The market-wide spread for SPY is smaller than the implied spread from all the 500+ components. If you request your market maker for individual prices on the components (or 470 of the components plus 30 stocks substituted for tax loss harvesting purposes), they have an obligation under NMS to quote at least as tight as the individual components, but that could still be wider than they would on the index.
If you have a perfectly competitive market, you can go to all the market makers, and their spread will approach what they would have quoted on SPY. But if it's not perfectly competitive, and you ask your preferred market maker to quote a wider price and split the difference (via a cash payment to you) versus what she would have quoted on SPY, you can both make a few pennies for every share traded.
The market-wide spread for SPY is smaller than the implied spread from all the 500+ components. If you request your market maker for individual prices on the components (or 470 of the components plus 30 stocks substituted for tax loss harvesting purposes), they have an obligation under NMS to quote at least as tight as the individual components, but that could still be wider than they would on the index.
If you have a perfectly competitive market, you can go to all the market makers, and their spread will approach what they would have quoted on SPY. But if it's not perfectly competitive, and you ask your preferred market maker to quote a wider price and split the difference (via a cash payment to you) versus what she would have quoted on SPY, you can both make a few pennies for every share traded.