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Does the Customer Get Hurt by Internalization?

Traders Magazine, December 2004

Staff Reports

Trading against a client's stock orders is not necessarily bad. Indeed, internalization does not hurt efforts to achieve best execution. Those are two of the conclusions of a new study on execution and routing practices in the U.S. "While internalization may appear nefarious, this study found no evidence that brokerage firms that heavily internalized orders suffered from execution quality inferior to that of brokerage firms that did not engage in internalization or did so in a limited fashion," noted the study by industry consultant Celent Communications. The report also said that the degree of a firm's internalization had nothing to do with its execution efficiency.

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