The RFQ Process, or Request for Quote process, is a formalized method of obtaining bespoke price quotes for a specific financial instrument, wherein a potential buyer or seller solicits bids from multiple liquidity providers before committing to a trade. It is a prevalent mechanism in OTC markets.
Mechanism
Operationally, a client initiates an RFQ by specifying the crypto asset, desired quantity, and transaction side. This request is electronically transmitted to a selected group of market makers or principal trading firms, who then respond with firm, executable two-sided prices (bid and ask) within a predefined time window. The client subsequently chooses the most competitive quote for execution.
Methodology
The methodology of the RFQ process is strategically advantageous for institutional crypto traders, particularly for large block trades or illiquid assets, as it facilitates competitive pricing, minimizes market impact, and provides access to deep, often off-exchange, liquidity. It is fundamental in institutional crypto options trading and OTC markets, enabling participants to achieve best execution by comparing multiple bids and offers.
Systematic Internalisers use RFQ systems as the core bilateral protocol to provide client-specific quotes, managing MiFIR's tiered transparency obligations.
Navigating the consolidated RFQ environment requires a fusion of strategic dealer selection, advanced technology, and a dynamic, data-driven approach to mitigate execution risks.
A premature RFQ degrades reputation by signaling operational chaos, disrespecting supplier resources, and eroding the trust that underpins market credibility.
A firm quantitatively measures RFQ information leakage by architecting a data-driven system to analyze and attribute adverse price movements to specific counterparty interactions.
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