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Clean Sweep: Informed Trading through Intermarket Sweep Orders

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Author Info

  • Sugato Chakravarty

    () (Purdue University)

  • Pankaj Jain

    () (University of Memphis)

  • James Upson

    () (University of Texas, El Paso)

  • Robert Wood

    () (University of Memphis)

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 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.

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File URL: ftp://128.210.123.107/csr/wpaper/ISOR4_0_JFQAR4_Final.pdf
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Bibliographic Info

Paper provided by Purdue University, Department of Consumer Sciences in its series Working Papers with number 1005.

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Length: 44 pages
Date of creation: Jan 2011
Date of revision:
Publication status: Forthcoming in the Journal of Financial and Quantitative Analysis, pp 1-45
Handle: RePEc:csr:wpaper:1005

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Related research

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

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  1. Demirguc-Kunt, Asli & Love, Inessa & Maksimovic, Vojislav, 2004. "Business Environment and the Incorporation Decision," Policy Research Working Paper Series 3317, The World Bank.
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