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Exchange Routing, NBBO Fills, and ISO Order Handling

Article Quant Q&A · Author: Kumar
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Summary

The document explains how an equity order larger than the displayed quantity at one exchange may be handled when other venues show the national best bid or offer. A routed order can seek liquidity at another venue, potentially incurring a routing fee; the venue’s choice in a tie is left uncertain. The response emphasizes that routing behavior depends on the exchange and order-entry protocol, including the flags and routing options available to the sender.

For an intermarket sweep order, the sender takes responsibility for complying with applicable price protections, so the receiving exchange may execute beyond the NBBO under the described conditions. A no-route order can instead be canceled for any unfilled remainder. The answers do not establish a universal tie-breaking rule, and actual handling depends on venue rules and protocol details. The exchange-specific claims are presented as general guidance rather than a complete account of current regulation or all market configurations.

Key ideas

  • A routable order may be sent to another venue to access liquidity at the NBBO, with routing fees possible.
  • Tie-breaking between venues is not specified and may depend on the exchange.
  • Order-entry protocols and flags determine whether and how an exchange routes an order.
  • An ISO sender assumes responsibility for price protection, while a no-route order may have its remainder canceled.

Tags

EquitiesExecutionMarket microstructureUS markets
Full text
# Market order quantity greater than quantity of the inside quote at the exchange


# Market order quantity greater than quantity of the inside quote at the exchange












If I send a market order to an exchange with quantity greater than the quantity of the inside quote at this exchange, and if another exchange has quantity to fill the residual portion at NBBO, will my order by routed to that exchange? Will I be charged a routing fee? How does the exchange decide where to route the order in case of a tie?

What happens If I send it with an ISO instruction (intermarket sweep order) to not route it and avoid paying the routing fee. Would the residual be cancelled? Or is it filled on the same exchange at an inferior price? I guess that would be a RegNMS violation.

Also, how is the exchange for the NBBO determined in case of tie? Is it based on the primary listing for the stock?

## Answer by chrisaycock (score 5)

https://quant.stackexchange.com/a/3053

Normally, an order is indeed routed to a different exchange to fill at NBBO. The exchange will then levy a fee for this routing. I'm not sure how the exchange actually chooses where to route in the case of a tie; I suspect that decision is up to the exchange operator so long as the SEC agrees.

As for an ISO order, the sender is effectively taking responsibility for ensuring the correct price. So for a market order, the exchange is allowed to fill outside the NBBO. This isn't a RegNMS violation since the party that sent the order claims responsibility for it. (That's why there are very strict rules regarding what kind of party is allowed to send an ISO order.)

## Answer by Louis Marascio (score 1)

https://quant.stackexchange.com/a/3091

Order entry protocols allow the sender to specify how they want their order routed. Some protocols such as NASDAQ's Ouch don't support routing where as others, such as RASH, do. How the order is entered and what flags are set will dictate how the exchange handles routing.

In the case of a no route order you'll simply receive a cancel for the un-executed shares.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.