Abstract
Traders use Intermarket Sweep Orders (ISO) to trade ``as-if the market were single-venued and avoid the fragmented environment. Using a sample of over 2,600 securities over the period January 2019 to April 2021, I find that traders are willing to pay a premium of roughly 40% of the effective spread to trade with ISOs. The premium is explained by market fragmentation as measured by an exchange-based Herfindahl–Hirschman Index, fraction of off-exchange trade, and dispersion in realized variation (RV) across exchanges. A 1% increase in each of these measures are associated with a 1.28%, 0.29%, and 0.18% rise in the premium respectively. This relationship is very robust, it is greater for securities traded across more exchanges; it persists across different measures, methodologies, and sub-samples.
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