Legal Definitions - fill-or-kill order

A fill-or-kill order is a type of instruction, most commonly used in financial markets, that demands immediate and complete execution. If the entire order cannot be fulfilled instantly at the specified price or better, the entire order must be canceled immediately. There is no allowance for partial execution, nor is any part of the order permitted to remain pending.

Here are some examples to illustrate this concept:

• Imagine an institutional investor who needs to acquire a large block of 5,000 shares of Company Z stock at a maximum price of $75 per share to complete a specific portfolio rebalancing. They place a fill-or-kill order with their broker. If the market can immediately supply all 5,000 shares at $75 or less, the order is executed in its entirety. However, if only 3,000 shares are available at that price, or if the price for the full 5,000 shares is higher, the entire order for 5,000 shares is instantly canceled. The investor does not receive the 3,000 shares, and no portion of the order remains active.

• Consider a large manufacturing company that needs to purchase 200 contracts of crude oil futures for a specific delivery month to lock in a price for their upcoming production. They are only interested if they can secure all 200 contracts at a maximum price of $80 per barrel. They submit a fill-or-kill order to their commodity broker. If the market can immediately provide all 200 contracts at $80 or less, the order is filled. If, however, only 150 contracts are available at that price, or if the price for the full 200 contracts is above $80, the entire 200-contract order is immediately canceled. This ensures the company either gets its full desired quantity at the right price or nothing at all, avoiding partial hedges or lingering open orders.

• A bond trader for a hedge fund identifies an opportunity to buy $2 million face value of a particular corporate bond series at a yield of 4.2% or lower. This specific quantity is crucial for a larger trading strategy. The trader issues a fill-or-kill order to their counterparty. If the counterparty can immediately confirm the sale of the entire $2 million face value of bonds at a yield of 4.2% or lower, the transaction proceeds. If only $1.5 million is available, or if the yield for the full $2 million is higher, the entire order is instantly canceled. This prevents the fund from acquiring an insufficient amount or accepting an unfavorable yield that would undermine their strategy.