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R E Q U E S T
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“The big winners will
probably be those
that offer automated
trading with central
clearing rather than
the large negotiated
RFQ venues.”
NEIL BOND, ARDEVORA
When connecting directly to an
ELP, what happens is you have
someone firing in thousands of
bids and offers a second, so you
must have the infrastructure to
handle that type of information
flow. The buy-side simply doesn’t
have that and that’s why I don’t
think you’ll have users going di-
rect. But that could all change.”
Tradeweb’s Bates counters that
on the risk side, when clients trade
bilaterally either through direct
capital or an actionable IOI with a
broker, they effectively net down
against that broker at the end of
the day, unless it’s on-exchange.
He adds that this will be no differ-
ent with the RFQ for equities pro-
tocol. Looking back on the success
of Tradeweb’s RFQ functionality
for other asset classes, Bates is
confident that as the universe of
dealers on the equities platform
expands, so will the buy-side’s
comfort in interacting with them.
“You have to offset the fact that
it’s bilateral, so you settle directly
with the view that in being bilater-
al and disclosed, we believe it gives
clients more pricing power by not
being anonymous,” Bates explains.
“I get that being anonymous and
centrally cleared RFQ might save
10% in terms of compression, but
we believe that being disclosed far
64 // TheTrade // Winter 2018
more outweighs the pricing power
clients get compared to participat-
ing as an anonymous counterparty.”
Conditional trading
Regardless of the distinctions be-
tween the systems, advantageous or
not, it appears as though the RFQ
for equities model has been devel-
oped and established without any
serious demand from the market.
But the LSEG, Tradeweb and Plato
Partnership are not the pioneers of
this particular trend. Agency bro-
ker Instinet quietly developed the
function at the same time MiFID
II came into force across Europe,
with the firm highlighting that the
demand for the product came from
its own business.
Ben Stephens, head of business
development for Instinet Europe,
explains that the RFQ for equi-
ties has been central to Instinet’s
MiFID II strategy and it solved the
problems the regulation presented
through restrictions in over the
counter (OTC) trading. He says In-
stinet required a venue that would
allow it to trade in a regulated
fashion by moving the matching
on-venue whilst at the same time
aggregating and recombining the
liquidity out there to help clients
navigate the new landscape.
“Instinet operates a trading venue
and we are a broker,” Stephens
says. “We felt we had to build the
best venue out there to solve the
problems we were facing as a bro-
ker as a result of MiFID II. There
was no way we could have prefer-
enced our dark pool over another,
unless there was something special
about it. This is the same for our
RFQ venue - if we can’t get a better
performance out of the RFQ venue
then we can’t really use it.
“For our own broker to use
our own venue we have a much
higher bar to cross, hence we did
a lot of thinking around how we
could solve our own problem as
we couldn’t see a solution in the
market. If you’re a bank or you
trade as principal, then you have
SI options that can solve a lot of
problems, but we don’t and MiFID
II prevented us from trading OTC
and doing client crosses on the
desk, therefore RFQ is very much
central to our MiFID II strategy.”
Instinet’s BlockMatch RFQ is
fully automated, centrally cleared
and allows participants to stream
IOIs straight into the system.
Regulatory changes in Europe and
Instinet’s position in the market
meant that it prioritised condi-
tional trading opportunities and
the RFQ was key to this. Stephens
adds that order size is another
important specification here, with
both LSEG and Tradeweb target-
ing larger-sized orders with their
respective RFQ models. Tradeweb
has said that its RFQ is aimed at
orders in the value spectrum of
around $500,000 to $3,000,000,
whereas LSEG has said the RFQ
is for trades from a minimum of
25% of LIS or £50,000, the larger
of the two.
Instinet’s BlockMatch RFQ, on
the other hand, accepts trades at
any size, which Stephens adds