Internalisation has emerged as one of the most significant trends in Australian finance, quietly but powerfully shifting how trades are executed, how costs are managed, and how transparency is delivered in the financial markets. As 2025 unfolds, the impact of internalisation is being felt across trading desks, superannuation funds, and retail investor portfolios alike.
What is Internalisation in Finance?
In financial markets, internalisation occurs when a financial institution—typically a bank, broker, or trading platform—executes a client’s order using its own inventory or matches it with another client order, rather than routing it out to the broader market. This process can make trading more efficient and cost-effective, but it also raises questions about transparency and market fairness.
- Example: If you place a share trade through your online broker, instead of sending your order to the Australian Securities Exchange (ASX), the broker may fill your order internally from its own holdings or by matching it with another client’s order.
- Global Perspective: Internalisation is widespread in the US and Europe, but it’s gaining momentum in Australia as regulations evolve and technology advances.
Internalisation in 2025: Regulatory Shifts and Market Trends
Australia’s financial regulators have been closely monitoring the rise of internalisation. In late 2024, the Australian Securities and Investments Commission (ASIC) introduced updated best execution rules that require brokers to provide greater transparency about how and where client trades are executed. These changes, effective from March 2025, are designed to ensure investors receive the best possible outcomes, whether their trades are internalised or routed to public exchanges.
- ASIC’s 2025 Focus: The new rules compel brokers to disclose the proportion of trades executed internally versus externally, and to justify their execution choices.
- Exchange Competition: The ASX and alternative venues like Cboe Australia are adapting to increased internalisation by enhancing liquidity incentives and improving transparency measures.
- Retail Investor Impact: Online brokers are leveraging internalisation to offer zero-commission trades, but must now demonstrate that clients aren’t getting worse prices than they would on open markets.
According to recent ASX data, internalised trades now account for over 17% of total equity volumes in Australia, a jump from just 11% in 2022. This growth is expected to continue as trading technology becomes more sophisticated and as investors demand lower-cost, faster execution options.
Benefits and Concerns: What’s at Stake for Investors?
Internalisation brings clear advantages, but it isn’t without risks. Here’s what Australian investors and institutions need to weigh up in 2025:
- Lower Costs: By keeping trades in-house, brokers can reduce exchange fees and pass on savings to clients.
- Faster Execution: Internalisation can deliver instant trade fills, especially for smaller or less liquid orders.
- Transparency Questions: There are concerns that internalisation could obscure true market prices or disadvantage some investors, especially if best execution standards slip.
- Market Fragmentation: With more trades happening away from public exchanges, price discovery can become less robust, potentially impacting overall market efficiency.
Super funds, ETFs, and institutional investors are increasingly scrutinising their brokers’ internalisation practices, often demanding detailed execution reports and independent transaction cost analysis. Retail investors, meanwhile, should be aware that the cheapest trade isn’t always the best if it comes at the expense of price quality.
What to Watch: Internalisation’s Next Chapter in Australia
With policy changes bedding in and technology driving further innovation, internalisation is set to play an even larger role in Australian finance. Key developments to watch in 2025 include:
- Data-Driven Oversight: ASIC’s new data reporting requirements will shine a brighter light on how orders are handled, potentially exposing poor practices and rewarding brokers who deliver genuine value.
- Broker Innovation: Expect more brokers to launch internal crossing networks and smart order routing systems, promising faster, cheaper trades—but with increased regulatory scrutiny.
- Investor Education: As internalisation becomes more common, understanding how your broker executes trades will be critical for making informed decisions.
Ultimately, the challenge for 2025 is to balance the efficiency and cost benefits of internalisation with the need for open, fair, and transparent markets. Both regulators and industry players are moving fast to ensure this balance is struck.
