What ISOs Are
An intermarket sweep order is a limit order that can be executed immediately at a venue without waiting for better-priced quotes at other venues, because the sender simultaneously routes sweep orders to those other venues. ISOs are designed for rapid execution across fragmented markets.
ISO Use in Market Making
Market makers use ISOs to rapidly execute and hedge positions across multiple venues. The ability to sweep markets simultaneously allows for faster risk management than sequential routing. ISOs are a tool that sophisticated, well-capitalized market participants use routinely.
Regulatory Context
ISO use is subject to Regulation NMS requirements. FINRA and SEC regulations govern when ISOs are appropriate and what compliance obligations accompany their use. Violations of ISO rules are a category of potential enforcement findings.
Investor Relevance
Retail investors do not typically use ISOs directly, but they are affected by how market makers use them. The speed and sophistication of ISO-based execution by market makers like Citadel Securities directly affects the market environment in which retail orders are executed.