Importantly, Participants will need to issue a Request for Quote (RFQ) to the market before they can execute the trade through ASX Trade 24. This allows other Participants to respond to the RFQ by entering a bid and/or offer in the relevant contract and ensures that the pre-negotiated trade occurs at a price consistent with market sentiment.
The benefits of pre-negotiation for futures and options contracts include:
- The ability of futures brokers and their clients to register (as futures or options contracts) OTC forward, swap, swaption and cap transactions that have been pre-negotiated but can't proceed because of credit or other impediments.
- The benefit of having the price and volume of the pre-negotiated transaction immediately transparent.
- The benefit of having the pre-negotiated transaction on ASX Trade 24 to assist with the Daily Settlement Process.
- The mandatory use of the RFQ mechanism for futures brokers and their clients to establish whether a better price exists.
- All electricity futures and options products may be entered into under ASX 24 Pre-Negotiated Business Orders Rules;
- The maximum prescribed time periods for all electricity futures and options is 30 seconds (time between RFQ being issued and order executed);
- The minimum volume threshold is 1 lot;
- A Participant must have written authorisation from its Client(s) allowing it to pre-negotiate business on each Clients behalf; and
- Once the prescribed time period has elapsed, the orders must be entered immediately, currently deemed by the Exchange to be no longer than 90 seconds.