[ I N - D E P T H
is significant for the conditional
trading opportunities the broker
wanted to centralise for its clients.
“We have gone the whole way and
said we can do RFQ trades at any
size, and that’s a key differentia-
tor between our RFQ venue and
others,” Stephens explains. “What
happens is, if the quote is able to
be seen on the platform then it has
to be public. This is in contrast to
other models where quotes are
all above LIS and nothing is made
public, then after a certain amount
of time, there’s an auto-execution.
This is significant because it means
that someone has to commit ahead
of time to trade, whereas ours is
inherently conditional.”
Ardevora’s Bond echoes Ste-
phen’s sentiment on targeted
trade size and says that the RFQ
has worked successfully in the
retail industry for a long time,
but has failed to translate into the
institutional world because those
investors require larger sizes. How-
ever, the RFQ for equities models
targeting large sized trades in eq-
uities, as both LSEG and Tradeweb
have, could face another barrier to
adoption from the buy-side.
“The two new services are look-
ing at doing larger size, and that
works well for fixed income and
ETFs when you’ve got the broad-
based underlying securities or
large balance sheets behind it, but
with individual equities, I’m not
sure there will be the appetite from
market makers to provide large in
scale quotes inside at the touch or
better for single equities.”
Since going live with BlockMatch
RFQ at the beginning of the year,
Salvador Rodriguez, Instinet’s
head of electronic trading for
Europe, the Middle East and Africa
(EMEA), claims that of all the asset
managers currently onboarded and
|
R E Q U E S T
using BlockMatch RFQ, Instinet is
yet to see a buy-side firm opt out of
the service.
“We have effectively reengi-
neered a new process that allows
all of our other systems, including
our algo trading, our EMS blotter
scraping technology, smart order
router and FIX connectivity, to
access conditional opportunities,”
Rodriguez adds. “The power of
conditional trading in a MiFID II
world has been something we have
focused on and that’s why the RFQ
matters. Ultimately, we’ll have one
router if you like, and if you show
interest we will find you the other
side. From a client-facing perspec-
tive, it’s about how do we solve the
liquidity conundrum and increased
fragmentation that we’re seeing.”
Work ahead
Listening to buy-side sentiments
on the idea, RFQ in equities may
have quite a way to go before it
achieves market-wide adoption.
eBlock, with no central clearing, no
automation and no anonymity has
a seemingly more difficult journey,
but with Plato Partnership behind
it, the importance of industry
relationships may play a key role
in getting the new platform off the
ground.
LSEG’s RFQ for equities service
doesn’t necessarily come up
against the same concerns in
terms of system specifications
as Tradeweb and Plato, but the
question remains as to whether the
industry really needs the protocol.
Finally, Instinet has
come up with a rather
innovative solution to
the problems it found
when preparing for
MiFID II. Regard-
less of industry
adoption, the agency
F O R
Q U O T E ]
broker has used RFQ to solve those
problems in order to carry on
serving clients in much the same
way as it did before MiFID II came
into force.
One scenario, laid out by Ar-
devora’s Bond, could see wide-
spread adoption of RFQ in equities
trading. As MiFID II ushered in
the age of periodic auction systems,
systematic internalisers and block
trading venues, regulatory review
and consequential reform in the
near future could prove to be a
game changer for Tradeweb, Plato
Partnership and the LSEG. But
those lingering concerns laid bare
by the buy-side will have to be
addressed if those venues want to
stay in the game.
“MiFID II closed down broker
crossing networks, which the buy-
and sell-side found very useful, and
some of that business has moved
into periodic auction systems,”
Bond says. “Those systems are
now under scrutiny, and if action is
taken, I think that flow could move
towards the RFQ model.
“The big winners will probably be
those that offer automated trading
with central clearing rather than
the large negotiated RFQ venues.
Large negotiated RFQs that don’t
have central clearing and are not
automated won’t be able to pick
up that flow which may move
from periodic auctions in the near
future.”
Issue 58 // TheTradeNews.com // 65