Hi, Is anyone out there familiar with the CME's RFQ capability for option trading? I'd like to dig into someone's brain a lil. Thanks.
only know that you can send rfq's with size or not. i believe sending an rfq with size is more binding. there is a time limit on which an rfq must be responded to which i think is 1 min.
RFQ's sent with size are not binding, you are only asking the market maker to quote a market for that many contracts. The market marker is then bound to execute for the quoted number of contracts at the prices they publish. The issuer of the RFQ is not held to that quantity at all. The exchanges offer varying levels or market maker requirements that offer different parameters regarding how long their quote must be valid. Search the cmegroup website...this is all documented.
I'm still waiting to get setup with a tool that gives me RFQ access so I can start playing with it. I'm trying to understand the actual procedures of how the market works. Given that mm's only have 1 minute to respond... is most/all of the quoting done automatically/algorithmically? I'm planning to quote a combination option order involving numerous strikes/legs, so nothing as simple as a simple strangle/straddle or what not. When I RFQ this thing out there, am I actually going to get tight markets being quoted for me? It's been hinted to me that I need to "know" someone in the mm firms, and that they'll only bother quoting to one of my RFQs if they know in advance it's coming. (Ie: there's a big manual component to it.) Just curious how true that is.
You needn't 'know' anyone. Market Makers are obligated and incented by the exchanges to respond to RFQ requests. They have quotes...i.e. respond to 90% of all RFQ's within 10 seconds to get a 20% rebate on clearing fees from the exchange. The MM's don't know who is sending the RFQ. Keep in mind, not all options strategies are assigned a market maker. The more exotic the strategy, and if it does not abide the CME strategy users guide, the less likely you will get a response. the MM's are assigned strikes and strategies to monitor so noone may be assigned a strategy if it is not standardized.
I didn't have much luck finding the CME strategy user's guide, or anything that talks about RFQ in great detail. Can you help me with a reference?
I don't see it actually specified anywhere that there are MM's assigned for all of the 25 strategies listed in the guide... but is that the case?
There likely is not MM's assigned to all. Search the CME site for market markers: http://www.cmegroup.com/globex/files/SDKquoting.pdf
Just to help myself out here... here's a document listing all CME recognized option spreads: http://www.cmegroup.com/globex/files/ElectronicTradingConcepts.pdf