Clean Sweep: Informed Trading Through Intermarket Sweep Orders

39 Pages Posted: 25 Aug 2009 Last revised: 3 Dec 2010

Sugato Chakravarty

Purdue University

Pankaj K. Jain

University of Memphis - Fogelman College of Business and Economics

Robert Wood

University of Memphis - Fogelman College of Business and Economics

James Upson

University of Texas at El Paso

Date Written: August 24, 2009

Abstract

An ISO is a limit order designated for automatic execution in a specific market center even when another market center is publishing a better quotation, as long as the trader submits concurrent orders to the other market. We find that ISOs represent 46% of trades and 41% of volume in our sample. ISO trades have significantly larger information share despite their small trade size relative to non-ISO trades. Post trade return analysis suggests that informed institutions are the main users of ISO trades.

Keywords: Regulation NMS, Market Quality, Sweep Order, Flash orders

JEL Classification: G14, G18, G19

Suggested Citation

Chakravarty, Sugato and Jain, Pankaj K. and Wood, Robert A. and Upson, James, Clean Sweep: Informed Trading Through Intermarket Sweep Orders (August 24, 2009). Available at SSRN: https://ssrn.com/abstract=1460865 or http://dx.doi.org/10.2139/ssrn.1460865

Sugato Chakravarty

Purdue University ( email )

Consumer Sciences
1262 Matthews Hall Rm 214F
West Lafayette, IN 47906
United States
765-494-6427 (Phone)
765-494-0869 (Fax)

HOME PAGE: http://web.ics.purdue.edu/~sugato

Pankaj K. Jain

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States

Robert A. Wood

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States
901-678-2670 (Phone)
901-678-3006 (Fax)

HOME PAGE: http://www.people.memphis.edu/~rwood/

James Upson (Contact Author)

University of Texas at El Paso ( email )

500 West University
El Paso, TX 79968-0545
United States

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