There is a question on the exam about routing an ISO order. I think the questions was something like this: A trader owns 3000 shares of ABC and wants to sell them. The current BID for ABC is: Market Center A: 10.09 1000 10.08 500 10.07 2500 Market Center B: 10.09 500 10.07 1000 10.06 3000 what will happen if the trader routes the order to Market Center B? Do any of you recall this question on the exam?
Did the question say it was an ISO order? If it didn't, I think Market Center B fills the order at $10.09 for 500 shares. Routes to A to fill $10.09 for 1000 shares. And then fills the rest of 1500 shares on B at $10.07 for 1000 and 500 shares at $10.06. There are some assumptions in that though (e.g. no other markets, it was a routable order but not one that gets the best price.... There are so many assumptions that I doubt they could ask this). If it's ISO the whole thing would be filled on B.
@monstimal Yes. The exam said it was an ISO order. Wouldn't the 10.08 be protected through the NBBO ? thanks for your feedback
I'm not certain on this but I believe because market center B was at the NBBO, you can send an ISO to that center for your full size. Only the 10.09 is protected on center A and since B also has that price you can send an ISO to B. If B did not have that bid at 10.09, you would technically not be allowed to send the ISO there. As I said though, I'm not certain about that. I know it seems like, as soon as you take B's 10.09 out with the first part of your order, the 10.09 and 10.08 on A becomes the NBBO so the rest of your order shouldn't execute, but I believe the only thing you are required to do when you send an ISO is to show that the market you sent it to at that instant was on the inside, even if your fill will go deeper. edit: Check out this thread: http://www.elitetrader.com/vb/showthread.php?threadid=127957 I think an ISO order to B will be completely filled on B. I think in the case of the question you have, you are obligated to also send an ISO order to take out A's 10.09 shares. You are not obligated to take out their 10.08 though. I don't understand how in those other threads their orders are getting routed to another market. An ISO cannot be routed, you are saying when you send it that you are taking out the other protected quotes yourself with other ISO orders. You are required to include a report that shows this.
monstimal, who receives the report showing that the other protected quotes were taken out; is it sent to the exchange to which an ISO is directed? Thanks.
I think your broker must make a report that goes to NASD? There's some info here in question 3.03: http://www.sec.gov/divisions/marketreg/nmsfaq610-11.htm#sec3
Iso orders give up the requirement of having to route to NBBO. A market b ISO order will execute completely at market b. By definition they do not route. Even if market b was not at NBBO.