Say that I observe the following market (a simplified limit order book with only limit and market orders):
Bid | Price | Ask | 100.75 | 10 | 100.50 | 40 20 | 99.40 | 30 | 99.30 |
What would happen if a market order to buy a volume of 90 would arrive and how would it be handled by the exchange/market matching algorithm?
Logically, we have the option that
- the market order gets rejected right away
- the market order gets filled as much as possible (40 shares @ 100.50, 10 shares @ 100.75)
if the second option is handled, what happens to the remaining volume of 40?
- it gets thrown away (i.e., nothing additional happens)
- it gets converted to a limit order at the last best price, i.e., a new limit order on the bid side for a price of 100.75 and a volume of 40 (seems a bit unlikely but logically possible...)
I am aware that this might be a bit too simplistic (i.e., only one exchange, only two types of orders etc), if you have an answer that only applies with additional assumptions, do please answer and state the additions that you have made.
This question is related but not equal to this and this question, but while the first one addresses order matching in general, the second one only covers a total empty orderbook (this is somewhat related to the second option). To my understanding neither question specifically asks for overflowing market orders.