Intermarket sweep order
Encyclopedia
Intermarket sweep orders (ISO) are limit order
s that require they be executed in one specific market
center even if another market center is publishing a better quote, disobeying the order-protection rule. They are typically used by institutional algorithmic investors and not by individual investors. Intermarket sweep orders were thought to have played a role in the May 6, 2010 Flash Crash
, but upon further examination it became evident that it was market orders and not ISO orders that caused the crash, as by definition an ISO has a price component and cannot cause a precipitous drop in price.
This isn't correct. Intermarket sweep orders sweep several different market centers and scoop up as many shares as possible from them all. These work against the order-protection rule. For example, if a trader is trying to buy 100 shares of X, and there are 10 shares of X being offered at $1 at one exchange and 1000 at $1.10 at another exchange, the order protection rule would let you buy ONLY those 10 shares at $1, after which you would need to send in other orders. With the ISO, you can buy the 10 shares at $1 and the remaining 90 at $1.10 on the other exchange subsequently.
Order (exchange)
An order in a market such as a stock market, bond market, commodity market or financial derivative market is an instruction from customers to brokers to buy or sell on the exchange.These instructions can be simple or complicated...
s that require they be executed in one specific market
Stock market
A stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...
center even if another market center is publishing a better quote, disobeying the order-protection rule. They are typically used by institutional algorithmic investors and not by individual investors. Intermarket sweep orders were thought to have played a role in the May 6, 2010 Flash Crash
May 6, 2010 flash crash
The May 6, 2010 Flash Crash also known as The Crash of 2:45, the 2010 Flash Crash or just simply, the Flash Crash, was a United States stock market crash on May 6, 2010 in which the Dow Jones Industrial Average plunged about 1000 points—or about nine percent—only to recover those losses within...
, but upon further examination it became evident that it was market orders and not ISO orders that caused the crash, as by definition an ISO has a price component and cannot cause a precipitous drop in price.
This isn't correct. Intermarket sweep orders sweep several different market centers and scoop up as many shares as possible from them all. These work against the order-protection rule. For example, if a trader is trying to buy 100 shares of X, and there are 10 shares of X being offered at $1 at one exchange and 1000 at $1.10 at another exchange, the order protection rule would let you buy ONLY those 10 shares at $1, after which you would need to send in other orders. With the ISO, you can buy the 10 shares at $1 and the remaining 90 at $1.10 on the other exchange subsequently.