BD Internalization

Discussion in 'Order Execution' started by clearinghouse, Jun 27, 2011.

  1. Can a broker-dealer MM turns off/kicks out a trader because they deemed the trader's trading to be bad for business? And at what level does this happen? Do you continue to trade but notice worse trading, or do they outright just route your orders elsewhere? Is the technology such that they just flag you and refuse to trade with you in this scenario? How does this work?
  2. JackR



    You don't say what you trade - equities, bonds, options, futures, or Forex. Those markets have different regulators and degrees of regulation.

    If you are a retail trader your broker can close your account for no stated reason. However, most brokers make their money off your trading commissions and margin interest, so they normally have no reason to get rid of you.

    That said, my broker is InteractiveBrokers and from time-to-time someone posts here on ET that IB has warned them that they are entering\modifying\cancelling too many orders versus the number of completed trades. If they don't correct the ratio they will have their account closed.

    The Forex marketplace was basically unregulated so there was no rule against a broker taking the other side of a client's position. Some Forex firms trade against their clients and I have seen posts indicating that "bad things" seem to happen. This is is now changing due to the regulators becoming aware of the abuses.

    You might search for "payment for order flow" (or orderflow) here on ET for another area of potential conflict of interest.

  3. Occam


    Yes -- this is very possible -- NITE will do this, under certain circumstances -- it's at the broker level, then the broker talks to the client.
  4. So the trading continues, but you get a warning, and if you keep doing it, they just revoke access? There's no subtle sort of degradation of trading, right? Or is it all a matter of just staying under the radar?