A Cascading RFQ describes a Request for Quote process where a trade request is progressively distributed to multiple liquidity providers or market segments in a predetermined, often conditional, sequence. The request moves to a broader set of providers only if an initial, narrower group fails to yield a satisfactory quote or complete the order.
Mechanism
The operational mechanism of a cascading RFQ system relies on an ordered sequence of liquidity providers or trading venues, each with defined response parameters. A quote request is sent to the first group; if no executable quote is received within a set timeframe or at an acceptable price, the system automatically expands the request to the subsequent group, continuing until the order is filled or all configured options are exhausted.
Methodology
This methodology aims to optimize liquidity access and minimize market impact by initially seeking quotes from a restricted pool, expanding only when necessary. It controls information leakage by limiting the initial audience for a trade request, balancing the imperative of competitive pricing with the need to preserve market neutrality for large or sensitive crypto orders.
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