Uncovering Copper Option Liquidity via RFQ

  • 20 Apr 2021
  • By CME Group
  • Topics: Metals

Deep, on-screen liquidity has returned t­o the COMEX Copper options electronic markets. While it is possible to execute most strategies using outright options in any time zone, using the Request for Quote (RFQ) feature within CME Globex can sometimes achieve more competitive quotes.

What is an RFQ?

A Request for Quote (RFQ) is an electronic notification sent anonymously to all CME Globex users, expressing interest in a specific strategy or instrument. The requester specifies the strategy but is not obligated to show volume or if they are a buyer or seller. An RFQ can be on a multi-leg strategy or single instrument.

Once the RFQ has been sent to the market, participants are alerted to the interest in that particular strategy and may choose to respond with a live, tradable market. That strategy then exists as one tradable instrument with no legging risk on a central limit order book. After receiving quotes, a user can either hit a bid, lift an offer, post their own bid or offer, or choose to do nothing at all.

RFQ in practice

A good example of how an RFQ can source undisclosed liquidity can be seen here with the May21 4.15/4.20 call spread. The outright legs are quoted on screen as follows:

May21 4.15 call is 0.1330 bid for 36 lots and offered at 0.1385 for 5 lots.

May21 4.20 call is 0.1150 bid for 36 lots and offered at 0.1205 for 5 lots.

By piecing these markets together, the May21 4.15/4.20 call spread would be quoted 0.0125 bid for 5 lots and offered at 0.0235 for 5 lots.

By using the RFQ function to canvas all CME Globex users to provide a quote for the May21 4.15/4.20 call spread, the user is provided with a quote of 0.0170 bid for 228 lots and 0.0190 offered for 163 lots.

In this example, the user is able to source a tighter market with more available volume than what was available on screen.

Features of using RFQ

Customizable – Users can utilize RFQ with strategies that already exist on screen, or build exactly the strategy they are interested in.

Anonymous – Like all CME Group electronic markets, RFQs are anonymous.

Wide-reaching – RFQs are disseminated to all CME Globex users, allowing any participant to provide responses to requests.

When outright options on screen are not as robust as one may desire, there may be undisclosed interest that is only an RFQ away.

Learn more about RFQs at cmegroup.com/rfq.  

RFQ functionality for copper options is easily accessible via CME Direct (at cmegroup.com/direct) as well as via many front end trading platforms, which can be found at cmegroup.com/isv. Simply search “RFQ” in the filter.

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