[ I N - D E P T H
liquidity.”
Oreve adds that by using IOIs,
decent size orders can be filled
in their entirety with predictable
market impact: “From my point
of view, the RFQ protocol in cash
equity does not add value to the
current IOI model in place. RFQ is
best suited to fixed-income where
many instruments do not trade
very frequently.
“Electronic RFQ has also become
popular in some derivatives like
options and in the ETF space
where the role of market-makers is
predominant. RFQs help evidence
best execution but, if they are
overused, they can make a lot of
noise and risk moving the market.
Investors need to be very careful
how they use them.”
In terms of where the IOIs fit in
this particular space it’s important
to note that the LSEG RFQ for eq-
uities model does not interact with
IOIs, but the eBlock model allows
risk providers to stream actionable
IOIs - which are, generally speak-
ing, firm orders - into the system.
In response to the notion that
RFQ is redundant with IOIs firmly
placed in the market, Tradeweb’s
Bates highlights that not all asset
managers have the technological
power to manage such streams
of information, but the eBlock
platform opens up that avenue for
those buy-side firms that are per-
haps struggling to consume IOIs.
“The reality is the wider part of
the buy-side community doesn’t
have that easy access to IOIs or
don’t find them particularly help-
ful,” he says. “It’s not every buy-
side that has the luxury of having
access to the tier one bank quotes,
and the ELPs might not be within
that construct. With eBlock, we
are essentially widening out and
getting a much broader universe
|
R E Q U E S T
with the ability to interact with the
actionable IOIs.”
Central clearing
Alongside questions around infor-
mation leakage and the importance
of IOIs, there is also concern
among the buy-side when it comes
to central clearing. The LSEG’s
RFQ for equities tool provides au-
tomatic central clearing upon com-
pletion of a trade, similar to trading
in the exchange’s central limit
order book. Centrally cleared RFQ
in equities means that the buy-side
do not need to be papered with the
market makers or risk providers
on the platform. This benefits both
counterparties by freeing up bal-
ance sheet and providing liquidity
without necessarily entering into
multiple bilateral relationships.
In contrast to this, the
Tradeweb-Plato Partnership RFQ
model does not provide central
clearing for users, so the buy-side
has to settle trades directly against
the counterparty, and in some cas-
es, that will be with an ELP. Neil
Bond, head of trading and partner
at Ardervora, says he finds it “a lit-
tle odd” that the industry is excited
about the rise of RFQ in equities
as the buy-side weren’t necessarily
“screaming out for it”. Noting its
F O R
Q U O T E ]
validity in less liquid markets, he
adds that he is unsure how the
trend will play out in the future,
but eBlock’s lack of central clearing
could prove to be problematic for
Tradeweb and Plato.
“Without central clearing you
have to clear against the counter-
party, but there are very few buy-
side’s that have direct relationships
“We do not see any
interest in using
electronic RFQs for
cash equity, because
we currently have easy
access to IOIs from our
brokers who advertise
reliable, tradable sizes
and prices.”
FABIEN OREVE, CANDRIAM
INVESTORS GROUP
with the ELPs,” Bond explains. “I
think the RFQ venues are expect-
ing the buy-side to onboard with
those ELPs directly and settle
against them, but I don’t think that
will happen in a significant way.
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