/>\n<meta property=\"og:description\" content=\"Learn what market fragmentation is, its causes, and how divided market segments affect competition, innovation, and economies of scale.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/describe-market-fragmentation\/\" \/>\n<meta property=\"og:site_name\" content=\"CFA, FRM, and Actuarial Exams Study Notes\" \/>\n<meta property=\"article:published_time\" content=\"2021-08-10T07:54:44+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-03-26T13:00:54+00:00\" \/>\n<meta name=\"author\" content=\"AnalystPrep Team\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"AnalystPrep Team\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"1 minute\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/describe-market-fragmentation\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/describe-market-fragmentation\/\"},\"author\":{\"name\":\"AnalystPrep Team\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/ed0c939f3f12a02c5a193708b713d89e\"},\"headline\":\"Market Fragmentation\",\"datePublished\":\"2021-08-10T07:54:44+00:00\",\"dateModified\":\"2026-03-26T13:00:54+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/describe-market-fragmentation\/\"},\"wordCount\":317,\"keywords\":[\"CFA-level-2\",\"Portfolio management\"],\"articleSection\":[\"CFA Level II Study Notes\",\"Portfolio Management\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/describe-market-fragmentation\/\",\"url\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/describe-market-fragmentation\/\",\"name\":\"Market Fragmentation and Its Causes\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/study-notes\/#website\"},\"datePublished\":\"2021-08-10T07:54:44+00:00\",\"dateModified\":\"2026-03-26T13:00:54+00:00\",\"author\":{\"@id\":\"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/ed0c939f3f12a02c5a193708b713d89e\"},\"description\":\"Learn what market fragmentation is, its causes, and how divided market segments affect competition, innovation, and economies of scale.\",\"breadcrumb\":{\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/describe-market-fragmentation\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/describe-market-fragmentation\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/describe-market-fragmentation\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/analystprep.com\/study-notes\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Market Fragmentation\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/#website\",\"url\":\"https:\/\/analystprep.com\/study-notes\/\",\"name\":\"CFA, FRM, and Actuarial Exams Study Notes\",\"description\":\"Question Bank and Study Notes for the CFA, FRM, and Actuarial exams\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/analystprep.com\/study-notes\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/ed0c939f3f12a02c5a193708b713d89e\",\"name\":\"AnalystPrep Team\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/secure.gravatar.com\/avatar\/0828fe7fdfdcf636b2061b4c563e20cc9b7453f7cd1641b4c43edbfba896727a?s=96&d=mm&r=g\",\"contentUrl\":\"https:\/\/secure.gravatar.com\/avatar\/0828fe7fdfdcf636b2061b4c563e20cc9b7453f7cd1641b4c43edbfba896727a?s=96&d=mm&r=g\",\"caption\":\"AnalystPrep Team\"},\"url\":\"https:\/\/analystprep.com\/study-notes\/author\/analystprep-team\/\"}]}<\/script>\n<meta property=\"og:video\" content=\"https:\/\/www.youtube.com\/embed\/-REW7IWLGsM\" \/>\n<meta property=\"og:video:type\" content=\"text\/html\" \/>\n<meta property=\"og:video:duration\" content=\"2030\" \/>\n<meta property=\"og:video:width\" content=\"480\" \/>\n<meta property=\"og:video:height\" content=\"270\" \/>\n<meta property=\"ya:ovs:adult\" content=\"false\" \/>\n<meta property=\"ya:ovs:upload_date\" content=\"2021-08-10T07:54:44+00:00\" \/>\n<meta property=\"ya:ovs:allow_embed\" content=\"true\" \/>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Market Fragmentation and Its Causes","description":"Learn what market fragmentation is, its causes, and how divided market segments affect competition, innovation, and economies of scale.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/describe-market-fragmentation\/","og_locale":"en_US","og_type":"article","og_title":"Market Fragmentation and Its Causes","og_description":"Learn what market fragmentation is, its causes, and how divided market segments affect competition, innovation, and economies of scale.","og_url":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/describe-market-fragmentation\/","og_site_name":"CFA, FRM, and Actuarial Exams Study Notes","article_published_time":"2021-08-10T07:54:44+00:00","article_modified_time":"2026-03-26T13:00:54+00:00","author":"AnalystPrep Team","twitter_card":"summary_large_image","twitter_misc":{"Written by":"AnalystPrep Team","Est. reading time":"1 minute"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/describe-market-fragmentation\/#article","isPartOf":{"@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/describe-market-fragmentation\/"},"author":{"name":"AnalystPrep Team","@id":"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/ed0c939f3f12a02c5a193708b713d89e"},"headline":"Market Fragmentation","datePublished":"2021-08-10T07:54:44+00:00","dateModified":"2026-03-26T13:00:54+00:00","mainEntityOfPage":{"@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/describe-market-fragmentation\/"},"wordCount":317,"keywords":["CFA-level-2","Portfolio management"],"articleSection":["CFA Level II Study Notes","Portfolio Management"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/describe-market-fragmentation\/","url":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/describe-market-fragmentation\/","name":"Market Fragmentation and Its Causes","isPartOf":{"@id":"https:\/\/analystprep.com\/study-notes\/#website"},"datePublished":"2021-08-10T07:54:44+00:00","dateModified":"2026-03-26T13:00:54+00:00","author":{"@id":"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/ed0c939f3f12a02c5a193708b713d89e"},"description":"Learn what market fragmentation is, its causes, and how divided market segments affect competition, innovation, and economies of scale.","breadcrumb":{"@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/describe-market-fragmentation\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/analystprep.com\/study-notes\/cfa-level-2\/describe-market-fragmentation\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/describe-market-fragmentation\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/analystprep.com\/study-notes\/"},{"@type":"ListItem","position":2,"name":"Market Fragmentation"}]},{"@type":"WebSite","@id":"https:\/\/analystprep.com\/study-notes\/#website","url":"https:\/\/analystprep.com\/study-notes\/","name":"CFA, FRM, and Actuarial Exams Study Notes","description":"Question Bank and Study Notes for the CFA, FRM, and Actuarial exams","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/analystprep.com\/study-notes\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/ed0c939f3f12a02c5a193708b713d89e","name":"AnalystPrep Team","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/0828fe7fdfdcf636b2061b4c563e20cc9b7453f7cd1641b4c43edbfba896727a?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/0828fe7fdfdcf636b2061b4c563e20cc9b7453f7cd1641b4c43edbfba896727a?s=96&d=mm&r=g","caption":"AnalystPrep Team"},"url":"https:\/\/analystprep.com\/study-notes\/author\/analystprep-team\/"}]},"og_video":"https:\/\/www.youtube.com\/embed\/-REW7IWLGsM","og_video_type":"text\/html","og_video_duration":"2030","og_video_width":"480","og_video_height":"270","ya_ovs_adult":"false","ya_ovs_upload_date":"2021-08-10T07:54:44+00:00","ya_ovs_allow_embed":"true"},"_links":{"self":[{"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/posts\/19319","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/comments?post=19319"}],"version-history":[{"count":20,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/posts\/19319\/revisions"}],"predecessor-version":[{"id":42942,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/posts\/19319\/revisions\/42942"}],"wp:attachment":[{"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/media?parent=19319"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/categories?post=19319"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/tags?post=19319"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}