OTC execution refers to the direct completion of cryptocurrency trades between two parties, typically large institutional buyers and sellers, outside of public exchange order books. This over-the-counter (OTC) process facilitates the execution of significant block trades with minimal impact on prevailing market prices. It provides a private trading avenue.
Mechanism
OTC execution involves a direct bilateral agreement between a client and a liquidity provider or broker-dealer. Prices are negotiated directly, often through a request-for-quote (RFQ) system, and trades are settled either off-chain or via a trusted third-party custodian. This mechanism bypasses public order books, preventing front-running and slippage for large orders.
Methodology
The strategic advantage of OTC execution lies in its ability to handle substantial volumes without disrupting public market prices, preserving trade anonymity, and providing access to deeper liquidity than may be available on a single exchange. Institutional investors utilize OTC desks to minimize market impact, reduce transaction costs, and ensure efficient capital deployment for significant crypto allocations.
Disapplying best execution for eligible counterparties re-routes the trade through a distinct reporting protocol, preserving market transparency obligations.
A firm can justify a last look venue by quantitatively proving it delivers superior, all-in execution results for the client within a transparent, monitored framework.
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