Quick definition An order that executes immediately against available liquidity at a specified price without having to wait for better prices to be updated on other venues. What it is An ISO is an order that sweeps multiple venues simultaneously. The order is submitted with an instruction to execute against available liquidity immediately, even if other venues might have slightly better prices that have not yet been updated in the consolidated feed. The submitter of an ISO order accepts responsibility for checking other venues at the moment of submission and either finding no better prices or deciding to sweep immediately. Why it matters ISO orders allow traders to execute immediately in fast markets. Normally, Regulation NMS requires that an order be routed to the venue with the best available price. An ISO order bypasses this requirement by declaring that the submitter has checked and found no better prices available at the moment of execution. This allows the order to sweep liquidity across multiple venues in a single operation instead of being routed to one venue at a time. ISO versus Regulation NMS Protection Under Regulation NMS, orders are normally protected by the order protection rule (Rule 611), which prevents a trade-through. An ISO order is exempt from this protection because the submitter has declared that they have checked for better prices. Practical example An algorithmic trader is submitting a large buy order and wants to sweep all available shares at the current best ask across Nasdaq, NYSE, and Cboe simultaneously. Instead of submitting to Nasdaq first and waiting for the other venues to update, the trader submits an ISO order that sweeps all three venues immediately at the same price level, as long as the trader's system has verified that no venue is quoting better. Risk of ISO orders ISO orders allow traders to execute quickly, but they place the burden on the trader to ensure that no better prices are available. If a trader submits an ISO order and immediately afterwards a better price is published on another venue, the trader may be liable for the trade-through. Algorithms and ISO orders Algorithmic trading systems commonly use ISO orders to execute large orders quickly across multiple venues. The algorithm checks each venue for available liquidity and submits an ISO to sweep all available shares at a given price level. Regulatory environment ISO orders are defined in Regulation NMS and are available on all US equity exchanges. The rules governing ISO orders are the same across all venues. See also - Regulation NMS - Rule 611 (Order Protection Rule) - National Best Bid and Offer (NBBO) - Trade-through
