You two are talking about different things. They are similar but the mechanics are different. IB&#x27;s example is an internalization pool where liquidity providers <i>may</i> post quotes and potentially fill within the NBBO when they have a desire to match&#x2F;improve the quote.<p>The KCG and Citadel business is called wholesaling. A broker like Schwab has market orders or marketable limit orders from customers. They make an agreement with a wholesale market maker like Citadel to fill <i>all</i> of those orders up to a certain size possibly, within the NBBO, in exchange for a fee and some price improvement requirements.<p>So imagine you&#x27;re Citadel. You have a stream of incoming orders that you commit to fill at the current market prices with a bit of improvement. If the order flow is small, you just sit on the delta waiting for flow in the other direction or trade out patiently on exchange to make a spread. If the flow becomes largely imbalanced, you can liquidate the delta aggressively on the public market to hedge at a very small cost. Say the NBBO is 100.50 bid 100.51 offer and you just sold 500 shares at 100.5099 and bought 2000 at 100.5001. You can dump the 1500 residual on the exchange bid or in dark pools, whatever, and all you lose is the price improvement you gave and fees, which are smaller than the spread you make on a &quot;good&quot; trade.<p>In effect, the wholesaler is cherry picking and getting a cheap option to make a spread. All the small retail trades that are easy to capture spread on get siphoned off the exchanges, and they&#x27;re left with only the imbalanced toxic ones. This is good for the wholesaler, good for the retail trader (he gets a bit of price improvement and lower trading commission), bad for the exchanges, and bad for on-exchange market makers like most HFT firms.<p>It&#x27;s arguably &quot;fair&quot; to price uninformed flows differently, it&#x27;s very common in some markets like FX, but locking that up behind opaque pricing agreements where only a handful of firms participate isn&#x27;t. Most market making firms would gladly compete to offer even more sub-penny price improvement to retail trades, and there are even a few exchange programs that tried to do this but never got much traction.