Comment by physguy1123

It is strictly not internalization, in fact, and as far as I know from friends working on retail at the new owner of Timber Hill IB and Timber Hill didn't ever cooperate on optimal routing strategies since Thomas Pterfry didn't want people loosing faith in IB routing. There are plenty of reasons why Timber Hill might win the trade:

  * They might be first in the queue on a price-time exchange, and so naturally get the order

  * They might be on a price-size exchange, and so get some of the fill simply by being present.

  * They probably participate in the auction process, and will naturally get some portion of orders that IB initiates

For what it's worth, Timber Hill USA was bought by Two Sigma ~1 year ago. It wasn't actually unprofitable as shown by public filings, but wasn't making much and Thomas Pterfry didn't want an illusion of conflict of interest.