Internalization: Is It Really That Bad?

摘要

Internalization is one of the most difficult issues to approach in the U.S. equities markets. Many broker-dealers are unwilling to discuss the topic at all, and conversations with market participants frequently require the presence of lawyers, who carefully vet any responses. Given the nature of intemalization, it is not difficult to understand such caution. Intemalization has engendered much debate, and much has been written about the impact of intemalization on market quality, price discovery and overall fairness of the market. However, little has been published to quantify to what extent order flow is internalized and how much impact that intemalization has on the quality of order execution. In a recent study, Celent sought to address this issue and determine both the prevalence of intemalization in the U.S. equities markets as well as the impact intemalization has on execution quality, if any.