The London Stock Exchange (LSE) has announced that it is to introduce a ‘request for quote’ (RFQ) trading platform for exchange-traded products, available from December 2016.
London Stock Exchange is to introduce a ‘Request for Quote’ trading platform for ETPs from December 2016.
The RFQ functionality will offer on-exchange benefits and cleared execution for larger size trades, allowing greater flexibility and protection for both institutional customers and responding market makers.
The platform will run alongside and complement the existing order book structure providing a mechanism whereby traders can privately negotiate and carry out large trades with market makers outside of the normal order book.
According to LSE, it is estimated that around 70% of ETP trading in Europe takes place over the counter. Currently ETPs do not have pre- and post-trade transparency requirements, but this will change significantly under MiFID II, which is expected to be implemented from January 2018.
The launch of new RFQ functionality provides a MiFID II compliant solution, allowing institutional clients to execute large bilateral trades on-exchange.
The service will be cleared and offer the option of anonymity, benefits unique to any offering currently available in Europe.
Key Features
• All trading participants connected to the order book will be able to access the RFQ platform.
• RFQ responses are price validated with reference to the order book best bid offer (BBO) with a small percentage tolerance variant.
• Trades are classified as order book and flagged as RFQ following existing LSE rules as per existing order book trades.
• Registered market makers have the option to respond to a quote request but are not obligated to do so.
• RFQ sessions will be private between the requestor and market maker.
• Requestor will be able to choose if they are to remain anonymous or named.
• RFQ maximum duration will be 180 seconds.
• To maintain order book liquidity, a minimum trade size will be set in line with the MiFID II LIS size (1m Euro), ensuring the trading facility is compliant with MiFID II LIS.
• The service will offer automated trade reporting and clearing
To drive interest in the platform, LSE has announced that RFQ trading will be complimentary for the first 6 months from launch.