Deribit Block RFQ

One hedge leg is allowed per Block RFQ structure and it can either be a perpetual or dated future. Hedge legs can be added to both option and spot structures. For option structures, any future with the same native currency can be added as a hedge leg. Spot structures can be hedged with any future that shares a base currency with at least one of the base currencies in the legs. This means that members can also hedge the exposure from one base currency in multi-currency spot structures.

All instruments in a Block RFQ structure share the same quote currency. However, one exception is made for future spreads where multi-currency Block RFQs between BTC and ETH inverse futures are allowed. Users can mix BTC and ETH perpetual and dated futures in one structure. At least one of the legs needs to be above the minimum block amount of its respective currency.

Any trade originating from Deribit Block RFQ is a block trade. This means that block trade tick sizes are used to validate the prices of quotes or the crossing order, instead of the regular tick size. All instrument reference data is the same for instruments traded on-screen and instruments traded via Deribit Block RFQ. Thus minimum trade amounts and contract sizes will not be different in Deribit Block RFQ. Of course the block needs to meet the minimum block trade amount requirements.

To make Deribit Block RFQ available to all members from day 1, takers have been made anonymous by default, to avoid any additional account setup.

However, with a little extra setup, the taker has the option when creating an RFQ to disclose their identity to the targeted makers. The identity shown to the makers will be of the same format as the maker identities, an all-caps, 6 character acronym. This name will need to be configured by a Deribit administrator. Please contact support or your account manager if you would like to use this feature.

If the taker chooses to disclose their identity, the identity of the maker is also shown on all quotes and resulting trades. In this way, identity disclosure is always symmetric: if the taker chooses to be anonymous, the makers are anonymous as well. If the taker chooses to disclose their identity, the makers have their identities disclosed as well.

The minimum of 5 targeted makers is waived when the taker discloses their identity. So if desired, the taker can target only 1 maker.

If an account is configured to be a maker, this identity will be used when the account is a taker as well. In other words, the maker and taker identity cannot differ for an account.

To accommodate large trades and to reduce deviations from the theoretical price, Deribit Block RFQ allows makers to aggregate their liquidity into a single response.

For makers that want to avoid a partial execution, Deribit Block RFQ implements an All-Or-None (AON) quote type. As the name suggests, an AON will either be executed for the full amount or not at all. Additionally, the amount of an AON quote has to be equal to the requested amount. AON quotes essentially compete with the multi-maker model. Deribit Block RFQ preferentially executes on AON quotes, except if there is a non-AON quote (a multi-maker quote) that would provide a better price for the taker.

The taker can see the most competitive quote on the bid and ask in real-time, 5 seconds after RFQ creation. Makers can see their own quotes, but not the quotes from the other makers. In other words, Deribit Block RFQ operates a blind auction model. Non-AON quotes are all aggregated into a single displayed (multi-maker) quote, for the requested amount and the price of the last quote that would be matched. If an AON quote is the most competitive quote, this quote is displayed over the multi-maker quote.

The price of the RFQ refers to one unit of the requested structure. For single instruments, a unit is just one contract, as shown in the public order book. For named structures (such as straddles or butterflies), the unit is also straightforward: convention dictates that the price of a straddle represents the price of a put plus the price of a call. Similarly the price of a butterfly represents +1 of the first strike, -2 of the second strike and +1 of the third strike. However, for custom strategies, it is not obvious what the pricing unit should be.

To solve this problem, Deribit Block RFQ finds the smallest integer ratio possible that can represent the structure. This ratio will be the pricing unit. We find this ratio by dividing each leg amount by the Greatest Common Denominator (GCD) of all legs. Alongside the smallest integer ratio, the total amount is given. Multiplying the ratio of each leg with the total amount will return the original requested amount for the structure.

When requesting a custom structure, the taker can simply supply the desired amount of each leg and Deribit Block RFQ will return the appropriate ratio and total amount. For unusual structures, it is important to check what ratio the price actually represents. Makers can respond with any total amount allowed under our contract size and minimum amount rules. Makers echo the ratios in any quote to signify that they are aware of the pricing unit.

In addition to the requested instrument or combinations of instruments, takers can additionally add a hedge leg. The purpose of this hedge leg is to hedge the delta exposure of the potential trade on the RFQ’d structure. The hedge leg is always a perpetual or future. Which perpetuals and futures can be used, differs per requested structure and is explained in the available products section.

To add a hedge leg, the taker must choose an instrument, an amount and a price. The price of the hedge leg is fixed and not negotiated during the RFQ. The price of the hedge leg has to be chosen within 1% of the mark price of the chosen instrument. When the taker executes on the RFQ, the hedge leg will also be traded. The hedge leg amount will be prefilled to reflect the correct amount for a delta hedge, but any other amount can be chosen as well.

The hedge leg is not part of the ratio as explained in section 3.5. This is done because any inverse options have their amount in the base currency, while the associated inverse futures have their amount in the quote currency. If you were to include the quote currency-denominated hedge leg in the ratio for the option structure, you would either get very large ratios or you’d have to round the hedge leg amount to such an extent that there would most likely be some delta left unhedged.

Not including the hedge leg amount in the ratio means that Deribit Block RFQ cannot naively assign the hedge amount pro-rata according to the maker’s quote amount. Instead, Deribit Block RFQ uses Hamilton’s Method to distribute the hedge leg among the makers. The hedge leg amount allocated to a maker will closely resemble the amount negotiated, but it can be one hedge leg unit more or less than expected.

Hamilton’s Method works as follows:

Deribit Block RFQ leverages the margin calculation of Deribit’s block trades. Any Block RFQ creation is allowed if either a buy or sell at the mark price would not violate the taker’s initial margin or maintenance margin requirements. Maker’s quotes are similarly checked on entry, using the direction and price of the quote. As trades resulting from an RFQ negotiation are booked as block trades, another margin check for both parties is done at the moment of execution. In the case that market conditions changed during the RFQ lifetime, or the block trade is priced sufficiently far from the mark price, the trade could be rejected. If a maker’s quote was rejected at trade, the execution is retried on the remaining quotes. If a different trade is possible at the taker’s chosen price, it will be executed. If no trade is possible anymore, the taker’s crossing order is rejected, but the RFQ will remain open so that the taker can retry at a different price or so that the taker can wait for liquidity to improve.

Any Deribit member can request quotes on Deribit Block RFQ. There is no setup required and there is no onboarding fee charged. Deribit’s market operations team can remove access to Deribit Block RFQ if they deem a member’s usage to be abusive. The most obvious example would be price fishing.

Makers need to contact their account manager to request setup. Members onboarded as Qualified or Institutional Investors qualify. However, access to Deribit Block RFQ is still at Deribit’s discretion. This is to safeguard market integrity. If Deribit’s market surveillance team detects abusive behavior such as frontrunning, they can offboard the offending member immediately. Prolonged inactivity as a maker can also result in offboarding, to minimize information leakage.

Makers can choose the publicly-facing alias. This should closely resemble the identity of the legal entity onboarded with Deribit. The purpose of the alias is to clarify the maker’s identity, not hide it. Registration will be completed within 5 business days, if approved.

Once set up, the maker will receive RFQs targeting them on all their subaccounts. Each subaccount will be known under the name chosen by the maker during setup.

Deribit is committed to working with brokers, RFQ platforms and other third party solutions to allow them to conduct their business on Deribit Block RFQ. Any Registered Partner can use Deribit’s existing technical setup to create RFQs. Trades resulting from an RFQ created by a Registered Partner will generate rebates. Different rebates can be given for the taker and maker side. See the registered partner documentation for more information on the Registered Partner Model.

Market Maker Protection (MMP) is supported in Block RFQ, with its configuration and corresponding triggers maintained independently from order book trading.  Quantity, Delta and Vega triggers are implemented per currency pair. 

An additional trigger exclusive to Block RFQ, Trade Count, is also supported. This trigger is configured globally across all currency pairs and applies to all open RFQs. When the specified number of RFQ quotes has been filled, any remaining open RFQ quotes are automatically canceled.