What is an RFQ?

A Globex Request for Quote (RFQ) is an electronic notification sent to all Globex participants to solicit quotes in the central limit order book (CLOB) for a specific strategy or instrument. The sender isn't obligated to show directionality as a buyer or seller, and is not obligated to trade, as the RFQ is simply an indication of interest. In futures markets, RFQs can be used to request liquidity in an instrument where there are no active prices in the Globex order books or where improved liquidity is desired.

RFQs offer several advantages in futures markets:

• Allows participants to solicit competitive quotes, even during times of low market activity.
• Speed, transparency and easy access of electronically traded markets, with the flexibility and efficient price discovery of a brokered market.

Understanding RFQs in futures markets

In futures markets, RFQs are particularly valuable in markets with a large variety of instruments and in nascent markets where liquidity is still developing. They can solicit pricing in otherwise unpopulated instruments, facilitate improvements to existing liquidity and enable electronic execution for large trades in excess of existing order book size. RFQs enable on-demand liquidity for outright futures or spreads when no active orders exist or when market depth is insufficient. 

In essence, RFQs provide a mechanism to indicate interest in trading a specified instrument, prompting market makers to respond. While market makers may not always be able to populate all order books for a given product line at all times, they may be willing to provide quotes for certain instruments for which a client has indicated interest via RFQ. RFQs draw attention from multiple liquidity providers, allowing participants to receive quotes from multiple sources and execute at a single best price. 

How to submit an RFQ on CME Direct

To submit an RFQ on CME Direct, ensure your view includes the RFQ field and click the Send RFQ button. This action expresses your interest in exploring prices in one or more specific markets. You don't need to specify if you are looking to buy or sell, or even the quantity at this stage. An RFQ submission simply indicates your request for price discovery.

How to respond to an RFQ

If you want to provide a quote for a submitted RFQ, double click on either the bid or offer, depending on your preferred position. Input price and quantity as prompted. Once entered, this information will populate the live electronic order book.

Benefits of RFQ for futures trading

On-demand liquidity

In nascent futures products, RFQs can solicit pricing in otherwise unpopulated instruments, facilitate improvements to existing liquidity and enable large trades at a single, consolidated price. For example, a trader looking to trade in a newly launched futures contract or in a sporadically traded instrument can use an RFQ to find liquidity in an otherwise illiquid market.

For example, TBA futures are listed across a wide array of coupons and market makers typically populate the instruments corresponding to the most active coupons. If a market participant wants to trade an instrument with a less active coupon, the participant can submit an RFQ and a market maker may respond with order book liquidity. 

Competitive price discovery

RFQs may draw attention from multiple liquidity providers, allowing participants to receive quotes from multiple sources and execute at a single best price. For instance, a trader interested in a complex energy spread can use an RFQ to get competitive quotes from various market makers.

Complementary to CLOB execution and block trading

RFQs can solicit CLOB liquidity and help a market participant determine whether to execute on the Globex CLOB or seek block liquidity.

Summary

RFQs are a powerful tool for competitive price discovery and improved market efficiency in futures markets. They allow traders to solicit quotes, request liquidity on demand and execute trades at the best possible prices. By using RFQs on CME Direct, traders can take advantage of the speed, transparency and flexibility of electronically traded markets.

For more information and to start using RFQs, visit cmegroup.com/rfq.