[ I N - D E P T H
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R E Q U E S T
S
ome of MiFID II’s con-
sequences were widely
anticipated, such as the rise
of block trading and the migration
of order flow towards systematic
internalisers (SIs) or other venues,
such as periodic auctions. But the
rise of request for quote (RFQ)
in equities trading was one of the
trends admittedly unforeseen by
the majority of market participants
grappling with MiFID II compli-
ance.
Typically used for trading in
more illiquid markets, such as
fixed income exchange-traded
funds (ETFs) or derivatives, RFQ
allows traders to ‘request a quote’
from counterparties based on the
security and quantity. Howev-
er, various senior figures on the
buy-side have expressed their
scepticism of deploying RFQ in the
equities world, questioning the log-
ic behind launching such a tool in
a liquid market. Despite this, two
major trading venues confirmed
plans to launch RFQ functionality
for equities trading six months into
the MiFID II lifespan, with plans
to go-live by the end of 2018.
As one of the early pioneers
of the electronic RFQ protocol
F O R
Q U O T E ]
in fixed income, derivatives and
ETFs it’s perhaps little surprise
that Plato Partnership knocked on
Tradeweb’s door with the idea of
building an RFQ platform for cash
equities, known as eBlock, which
aims to provide buy-side traders
with the ability to source and
aggregate broker principal risk and
match orders on a regulated venue
via Tradeweb’s multilateral trading
facility (MTF) using RFQ.
The London Stock Exchange
Group (LSEG) is the latest to
launch an RFQ system for equi-
ties, following in the footsteps
of Tradeweb, and agency broker
Instinet which was first off-the-
mark in January. The exchange
operator said that it had taken
the traditional and manual RFQ
functionality it has for ETF trading
and upgraded it for equities to pro-
vide a more automated solution.
The tool looks to provide traders
with a fully automated, on-ex-
change and centrally-cleared RFQ
service, removing the need for
various bilateral relationships, and
alleviating the technological costs
and burdens often associated with
sell-side access.
Tradeweb and LSEG are both
in the early days of the launch of
their respective RFQ systems for
cash equities, and both systems are
similar in terms of what they offer,
although there are several key dif-
ferentiators between the two. For
example, LSEG’s RFQ functionality
offers automated execution, cen-
tral clearing and the opportunity
to request quotes anonymously if
the trader wishes to do so. On the
other hand, Tradeweb and Plato
Partnership’s tool functions with
no anonymity and full disclosure of
the counterparties involved in the
transaction, but with the ability to
hide if they are looking to buy or
sell from the RFQ. Such differences
are key to the concerns outlined
by the asset managers on RFQ for
equities.
Last chance saloon
With the context of market struc-
ture changes caused by MiFID II,
the logic behind launching RFQ for
equities trading comes into focus.
MiFID II encourages risk trading
and on-exchange activity, having
banned broker crossing networks
(BCNs) and placed restrictions on
dark pool trading via the double
volume caps (DVCs), which trigger
“There are conceptually
some valid use-cases
for RFQ in equities,
although these are
currently limited.”
NEIL JOSEPH, JP MORGAN
ASSET MANAGEMENT
60 // TheTrade // Winter 2018