An Indication of Interest (IoI) is a non-binding expression of a trader’s interest in buying or selling a security. IoIs are typically used in the pre-trade negotiation phase to gauge market interest and potential liquidity. Traders and brokers use IoIs to communicate their intentions to counterparties without committing to a trade. While IoIs are generally not considered offers or orders, they can influence market sentiment and trading strategies.
What Is an IOI and Why It Matters
An Indication of Interest (IOI) is a non-binding communication that signals a buyer’s or seller’s interest in a particular security. Unlike firm orders, IOIs are exploratory in nature—they allow institutional traders and brokers to feel out potential counterparties and assess market interest before executing large or sensitive transactions. IOIs are particularly valuable in less liquid markets, or when market participants want to avoid signaling their intentions publicly through visible orders.
Typical Elements in an IOI
IOIs generally contain the following components:
Security identifier (e.g., ISIN or ticker symbol)
Side of interest (buy or sell)
Volume or size
Price or price range (optional)
Time validity or duration
Originator identity (sometimes anonymous in dark pools)
These messages can be transmitted via electronic trading platforms, order management systems (OMS), or directly through communication channels like Bloomberg or chat.
IOIs in Institutional and Dark Pool Trading
In block trading and dark pool environments, IOIs serve as essential tools for matching large trades without revealing intent to the broader market. For institutional investors:
IOIs help minimize market impact
Preserve anonymity for large orders
Facilitate negotiation of complex trades
They are often used in over-the-counter (OTC) trading scenarios and within alternative trading systems (ATS), where pre-trade transparency rules are different from traditional exchanges.
Compliance Risks and Regulatory Oversight
Because IOIs can shape market perception without representing a firm commitment, regulators closely monitor their use. Key regulatory concerns include:
Transparency: Misrepresenting IOIs as executable orders or using them to manipulate market sentiment
Selective disclosure: Sending IOIs only to preferred clients with unequal access to information
Insider trading: Issuing IOIs based on material non-public information (MNPI)
In the U.S., FINRA Rule 5210 requires that IOIs be truthful and not misleading. The SEC also enforces anti-manipulation rules around fair dealing. In the EU, the Market Abuse Regulation (MAR) governs any misuse of IOIs in ways that could distort markets or involve unlawful disclosure.
Red Flags in IOI Activity
Firms should be alert to behavior that may indicate inappropriate or abusive use of IOIs:
Frequent issuance of IOIs with no follow-through trades
IOIs placed just before price-sensitive news or events
IOIs in contradiction to subsequent trade execution (e.g., indicating “buy” while selling)
Use of IOIs by employees without pre-trade approval
Repeated use of IOIs to nudge prices in thinly traded securities
These patterns can indicate manipulation, intent to mislead, or potential insider dealing.
Best Practices for Firms Using IOIs
To manage compliance risk and maintain market integrity, firms should:
Establish written policies defining who can issue IOIs and under what conditions
Maintain audit trails and logs of all IOIs, including recipients and related trades
Conduct surveillance and exception reporting on IOI activity
Train traders, sales staff, and compliance teams on regulatory risks
Coordinate communications oversight (emails, chat, voice) to detect language inconsistent with policy
A robust IOI control framework is particularly important in equities, fixed income, and emerging markets—where liquidity constraints can amplify the impact of even informal communications.
Strategic Value of IOIs in Market Operations
Despite their potential for misuse, IOIs continue to be a valuable component of institutional market structure. When used responsibly, they help match large orders efficiently, reduce volatility, and support best execution obligations. With growing focus on data transparency and regulatory accountability, firms are increasingly adopting technology to monitor IOI effectiveness, usage trends, and alignment with trading outcomes.
