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[ I N - D E P T H | 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