Purpose and main features
The aim of the RFQ functionality is to offer to all the market members a fast and efficient way to find on-exchange (but off-book) counterparties for large-in-scale trades.
Institutional clients, interested in trading a large-in-scale volumes on exchange at the best price, can use this functionality to make dealers compete among each other.
Institutional clients – normally operating OTC – can thus receive on a dedicated channel proposals of price and quantity that dealers do not normally expose on-book to avoid arbitrage or scalping.
An RFQ can be sent only for a minimum quantity that should be large in scale. The functionality is available during the continuous trading hours and follows the phases of trading.
New generation of RFQ
Regulated market: RFQ will be available as a functionality within Borsa Italiana ETFplus market.
Consolidation: Large transaction will benefit from a dedicated on exchange functionality. RFQ trades will be reported and consolidated within the exchange volumes.
Efficiency: RFQ functionality is integrated within Borsa Italiana trading platform and all members will have the possibility to use it. Already active dealers and prospect dealers can provide quotes to RFQ requests.
Integrated post trading: RFQ trades are automatically cleared and settled like on book trades.
No counterparty risk: The central counterparty (CC&G) will cover RFQ trades.
Four simple steps:
- A member can request quotes for large in scale sizes by sending a “RFQ quote request” to the eligible recipients;
- Recipients (dealers) who receive the notification can accept by sending a quote;
- The quote can be continuously refresh;
- To execute the trade, the requestor can only send instructions to match with the best quote available at the point of matching;
- The negotiation process is time bound and upon reaching the end of this time period, all quotes and RFQs are expired.
RFQ Types – Anonymous/Named
The RFQ negotiation can be carried out non-anonymously or anonymously as per Requestor choice.
_The RFQ is routed to all authorized Dealers;
− Requestor doesn’t see Dealers quotes identifier and vice versa;
− Dealers are not known to the each other.
− Requestor must choose Dealers to which send the RFQ;
− Requestor sees Dealers quotes identifier and vice versa;
− Dealers are not known to each other.
Minimum RFQ quantity: A member can request quotes for large in scale sizes by sending a “RFQ request” to the eligible recipients. The minimum size is set according as below:
ETFplus: 2 times the EMS for fixed income ETFs, 4 times the EMS for other ETFs/ETCs/ETNs.
Price validation: RFQ quote responses are price validated with reference to the order book best bid offer (BBO)* with a percentage tolerance variant. The minimum size is set according as below:
ETFplus: 2% for bond ETFs, 2.5% for equity ETFs and structured non-leveraged ETFs, 5% for structured leveraged ETFs, non-leveraged and double leveraged ETC/ETNs, 7.5% for triple leveraged ETC/ETNs.
RFQ max duration: The negotiation process is time bound and upon reaching the end of this time period, all quotes and RFQs are expired.
ETFplus: 180 seconds for ETFplus.
RFQ max duration: The negotiation process is time bound and upon reaching the end of this time period, all quotes and RFQs are expired. The requestor can set a shorter duration within the following maximum duration set by Borsa.
ETFplus: 180 seconds for ETFs.
RFQ max quantity: As part of the pre-trade controls it is set a maximum quantity of the RFQ order.
ETFplus: 125 times the EMS for fixed income ETFs and structured (leveraged and not) ETFs; 250 times the EMS for equity ETFs and ETCs/ETNs.
RFQ max dealers: If the requestor desires to open a named RFQ request a maximum number of 5 dealers can be selected.
Members RFQ set up
Requestors: all members’ compIDs can be eligible to send an RFQ request. Requestor have to set in Bitclub those CompIDs from which RFQ requests will be sent (i.e. those CompID must be linked to a conformed software).
Dealers: members who would like to become RFQ dealers have to:
- conform their software to be able to answer to RFQ requests;
- set a dedicated CompID defined with the “R” letter allowed to receive RFQ requests and to answer through RFQ quotes. “R” compID is given free of charge with 25 tps attached, if the dealer supports more than 500 instruments on the ETFplus market it is given free 50 tps;
- select in bit club the products for which it wishes to become a RFQ dealer. To the request is given a confirmation by Borsa on a timely basis.
It is not necessary to be Specialist, LP or AdLP for becoming RFQ dealer.
Members can check for each products who is authorised as RFQ dealer using the MIT309 FTP files.
RFQ trades treatement
- Guaranteed by CC&G (where provided);
- Settlement in T+2 in Monte Titoli;
- RFQs trades are considered as “On Exchange” trades;
- RFQs trades are made available to the public in real time, and do not contribute towards the formation of any price statistic (dynamic price, reference price or official price);
- No pre-trade transparency;
- Post trade transparency and transaction reporting are automatically fulfilled;
- RFQ trades are accounted for the total volumes of the relevant instrument.
At the link below you can please download the products list where an RFQ can be open: https://www.bit-club.it/web/borsa/report/-/report-url/download-etf-rfq-isin-report
* In case BBO cannot be identified the same thresholds apply vs. the last price