Critics of internalization argue the practice ensures that stock prices aren't as realistic as they should be. Some say a number of internalized trades approaching 40 percent implies an unhealthy marketplace.
NYSE also noted that much of the flow being "skimmed from the public markets" was "attractive," leaving the exchanges with the dregs. And because these orders tended to be from professionals, they made market making unprofitable, NYSE averred.
Indeed. Why bother to trot orders out to auction when you can cross them internally and eat your customer for lunch? Not like there are auctions anymore.