What are 'Imbalance Only Orders (IO)'

Imbalance only (IO) orders are limit orders that provide liquidity during the opening cross and closing cross on the Nasdaq. These orders can be categorized as Imbalance-Only Open orders or Imbalance-Only Closing orders.

BREAKING DOWN 'Imbalance Only Orders (IO)'

Imbalance only (IO) orders will execute only on the opening cross or closing cross. IO orders can be to buy or sell. IO buy orders only execute at or below the 9:30 a.m. or 4 p.m. bid price, while IO sell orders only execute at or above the offer price. Before opening and closing crosses are executed, buy or sell IO orders are re-priced to the best bid and ask price, respectively, on the Nasdaq book. IO orders must necessarily be limit orders; market IO orders are not permitted.

IO orders are not displayed or disseminated. They neither add to an imbalance, nor do they establish the opening or closing price. Since IO orders are only executable during the opening cross or closing cross, they are not at risk of being executed prior to market open or close. In this way, they are different from continuous market orders.

Imbalance Only (IO) Orders Timing and Considerations

While IO orders are not displayed, imbalance reports are published starting late in the trading day. This report will provide updates on the buy and sell orders that have already been put in place. A buy imbalance indicates an excess of buy orders linked to a certain price as compared to the relevant sell orders. In this scenario, the stock price will rise until the buy and sell orders balance out. But with a close buy order imbalance, this would indicate that all pending orders may not necessarily be completed.

IO orders are accepted on the Nasdaq starting from 7 a.m. Imbalance information is first released for the day at 9:28 a.m., shortly before the opening cross. Market participants cannot update IO orders for the opening cross after 9:28 a.m., or update IO orders for the closing cross after 3:50 p.m. However, in both cases, new IO orders can still be entered after those deadlines.

Note that IO orders can sell short. Sell-short IO orders and sell IO orders priced at or below the best bid price are re-priced to the best offer price at 4 p.m. During the closing cross, sell-short IO orders are executed on a downtick only if the closing price is better than the best bid; these orders will not participate if the closing price is at or below the best bid.
 

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