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Difficulty: HardTypes of Orders and Order Execution Strategies

An institutional investor enters an order to buy 1,0001,000 shares of ABC stock at a limit price of $50.00\$50.00 with Immediate-or-Cancel (IOC) qualifiers. At the moment the order arrives at the trading venue, the order book displays sell offers of 600600 shares at $49.80\$49.80, 200200 shares at $50.00\$50.00, and 500500 shares at $50.25\$50.25. Which of the following best describes the execution outcome for this order?

  1. 800 shares are executed immediately (600 shares at 49.80and200sharesat49.80 and 200 shares at 50.00), and the remaining 200 shares are immediately canceled.Answer
  2. B
    The entire 1,000-share order is canceled immediately because the full order quantity cannot be filled at or below the specified limit price.
  3. C
    800 shares are executed immediately, and the remaining 200 shares remain posted on the order book as a limit order at $50.00 until filled or canceled at market close.
  4. D
    800 shares are filled from the market, and the broker-dealer must act as a dealer to fill the remaining 200 shares from its proprietary inventory at $50.00 to complete the order.

Answer

800 shares are executed immediately (600 shares at 49.80and200sharesat49.80 and 200 shares at 50.00), and the remaining 200 shares are immediately canceled.
An Immediate-or-Cancel (IOC) order directs the trading venue to execute as much of the order as possible immediately at the specified limit price or better, and to cancel any remaining unexecuted portion right away. Because 800 shares are available at or below the 50.00limit(50.00 limit ( 600 at at \49.8049.80 and 200200 at $50.00\$50.00), those 800800 shares execute immediately. The remaining 200200 shares cannot be filled at or below $50.00\$50.00 and are canceled instantly.

Step-by-Step Solution

1
Identify the order type and execution qualifier constraints.
The order is a Buy Limit order at $50.00 with Immediate-or-Cancel (IOC) instructions.
Limit price sets the maximum buy price at 50.00.IOCdemandsimmediateexecutionofanyavailablequantityatorbelow50.00. IOC demands immediate execution of any available quantity at or below 50.00, with any unexecuted balance immediately canceled.
2
Compare available market sell offers against the limit price of $50.00.
600 shares at 49.80(satisfied,betterthanlimit)+200sharesat49.80 (satisfied, better than limit) + 200 shares at 50.00 (satisfied, at limit) = 800 total shares available.
The 500 shares offered at 50.25exceedtheinvestor′smaximumlimitpriceof50.25 exceed the investor's maximum limit price of 50.00 and cannot be executed.
3
Apply the IOC cancellation rule to the unfilled balance.
1,000 requested shares - 800 executed shares = 200 shares unexecuted. The 200 remaining shares are immediately canceled.
Unlike standard limit orders, IOC orders do not allow unfilled quantities to rest on the order book.

Key Concept

Immediate-or-Cancel (IOC) Order Execution Mechanics
Estimated Time:1m 30s
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Topics

Types of Orders and Order Execution Strategies