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Clean Sweep: Informed Trading through Intermarket Sweep Orders

Published online by Cambridge University Press:  18 January 2012

Sugato Chakravarty ,
Pankaj Jain ,
James Upson  and
Robert Wood
Sugato Chakravarty
Affiliation:
College of Health and Human Sciences, Purdue University, 812 W State St, West Lafayette, IN 47906. sugato@purdue.edu
Pankaj Jain
Affiliation:
Fogelman College of Business and Economics, University of Memphis, 3675 Central Ave, Memphis, TN 38152. pankaj.jain@memphis.edu, rawood@pobox.com
James Upson
Affiliation:
College of Business, University of Texas at El Paso, 500 W University Ave, El Paso, TX 79968. jeupson@utep.edu
Robert Wood
Affiliation:
Fogelman College of Business and Economics, University of Memphis, 3675 Central Ave, Memphis, TN 38152. pankaj.jain@memphis.edu, rawood@pobox.com
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Abstract

An intermarket sweep order (ISO) is a limit order that automatically executes in a designated market center even if another market center is publishing a better quotation. An investor submitting an ISO must satisfy order protection rules by concurrently submitting orders to the markets with better prices. We find that ISOs represent 46% of trades and 41% of volume in our sample. ISO trades have a 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.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 47 , Issue 2 , April 2012 , pp. 415 - 435
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2012

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