Sweep-To-Fill Order

A sweep-to-fill order is a type of market order in which a broker splits the order into numerous parts comprising the best prices and amounts at that price currently offered on the market for speedier order execution. A sweep-to-fill order is executed immediately based on the best possible price and allows the investor to enter the stock as soon as it is available for sale.

Sweep-to-fill orders are conducted by a broker-dealer. Sweep-to-fill order processing is typically a standard way for large orders to be processed however some platforms may require that an investor specify the use of a sweep-to-fill order if they wish to transact in this way. (See also: Getting to Know the Stock Exchanges)

Sweep-to-fill orders may also be known as an intermarket sweep orders (ISOs). These orders can be used when a stock is traded on more than one exchange or available through multiple trading centers also known as electronic communication networks (ECNs). Generally, ECNs are more broadly available to institutional investors seeking to make non-public trades. Thus, sweep-to-fill orders are more common for institutional trades.

Fewer retail orders need to be fulfilled as a sweep-to-fill order because most companies choose to list on a single exchange. The major exchanges comprise the majority of trade activity for retail investors and typically offer the most competitive price. (See also: Can stocks be traded on more than one exchange?) Companies that do list on multiple exchanges typically do so to increase their liquidity and investor demand.

Sweep-to-fill orders are facilitated by broker-dealers with technology for accessing a broad range of exchanges. In a sweep-to-fill order a broker-dealer will fill the order at various market prices providing the investor with an average buying price.

Most broker-dealers have technology systems linked to all the major exchanges including; NYSE, Nasdaq, ARCA, AMEX and CBSX. When an order is placed it is sent to all of the exchanges in the broker’s network to identify lots and prices.

For an example, consider a trader who wants to buy 1,000 shares as quickly as possible before the company issues an earnings report. The stock that they are seeking is dual listed on the NYSE and Nasdaq. When placing the trade the trader specifies that sweep-to-fill order processing should be used. The trading system then identifies 500 shares immediately available from the NYSE at $40. The next lot of shares is identified with the Nasdaq which has another 500 shares offered at $42. The platform is able to execute the entire transaction. It reports a trade confirmation to the investor with an average price of $41.