Clean Sweep: Informed Trading Through Intermarket Sweep Orders

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