I was reading my colleague’s blog today on RFQs and it looks like this could be another aspect to the slow motion car wreck otherwise known as MiFID II. The problem this time is that the regulators have completely redefined the whole RFQ model. Imagine I ring you up and ask you to make me an offer for a watch I am thinking of selling. Because we have traded lots of watches between us, we trust each other and want to maintain our relationship. Taking this into account you offer me a higher price than you would quote to a complete stranger. This is perfectly normal and acceptable behaviour but, under the new rules, you will have to get a megaphone out and shout this price out to everyone on the street. Now you have no idea how many people with the same watch as me are going to come up to you and make you buy theirs at the same price. So, under this new regime, you naturally will be much more cautious about the prices you make.
It seems to me that this is trying to turn RFQs into streaming price feeds by the back door. And just to be clear, this isn’t about best execution either. The obligation is on me to get a good price for the watch, not you. And so, if I am sensible, I will ring up a couple of people and ask them to quote too just so that I know I am getting a fair price. And, to be absolutely safe, I will keep a record of these prices so that I can show them to anyone who questions my commercial acumen.
I am all for transparency, but there are more ways to achieve this than through lit order books.