The Trade-At Rule, Internalization, and Market Quality

46 Pages Posted: 25 May 2011 Last revised: 8 May 2014

Date Written: April 17, 2014


The SEC is considering the imposition of a trade-at rule which requires venues not at the inside to either significantly improve on price or route to a venue that is quoting at the inside. The rule is expected to greatly reduce the internalization of order flow either directly or through dark pools established to allow indirect internalization. This paper finds that internalization (direct and indirect) is associated with wider spreads (quoted, effective, and realized), higher price impact per trade, and increased volatility. I conclude that imposing a trade-at rule on US markets would improve the quality of markets.

Keywords: Trade-at; internalization; market quality; dark pool

JEL Classification: G12, G14, G18

Suggested Citation

Weaver, Daniel G., The Trade-At Rule, Internalization, and Market Quality (April 17, 2014). Available at SSRN: or

Daniel G. Weaver (Contact Author)

Rutgers Business School ( email )

94 Rockafeller Road
Piscataway, NJ 08854
United States
848.445.5644 (Phone)
732.445.2333 (Fax)


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