Bilateral equities in the OTC trading world
Bilateral equities are making big inroads against traditional exchange trading. Here's why.
People who are familiar with exchange-traded equities will find some interesting differences with bilateral trading of equities, which is gathering momentum for a number of reasons:
Lower fees/commissions;
Access to non-banking providers who are offering their own portfolio of shares to clients;
Ability to execute orders away from exchanges and traditional brokers that won’t impact markets and reduce signalling risk
You are sending through an order request to an SI (systematic internaliser), not an order to a central party such as an exchange. This is because in OTC trading, the liquidity provider isn’t obliged to accept your order and can reject your order request (note that for our purposes liquidity provider and systematic internaliser are interchangeable terms). You can have multiple liquidity providers competing for your order if you are dealing with a multi-party trading venue.
This is a new way of trading equities and is allowing people to use APIs that are not dissimilar to FX (streaming prices over a FIX API, or ITCH, with a separate orders session on FIX), given one is dealing with effectively a spot product with usually a single leg, e.g. buying Rolls Royce shares is behaviourally no different from buying EUR/USD from an FX liquidity provider.
As reported by The Trade News, in Q1 2025, systematic internalisers (SIs) made up approximately 14% of European equity execution activity, so this is an area of growth.
One of the major technology challenges for platforms offering bilateral liquidity is that each day there are thousands of symbols to consume, as well as new listings or old ones being removed, which has implications for reference data and caching latest prices for clients to be able to request and get a real-time streaming response. I led a team that got the first multi-SI bilateral equities platform launched at Reactive Markets, so if this is something that you want advice on how to get going, or just to understand that market, then feel free to reach out.