  We analyse two models of liquidity provision to determine the retail traders'
preference for marketable order routing. Order internalization is captured by a
model of market makers competing for the retail order flow in a Bertrand
fashion. On the other hand, the price-taking competitive liquidity providers
characterize the open exchange model. We show that, when liquidity providers
are risk averse, routing of the marketable orders to the wholesalers is
preferred by all retail traders: informed, uninformed and noisy. The
unwillingness of liquidity providers to bear risk causes the strategic trader
(informed or not) to absorb large shocks in their inventories. This results in
mean reverting inventories, price reversal, and lower market depth. The
equilibria in both models coincide with Kyle (1985) when liquidity providers
are risk neutral. We also identify a universal parameter that allows comparison
of market liquidity, profit and value of information across different markets.
