If my broker matches my order with an opposite order from another of its clients internally (without hitting any 3rd party Exchange or dark pool), what is this called? Is the broker effectively a dark pool? Who does it report the trade to? Does the broker have to report the trade within a mandatory time period?
The answer to your first question without a number is not "internalization" because the broker is not acting as principal, but agent. If your broker was the counterparty to the client, that would be called internalization. If your broker is pairing off orders before hitting any lite exchange, it sounds like a dark pool. So now your numbered questions. #1-sounds like a yes. #2-If not crossed on a Lite exchange, I would expect ADFN. #3-Yes.
Thank you. I found the term "Cross Trade" on Investopedia which I think is a fitting description. Regarding question 3, what is the time limit imposed on the broker to report such a trade? What is a Lite exchange?
A crossed trade is done on a trading desk. An example might be for a sales desk to get a number of institutional orders from a hedge fund, then they make calls to find the other side. The original order is helped in finding liquidity through the trading desk and the broker executing the order gets 2 commissions. They can cross that on any ECN or exchange that lets them. With regard to when they must report those trades, it is not a trade until printed on an Exchange or ECN. If done on an alternative trading network or dark pool, the rules are too complicated for me. https://www.finra.org/filing-reporting/market-transparency-reporting/trade-reporting-faq. A Lite exchange is an exchange that shows their order book. E.G. NYSE, ARCA, EDGX, etc.