For many, request for quote (RFQ) is a default electronic trading protocol. But panellists at FILS Europe suggested that the strategy needs to evolve – or face extinction.
“RFQ will be obsolete in the next few years in its current form,” stated Adam Ferencz, head of US credit at Aurel Partners. “It’s distorting pricing, it’s not efficient.”
He proposed an incorporation of pre-trade data or pre- and post-trade analysis into the protocol, creating a hybrid RFQ that provides all-to-all liquidity.
Maile Robichaud, managing director and head of fixed income trading Americas at State Street Investment Management, agreed: “Perhaps RFQ as we know it is obsolete. Things are evolving – I think the important thing for a buy-side trader is being able to have pre-trade data and then all the different protocols, the different tools, at their fingertips. The interoperability of all these different systems will be the next evolution.”
Building on the idea of RFQ ‘2.0’, Sven Rudolf, head of trading fixed income at ODDO BHF AM, suggested the idea of one-click RFQ.
“If you have platforms with reliable direct connectivity, they’re providing it on an MTF basis, and you can rely that they’re really showing the best price, then that can be a kind of single RFQ. There’s no information leakage, only the counterparty has seen your flow.
“The pricing needs to really be reliable for direct connectivity and one-clock trading, because otherwise you don’t get best execution.”
Rudolf also noted request-for-market (RFM) as an alternative.
Traders also discussed the best ways to pick a trading protocol – and whether a standardised approach was possible.
“You have to look at the asset class, potentially the segment of that asset class, and the market structure in the region. When we talk about standardising protocols for execution, it’s within a very delineated and precise segment of trades,” said Benjamin Mahe, head of high-touch trading and BNP Asset Management.
“It’s an extremely fragmented market,” agreed Aria Pattinson-Speirs, head of Eurobonds at MarketAxess. “Having a static decision-making process doesn’t work.”
However, taking the same paths for certain types of trades can help with post-trade analysis and allow for apples-to-apples comparisons, said Michał Pondel, fixed income and FX trader at Allianz Global Investors.
When choosing a platform to lean on, panelists emphasised the importance of maintaining relationships across the board
“It’s nice to keep a good relationship with all platforms, because you can readjust where your flow is going based on your functionalities. Sometimes one platform will perform better against a certain benchmark. And being able to shift from one platform to another allows you to benefit from all the latest advancements,” said Mahe..
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