Skip to content
All library documents

Regulation NMS Responsibility for Intermarket Sweep Orders

Article Quant Q&A · Author: Palace Chan
Read the original

Summary

The document clarifies the meaning of an intermarket sweep order (ISO) in the context of U.S. equity market rules. It distinguishes an ISO from an order that is automatically routed to other venues when it encounters better displayed prices. Instead, submitting an ISO signals that the submitting party has taken responsibility for complying with Regulation NMS and seeks execution at the specified venue without routing away.

The answer also notes that using this order type entails a regulatory burden because the trader or firm must take responsibility for checking market-wide quotations. The exchange discussion frames the order as a way to sweep prices on one venue while the sender handles the intermarket compliance obligation. It offers a brief conceptual distinction rather than operational instructions, rule citations, or detail on eligibility and execution mechanics, so those specifics are not established by the document.

Key ideas

  • An ISO directs the exchange to execute at its venue without routing the order elsewhere.
  • The submitting party accepts responsibility for Regulation NMS compliance.
  • The sender must account for protected quotations across venues when using an ISO.
  • An ISO therefore differs from an order that relies on the venue to route for better external prices.

Tags

EquitiesExecutionMarket microstructure
Full text
# What exactly is an ISO order?


# What exactly is an ISO order?












I have been looking this up and I feel like I keep running into different definitions. My understanding is that an ISO order is one which will get filled with the displayed quantity in a particular exchange's book until it needs to be routed to other market venues in order to comply with reg NMS.

Looking at http://usequities.nyx.com/markets/nyse-arca-equities/order-types (towards the bottom) it makes it sound like an ISO order will sweep down the levels of ARCA's book without regards to external quotes. This sounds like it's either a violation of reg NMS, or an exception in which the trader takes on the liability of having checked the NBBO himself. If it is the latter case, it is still different from the definition above.

So which one is it?

## Answer by chrisaycock (score 7, accepted)

https://quant.stackexchange.com/a/7838

Your first definition is wrong; I'm not sure where you got that from. Your second definition is correct: the ISO alerts the exchange that the submitting party has taken responsibility for RegNMS and requests a fill at only that venue's price; there is no routing away. Obviously, there is a huge red-tape burden to get permission to do this.

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.