The aim of the RFQ function 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.
This function is available during the continuous trading hours and follows the phases of trading. There are two different ways for requesting and executing an RFQ, namely “Manual RFQ” and “Auto RFQ”.
Manual RFQ: the Requestor has to accept manually the best quote among those provided by the eligible dealers. It is possible to set a limit price at which the Requestor is willing to buy/sell (this parameter is not shown to the dealers)
Auto RFQ: With this modality, the Requestor assigns the system to automatically accept the best quote among those provided by the eligible dealers. The Requestor can set the following parameters: a) Limit Price at which the system automatically executes the trade, b) Execution delay – delay after which the system starts checking the quotes sent by market makers c) Minimum number of market makers’ responses.
The above mentioned parameters (Price limit, execution delay and minimum number of responses) are not mandatory. In case the execution delay is not set by the Requestor, the system starts checking the quotes after a default time delay of 10 seconds. In case the minimum number of market maker responses is not set by the Requestor, the system requires a default minimum value of two responses.
New! AutoRFQ with order book swipe
Starting from 12th October 2020, all the requests done with the AutoRFQ function and with a countervalue less than Pre-Trade LIS (Pre-Trade Large in Scale - €1million for ETFs and liquid ETCs/ETNs and €900,000 for non-liquid ETCs/ETNs) will interact with both the Market Makers (MM) quotes on the RFQ book and the best bid/offer available on the normal book.
The size of the RFQ request is always totally filled while there is not such a guarantee for MM quotes (in other words, the size of MM quotes could remain unfilled or partially filled).
The RFQ functionality offers members with a range of benefits, which include:
- Consolidation – large transactions benefit from a dedicated on exchange functionality. Borsa Italiana’s RFQ trades are reported and consolidated within exchange volumes
- Efficiency – the RFQ functionality is integrated within Borsa Italiana’s trading platform, allowing all members to access it. Active dealers and prospect dealers have the ability to provide quotes to RFQ requests
- Integrated post trading - RFQ trades are automatically cleared and settled in the same way as on-book trades
- No counterparty risk - the CCP (CC&G) covers RFQ trades
- Competitive pricing – institutional clients interested in trading in large-in-scale volumes on exchange, at the best price, can use this functionality to ensure competitive prices as dealers compete against one another
The negation process for the RFQ functionality involves four simple steps:
1. A member can request quotes by sending an RFQ request to the eligible recipients, specifying if it opts for the Manual or for the Auto RFQ. According to the chosen modality, the Requestor can set the available parameters, i.e. limit price, execution delay (only for Auto RFQ) and minimum number of dealers responses (only for Auto RFQ).
2. Enabled Dealers, who receive the request, can accept the request by sending a quote. The quote can be continuously refreshed
3. To execute the trade with Manual RFQ, the Requestor can only send instructions to match with the best quote available at the point of matching. In case of Auto RFQ, the system (after the execution delay) monitors continuously the quotes sent by the dealers (and the best bid/offer for RFQ with a countervalue less than pre-trade LIS) for three minutes. If the parameters set by the Requestor (price limit and minimum number of responses) are met, then the trade is executed at the best price.
4. The negotiation process has a time restriction, therefore should the maximum time be reached, all quotes provider by the Dealer(s) will expire, along with the original RFQ
For the Manual RFQ, the negotiation process can be either anonymous or named (non-anonymous), as per the Requestor’s preference.
For the AutoRFQ, all the requests with a countervalue less than pre-trade LIS are anonymous while the other ones are named.
For anonymous RFQs:
- The RFQ is routed to all authorized Dealers
- The Requestor does not see the identity of each Dealer
- The Dealers do not see the identity of the Requestor
- The Dealers do not see one another
For named RFQs:
- The Requestor must select the Dealers in which the RFQ should be delivered to
- The Requestor has visibility of the identity of the Dealers
- The Dealers have visibility of the Requestor
- The Dealers do not see one another
The trading characteristics and operating rules of RFQs are as follows:
- Guaranteed by CC&G (where provided)
- Settlement in T+2 in Monte Titoli
- RFQ 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)
- Pre-trade transparency handled according to MIFID II rules
- Post trade transparency and transaction reporting are automatically fulfilled
- RFQ trades are accounted for the total volumes of the relevant instrument
- Tick size is 0.0001 for all products except those which fall under the MIFID II tick size regime (i.e. linked to tick table TS_06MF)
The parameters are as follow
- Price validation: RFQ responses are price validated with reference to the order book best bid-offer with the following percentage variation tolerances:
- Bond ETFs: 0.2%
- Equity ETFs and structured non-leveraged ETFs: 0.25%
- Structured leveraged ETFs, Non-leveraged ETFs and ETC/ETNs without a leverage effect and with maximum leverage effect equal to 2: 0.5%
- ETC/ETNs with leverage effect greater than 2: 0.75%
- Maximum duration: The negotiation process is subject to a time restriction of 180 seconds. Should the negotiation process not be complete within 180 seconds, all quotes and requests will expire
There is a different set up for Requestors and Dealers.
All member’s CompIDs are eligible to send RFQ requests. The Requestor must register the relevant CompID(s) in the Member Portal for the CompID(s) in which they wish to send RFQs from.
Those members who would like to become Dealers and therefore receive RFQs need to follow the below steps:
- Conform their software in order to be enable to answer RFQs
- Set a dedicated CompID up, defined with the letter “R”, which allows the CompID to receive and respond to RFQs for the associated instruments. “R” CompIDs are gven 25tps free of charge. If the Dealer supports more than 500 instruments on the ETFplus market, the Dealer will receive 50tps free of charge
- Select the instruments in the Member Portal for which they wish to become an active RFQ Dealer on
Please note that it is not necessary to be a Market Maker (Specialist, Advanced Liquidity Provider or MIFID II Market Maker) in order to become an RFQ Dealer.
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
RFQ is totally free of charge for the requestors for all the RFQs with a countervalue more than €100,000.
All the other ones costs €1 per trade.
Market Makers pays proportionally €10 per million (for example an RFQ with a countervalue of €50,000 costs €0.50).
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