RLP Order – What is Retail Liquidity Provider

What is RLP (Retail Liquidity Provider) Offer

RLP is a mode of supply, available to the Brazilian market since 08/05/2019, where business brokers, banks and brokers can act as a third party to their individual (retail) clients in their business.

That is, your broker or bank may act directly and actively in your business, providing liquidity to the trader.

It is as if the trader’s broker/bank became a new trader in the market, acting both on the buy side and in the sale of the assets in which the RLP is available.

In other words, brokers can trade directly with customers in your portfolio.

The public consultation for the implementation of the RLP began on 19 December 2018.

Initial Phase

From the availability of the service, it is in the test phase for 12 months.

CVM, B3 and BSM, during the testing period, will monitor some data, such as:

  • Liquidity indicators
  • Spreads
  • Percentage of deals performed in better conditions than the market

How the RLP Offer Works

There are a few parameters for the offer to work, which follow:

  • The RLP offer will not be visible in the offer book. Only the broker who sent it can view it. Once the deal is closed, the RLP will be visible to everyone in the business history (Times & Trades).
  • It can be used exclusively to close retail customer (individuals) businesses.
  • If the deal is not closed, the RLP offer is cancelled at the end of the day.
  • The price is adjusted by the trading platform, automatically, to offer the best liquidity and price conditions to the individual client. Thus, when closing a deal, the broker/bank client will always have an equal or better price than the one available in the offer book.
  • When the prices are the same as those of the book of offers, those who are waiting for the closing of the deal will have priority guaranteed, if it offers a sufficient amount to meet, in whole or in part, the offer of the retail client of the broker.
  • The number of contracts negotiated may not exceed a certain percentage that will be reviewed periodically. Initially, the aggregate RLP volume of the market will not exceed 15%.
  • Customer’s rlp’s participation is not mandatory, and the client must authorize his broker/bank to do so (the famous “accept”).
  • During the trial period, only the index and dollar mini-contracts will have the RLP available.

Should the Trader Join the RLP Offer?

Since the reason for the offer is to provide liquidity for the trader, it’s kind of a nonsense not to adhere.

Since the execution price of the RLP offer has to be better or equal to that of the market, at worst it will not change anything when your order is executed.

That doesn’t sound like a bad idea.

There are also brokers offering free brokerage to those who join the program.

Should The Broker Join the RLP Offer?

Intermediaries are not required to join the RLP.

Each institution should consider, based on its business model, whether the RLP offer is viable or not.

The Responsibilities of the Institutions

If the institution decides to make use of the RLP, it will be authorized to act as a business party only to customers who have expressly authorized such use.

If the customer no longer wishes to be part of the program, he/she has this right and must expressly cancel his/her participation.

In addition, monthly, institutions must report on their website:

  • Volume traded using RLP offer
  • Percentage of clients served
  • Number of customers who have had some kind of benefit with the RLP offer

Among other data to be reported.

Liquidity Programs

In the United States, since 2012 the RLP offering program has been active.

There is also the famous Knight Capital case that lost approximately $440 million on the day of the program’s implementation due to a bug,one of the most expensive in history.

The case is so famous that it turned up case study.

In addition to the RLP on the NYSE,for example, there are other liquidity programs, such as:

  • NYSE Retail Liquidity Program (RLP)
  • NYSE Supplemental Liquidity Providers (SLP)
  • NYSE Arca Retail Liquidity
  • NYSE Ark LMM

As a personal vision, I consider B3’s initiative to be positive, equating our market with the more mature international markets.

The RLP In Practice

It is important to note that RLP orders will not be visible in the offer book.

What about transparency?

Well, after the deal is closed the record will appear in the business history (Times and Trades on many platforms) with the due note that it was a deal closed via RLP.

Thus, pre-trading (Book of Offers) there is no transparency, only in post-trade (Times and Trades).

The Spread

RLP orders should provide liquidity to brokers’ clients at an equal or better price than the market.

Thus, in the case of mini-contracts, for example, if the spread is a minimum of 1 tick, the RLP offer by the broker must be placed in the bid or ask.

However, if there is a spread greater than 1 tick, the broker should act by placing orders at better prices, that is, if we have a spread of, for example, 4 ticks, the broker should offer better spread to the client, this being less than the 4 ticks already offered in the market.

This is the principle of best execution.

Arguments For and Against the RLP

The Public Consultation Report available on the B3 website shows some arguments against and in favor of implementing the RLP offer.

One of the arguments against the RLP that should most worry the retail trader is the issue of conflict of interest:

Conflict of interest

2.12 The RLP offer would tend to accentuate the problem of the conflict of interest of the broker’s performance in relation to its retail clients.

2.13 As the broker would act as a counterpartite to the transactions and gain the spread, it would have incentives to direct its clients to products that rely on the RLP offer, even if they were not the most suitable for such clients.

2.14 The conflict of interest would also be present in the development of trading algorithms for clients. The broker would have a dual role, that is, it would develop the algorithm used by the client and negotiate, via RLP, against the orders generated by the algorithm itself. There could be incentives for the development of less efficient algorithms or even “addicts”.

2.15 In the case of online forums and trading chats there would also be the double role. At the same time as suggesting market entry or exit points, as is common in such environments, the broker could trade against its clients through the RLP offer.

2.16 B3 should make an analysis of the clients that perform day trade in the euro ovespa and dollar futures contracts. You should check how long you trade, what results you get, whether there is migration to other products or whether they simply leave the market after a while.

There is also the argument that there is a higher risk of adverse selection, which may lead to reduced liquidity and increased spreads (just the opposite effect to expected):

Increased risk of adverse selection and its impacts on price formation

2.1 Participants in the public consultation argued that, to the extent that the broker would have priority for trading against a portion of its retail flow, there would be an increased risk of adverse selection suffered by market makers (market makers) who work in the book.

2.2 In general, retail investors tend to be less informed than the market average. That is, it is usually less risky to trade against retail order flow than against other types of flow. To the extent that the broker started to have priority to trade against portion of the retail flow, the flow that would reach the book would become, on average, more informed, that is, more risky for market makers.

2.3 Increased risk could cause market makers to reduce traded volumes and/or increase spreads, which would be bad for all investors, including retail investors using the RLP offer.

On the other hand, an argument in favour of the RLP says that it will increase liquidity in the market:

Virtuous circle with benefits for the entire market

3.1. The economic incentive provided to intermediaries by the RLP offer would cause them to invest more in prospecting for new retail customers, expanding the customer base and, consequently, the liquidity of the markets.

3.2. The RLP offer would increase the liquidity of the order book due to the overflow effect, i.e. the combination of increased retail customer order flow with the 15% cap.

3.3. The RLP offer would also enable the participation of brokers with smaller retail flows, which could sell their flows to consolidating agents.

3.4. It’s not just about theory. The performance of the broker’s proprietary portfolio against the flow of aggressor orders from retail clients is a reality in some of the largest markets in the world and contributes to the strengthening of intermediation activity.


It is too early to assess the effects of RLP supply on the market.

Of course, there will be controversy.

Fact is that in more mature markets this type of program already happens, perhaps not exactly as proposed for our market, but, there is.

Anything to improve trading and access to small investors should be seen as an achievement.

Of course the path is not always smooth and that turbulence is expected, however, I believe that our market is on the right track!

For further clarification, I recommend watching the CVM Educacional video on RLP offer.