Fitting RFQs under MiFID II

With the extension of the MiFID II scope into non-equity asset classes and the tightening of transparency rules, firms relying on requests for quotes (RFQs) have to figure out how this fits under the new regime.

Under MiFID I the regulator defined the market models that a trading venue can operate. With MiFID II this list has grown and now includes RFQs. Whether this venue-sponsored RFQ approach is helpful for the industry is questionable. Firstly, RFQ trading venues are required to publish all bids and offers, together with the volumes submitted by each responding entity. Unless the venue can utilise one of the transparency waivers, many will probably find that is a bit too much transparency for efficient trading. Secondly, there still seems to be some legal uncertainty around how the RFQ model (which is essentially bilateral) fits under a multilateral trading regime of regulated markets and MTFs. Alternatively, firms could consider operating an RFQ model outside of a trading venue under the Systematic Internaliser regime or as straightforward OTC.

However, before judging any of these approaches, the implications of the newly established trading obligation or the introduction of the liquid instrument category across all asset classes need to be considered. Either way, it seems that overlaying new MiFID II rules onto the established workflows around RFQs still requires some work to make it fit.