Can RFQ Quench the Buy Side’s Thirst for Options Liquidity?

The equity options market in the US is fragmented, with market makers from 16 options exchanges streaming bid and offer prices throughout the trading day. This fragmentation means seeking out liquidity can be cumbersome, and, despite the effort involved in sourcing liquidity, buy-side traders are never entirely certain they received the best possible price for their order. But new market models provide alternatives, including an options RFQ system from Tradeweb that enables buy-side traders to seek out liquidity directly from multiple providers, which compete on price. And since request-for-quote systems often provide improved price discovery with respect to both bid-offer prices and the size of those respective quotes, buy-side traders have more peace of mind regarding their final execution price. In this exclusive TABB Group Market Note, head of derivatives research Russell Rhoads examines the liquidity benefits of this hybrid solution, which combines the best of open outcry and electronic trading.