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Clean Sweep: Informed Trading through Intermarket Sweep Orders

Author

Listed:
  • 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.

Suggested Citation

  • Sugato Chakravarty & Pankaj Jain & James Upson & Robert Wood, 2011. "Clean Sweep: Informed Trading through Intermarket Sweep Orders," Working Papers 1007, Purdue University, Department of Consumer Sciences.
    • Handle: RePEc:csr:wpaper:1007
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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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