What Is the Intermarket Surveillance Information System?
The Intermarket Surveillance Information System - ISIS - is a publicly-accessible electronic database in which securities trade information is stored. The Intermarket Surveillance Information System contains data that includes the time of the trade and all participants involved for equity and options trades. ISIS allows regulators to audit the trail of securities trades. It is a database that distributes information from all the major stock exchanges in the United States to market participants and observers.
The Intermarket Surveillance Information System was developed in order to counter the possibility of fraudulent trading, since a database open to the public sheds light on trades that may be spurious or based on insider information. Regulators are able to set up alarms that can be tripped if certain transactions occur relating to specific securities, and then audit the transaction trail in order to determine if something is amiss.
Understanding Intermarket Surveillance Information System (ISIS)
The Intermarket Surveillance Information System (ISIS) is a system for storing and retrieving options and equity trade information from the eight national securities exchanges, including the New York Stock Exchange (NYSE) and more important National Association of Securities Dealers (NASD). Included in the ISIS system is information on trades, the times and places where they occurred, the firms involved, and the brokers making the trades. It acts as a data sharing tool that collects information on equity and options transactions in order to verify order fills and provide an audit trail for regulators if fraud is suspected. It thus allows regulators and exchange officials to monitor the market and protect the investing public from malfeasance. The information provided is made available online to give surveillance personnel complete timely data about transactions potential violations.
The ISIS system is administered by The Intermarket Surveillance Group (ISG), an organization established in the early 1980s and is comprised of an international group of exchanges, market centers, and market regulators that perform front-line market surveillance in their respective jurisdictions.
For instance, the ISIS system's time and sales data can be used to detect and prosecute front-running of orders, which is where a broker trades ahead of a customer order for their own account. So if a customer places an order to buy 10,000 shares of XYZ stock and the broker buys XYZ for his account before that of his customer (meaning that the customer will have a higher priced fill than he would otherwise), this would constitute illegal front-running. The ISIS system would be able to determine if in fact the time of the broker's order execution preceded the customer's. If evidence is revealed for this type of fraudulent trading activity, the broker can be fined, lose his license, or face criminal penalties.