What is an "Intermarket Sweep"?

[vanzandt]

Can someone put this in layman's English for me and is it important when looking at a security's "largest option trades" for the day?
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An ISO order (intermarket sweep order) is an order type designation that provides an exemption from Reg NMS, with regard to protecting the NBBO. Reg NMS provides that under normal circumstances, one cannot by stock at $10.01 unless one has already exhausted the displayed liquidity at $10.00. However, if one tags their buy order as an ISO when trying to buy the $10.01 stock, they are implying to the exchange they route the order to that they have already checked availability at $10.00, and the exchange the buy ISO was directed to can just fill the order at $10.01. The exchange, after filling the buy ISO buy order, can cancel back any unfilled portion, but they do not have to. The ISO order is understood to be a liquidity taking order, and incurs take fees.

 

[Daal]

An ISO order can trade at worse prices than whats quoted elsewhere (with some restrictions). Why would someone do that? Because its about liquidity not price, if someone is offering 5K at 10.01 but someone is offering 100 at 10.00, you dont really care about that 10 offer. If you are in need of liquidity, you just want to take out the 5K guy instead of risking tipping off your hand to other players by taking a bunch of 100 share offers at 10

This is simplified but that is the logic of them. Of course, lots of HFTs use it for other purposes

 

[spread'em]

Could an ISO be used to hunt for stops without having to sweep the book? Or can you only take limits and stops are left un-touched?

If plausible, that would be my incline as to why HFTs would use this order type.

 

[2rosy]

Could an ISO be used to hunt for stops without having to sweep the book? Or can you only take limits and stops are left un-touched?

If plausible, that would be my incline as to why HFTs would use this order type.

more likely hfts or anyone would be on the other side of an ISO taking advantage of a price swing to buy cheap or sell dear. at least thats how it was in '08 when this was popular

 

[Daal]

Could an ISO be used to hunt for stops without having to sweep the book? Or can you only take limits and stops are left un-touched?

If plausible, that would be my incline as to why HFTs would use this order type.

It would depend on the mechanics of the stop order. I believe the ISO trades would trigger the stops, unless the stop logic has something that prevents trades off the NBBO from setting off the stop. I have no idea how common is for them to incorporate that