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The Benefits of RFQ for Listed Options Trading
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Such a situation is likely to impact negatively the client depending on various criteria, including if the pre-hedging has been carried out by firms other than the one that ultimately wins the request for quote. From a conduct perspective, such behaviours may also create risks around managing conflicts of interest between the firm and their client, client order handling rules around fair execution of client orders, and best execution rules. For example, a broker may receive a request for quote from a client, and pre-hedge that transaction.
A broker who uses the information received in that request for quote for its own proprietary benefit, may not be acting in the interest of its client and, in addition, may be at risk of insider dealing. The risk for the client would be even greater where all the brokers involved in the request for quote pre-hedge, as the multiple price impacts would cumulate. It would also be important from a conduct perspective for brokers to provide clients with sufficient transparency and disclosure about their use of pre-hedging arrangements, the application and functioning of those arrangements, and the potential impact and risk of pre-hedging arrangements on the execution of client orders.
Such transparency and disclosure would be important for clients to understand how their orders will be executed and the impact on their orders. ESMA also understands that the pre-hedging behaviours may be held out to benefit the client, by passing on the benefit of pre-hedging activities, to provide a better price to the client.
Pre-hedging is also held out to reduce the impact and disruption of large orders on the market. However, there is a potential risk around the extent to which the pre-hedging behaviour benefits the broker compared to the client. It is in fact a diligent course of action for a counterparty asked to offer price on a Request for Quote basis, particularly where it refers to illiquid assets.
Thus, no market abuse implications are seen here.
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Request for quote
List of Partners vendors. A request for quote RFQ , also known as an invitation for bid IFB , is a process in which a company solicits select suppliers and contractors to submit price quotes and bids for the chance to fulfill certain tasks or projects. The RFQ process is especially important to businesses that need a consistent supply of a specific number of standard products. These two documents are similar as they provide details of the project or services required, but RFQs generally ask for a more comprehensive price quote.
Also, businesses usually design RFQs for generic products in which the quantity needed is known, and RFPs are for unique, niche projects where quantities and specifications are unknown. In addition to pricing, RFQs may include details such as payment terms, factors that could influence a company's bid selection, submission deadline, and the like.
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A government agency that wants to buy computers with a specific hard drive size and processing speed, for example, would send an RFQ to several vendors as prospective bidders. Because the RFQ format is uniform within a given company, when the RFQs come back with price quotes, the soliciting company may compare them easily.
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Typically, an RFQ process consists of four sections: the preparation phase, the processing phase, the awarding phase, and the closing phase. The company generally will award the contract to the vendor that meets the minimum qualifying criteria and presents the lowest bid. RFQs are not public announcements. Because the soliciting company sends RFQs only to businesses that it trusts, it does not need to prepare lengthy procurement documentation.
Also, unlike a public solicitation, a company can get back only the number of bids that it requested, which also saves time. Using an RFQ reduces the amount of time needed to procure goods or services. It also offers a degree of security as a company will receive bids only from vendors it prefers.
On the other hand, because RFQs reduce the amount of competition, a company may miss receiving the lowest-available price or learning about new high-quality vendors. When a company receives a quote in response to an RFQ, it is not an offer nor a binding contract.