An intermarket sweep order is generally a large quantity limit order that is sent to multiple exchanges simultaneously. The trader submitting this type of order is required to fulfill Regulation NMS order protection obligations and exchange rules by simultaneously sending orders to market centers with better prices than the defined order limit.
Traders may see, on occasion, execution prices reported to time and sales that are at price levels through an order that they may have had working at the time. Some time and sales service providers reflect these prints with a special designation (intermarket sweep). The TWS software does not display these designations, therefore, it may appear as if a order was due an execution when it may not have been.
This article is being written in attempt to assist traders in understanding intermarket sweep transactions.
When an intermarket sweep order is being executed, only the inside quote (NBBO) at each available exchange is "protected". This means that orders resting on an exchange at prices that are inferior to the best bid or ask prices at the time of the intermarket sweep print are not considered to be "protected" and may be traded through.
The trader that enters the intermarket sweep order would be required to fulfill their Regulation NMS requirement by executing the maximum available quantity on exchange A at 40.63 and then may execute the balance of the order on exchange B at 40.88 even though it is at a price that is inferior to the 40.80 order resting in the book on exchagne A. The 40.80 price is not the inside quote and is therefore not "protected" in terms of the balance of the sweep order executing at exchange B at a price of 40.88.
A wealth of information is available on the web regarding intermarket sweep orders and SEC regulation NMS. The following are some links that may be useful in terms of providing additional information on these topics;
Each exchange has rules that define how intermarket sweep orders are handled. The following are reference links to the rulebooks of the primary exchanges where traders can find more informaiton on intermarket sweep order handling;