Interpositioning describes the practice where a third-party intermediary positions itself between a buyer and seller in a financial transaction. In crypto markets, this often refers to centralized entities or specialized liquidity providers facilitating trades between institutional clients.
Mechanism
The operational architecture involves an institutional client submitting a large crypto block trade or options contract request to a principal desk or broker within an RFQ scenario. This intermediary then sources liquidity from multiple market makers or internalizes the trade, matching counterparties without direct interaction, often accepting principal risk. This process aims to reduce market impact for the client.
Methodology
Strategically, while interpositioning can offer access to deeper liquidity and reduced execution complexity for large crypto orders, it necessitates careful evaluation of the intermediary’s pricing model, latency, and potential conflicts of interest. Institutional smart trading strategies often seek transparent, direct-to-market access, but may accept interpositioning for illiquid assets or specialized options where principal capital is required to facilitate significant orders.
FINRA Rule 5310 mandates that broker-dealers exercise reasonable diligence to secure the most favorable execution possible for their customers' orders.
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