Pre-Execution Communications refer to any exchange of information or dialogue between trading participants that occurs prior to the formal submission of an order for execution. These communications influence the terms, quantity, or decision to transact. Their purpose is to facilitate price discovery, negotiate trade parameters, and assess market interest. They are common in over-the-counter (OTC) or request-for-quote (RFQ) crypto trading.
Mechanism
This interaction typically involves direct discussions between a client and a liquidity provider, often via secure messaging platforms or dedicated voice channels. Participants may discuss indicative prices, potential order sizes, desired execution strategies, or current market conditions for specific crypto assets. This informal negotiation phase precedes the formal submission of an RFQ or a firm order. The information exchanged helps both parties assess feasibility.
Methodology
These communications are essential for building consensus around trade terms, especially for large block orders or illiquid crypto assets where public order books may not provide sufficient depth. While facilitating efficient negotiation, strict protocols are necessary to prevent information leakage, market manipulation, or front-running. This methodology helps institutional traders find suitable counterparties and obtain favorable pricing. It requires clear rules of engagement to maintain market fairness.
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SEF rulebooks differ in their treatment of pre-execution communications by defining the permissible scope of dialogue based on the chosen execution method.
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