OTC Block Trading: RFQs, Slippage, and Multi-Leg Execution
Summary
The document introduces block trades as privately negotiated over-the-counter transactions used to execute large positions without routing the full order through a public exchange book. It outlines a typical request-for-quote process: a trader asks a platform or broker-dealer for pricing, liquidity providers quote, and the trader accepts or declines. The article also describes multi-instrument execution, using a futures and perpetual swap example to show how linked legs may be agreed together and avoid one-sided fill risk.
The slippage discussion explains that a large order can exhaust available bids or offers, worsen its average fill price, or remain partly unfilled as a limit order. A visible order can also prompt other traders to act. The seller or buyer may therefore offer a price concession to compensate a counterparty for taking the position. These are general mechanics, not measured results: the article gives no empirical comparison, fee analysis, or discussion of counterparty and settlement risks. The stated execution price is agreed in advance, but that alone does not ensure favorable economics.
Key ideas
- Block trading allows large transactions to be negotiated outside an exchange order book.
- Request-for-quote platforms gather prices from liquidity providers for a proposed block.
- Large public orders may consume market depth, causing slippage or partial execution.
- Negotiated prices may include a discount for sellers or a premium for buyers.
- Coordinating multiple legs can reduce the risk of one component filling without the other.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.