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 a 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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During the Flash Crash on May 6, 2010, a short period of high stock market volatility, some stock prices declined to $0.01, while others increased to $100,000. Examining Intermarket Sweep Orders (ISOs) before, on, and after May 6, we find that ISO use is substantially higher on May 6. For those stocks whose prices fell the most, over 65% of the sell volume comes from ISOs. During the price recovery period for these stocks, about 53% of the buy volume comes from ISOs. We believe that the unusual behavior of ISOs contributed to the sudden drop and recovery of the market.

Under the Securities and Exchange Commission (SEC) Rule 611 exchanges that have not matched a new National Best Bid and Offer (NBBO) can trade at the old NBBO for one second. In 2008, this rule allowed fast traders to earn estimated revenues of $233 million at the expense of slow traders. Furthermore, we find that when the NYSE decreased latency by 600 milliseconds on March 10, 2008, execution quality improved markedly for fast liquidity demanders, but improved only minimally for slow liquidity demanders. However, we find a decrease in volume executed at adverse prices under the faster market conditions.