Negotiated dealing, often synonymous with over-the-counter (OTC) trading or request-for-quote (RFQ) systems, involves direct, bilateral transactions between two parties, typically institutional entities, where prices and terms are privately agreed upon rather than executed on a public exchange. Its primary purpose is to facilitate the execution of large block trades or illiquid assets without significantly impacting public market prices, offering discretion and customized terms.
Mechanism
This mechanism operates through direct communication channels, such as electronic messaging platforms or voice brokers, where a buyer requests a quote from one or more liquidity providers. Following a bilateral price discovery and agreement, the trade is executed off-exchange, with settlement and clearing handled through established counterparty relationships, often involving prime brokers or custodians, particularly in the institutional crypto space.
Methodology
The strategic advantage lies in minimizing market impact for substantial orders, preserving anonymity, and enabling transactions in instruments with limited exchange liquidity, such as large crypto options positions. Principles include maintaining strong counterparty relationships, efficient collateral management, and robust internal risk controls to manage the increased counterparty risk and less standardized execution processes inherent in this trading method.
We use cookies to personalize content and marketing, and to analyze our traffic. This helps us maintain the quality of our free resources. manage your preferences below.
Detailed Cookie Preferences
This helps support our free resources through personalized marketing efforts and promotions.
Analytics cookies help us understand how visitors interact with our website, improving user experience and website performance.
Personalization cookies enable us to customize the content and features of our site based on your interactions, offering a more tailored experience.
