Internalization

AAA

DEFINITION of 'Internalization'

A transaction conducted within the confines of a corporation rather than in the open market. Internalization can apply to a multinational corporation shifting assets between subsidiaries cross border. In investing, internalization refers to the decision by a brokerage firm to fill a buy order for shares of security from its own inventory of shares rather than seeking to execute the trade using outside inventory.

INVESTOPEDIA EXPLAINS 'Internalization'

Brokerage firms internalize securities orders to take advantage of the difference between what they purchased shares for and what they sell them for, known as the spread. For example, a firm may see a greater spread by selling its own shares than by selling them on the open market. Additionally, because shares are not conducted on the open market the brokerage firm is less likely to influence prices if it sells a large portion of shares.

RELATED TERMS
  1. Market-Maker Spread

    The difference between the price at which a market maker is willing ...
  2. Electronic Communication Network ...

    An electronic system that attempts to eliminate the role of a ...
  3. Open Market

    An economic system with no barriers to free market activity. ...
  4. Broker

    1. An individual or firm that charges a fee or commission for ...
  5. Spread

    1. The difference between the bid and the ask price of a security ...
  6. Exchange

    A marketplace in which securities, commodities, derivatives and ...
Related Articles
  1. Principal Trading and Agency Trading
    Investing Basics

    Principal Trading and Agency Trading

  2. Understanding Order Execution
    Investing Basics

    Understanding Order Execution

  3. 6 Proven Methods For Selling Stocks
    Mutual Funds & ETFs

    6 Proven Methods For Selling Stocks

  4. How Warren Buffett made Berkshire Hathaway ...
    Stock Analysis

    How Warren Buffett made Berkshire Hathaway ...

Hot Definitions
  1. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  2. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  3. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  4. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  5. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  6. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
Trading Center