# Does the MiFID II Tick Size Regime for SIs Ultimately Benefit or Harm the End Investor's Execution Costs? ▴ Question

**Published:** 2025-08-04
**Categories:** Question

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## Concept

The core of the MiFID II tick size regime for [Systematic Internalisers](https://prime.greeks.live/area/systematic-internalisers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (SIs) is a fundamental architectural decision about market structure. It addresses the tension between fostering competition through [off-exchange price improvement](https://prime.greeks.live/question/what-are-the-regulatory-differences-between-on-exchange-and-off-exchange-trading/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) and preserving the integrity of price discovery on public exchanges. The central question is whether allowing SIs to quote in finer increments than exchanges creates a tangible benefit for the end investor’s execution costs or if it systematically degrades the quality of the market, ultimately imposing a higher cost through wider spreads and fragmented liquidity. The initial design of MiFID II created a structural arbitrage opportunity.

SIs, acting as principals by executing client orders against their own book, were not initially bound by the same [tick size](https://prime.greeks.live/area/tick-size/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) constraints as lit markets. This permitted them to offer prices that were marginally, even infinitesimally, better than the best bid or offer on an exchange.

This capability was presented as a direct benefit to the investor, a form of price improvement. However, market operators and exchanges immediately identified a systemic risk. They argued that this created an unlevel playing field, where [smart order routers](https://prime.greeks.live/question/how-do-smart-order-routers-decide-between-sending-an-order-to-a-dark-pool-versus-an-rfq-platform/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (SORs) would invariably direct flow to SIs to capture these fractional improvements. This diversion of “uninformed” retail and institutional flow away from public venues could lead to a hollowing out of the lit order book, impairing the [price discovery process](https://prime.greeks.live/question/how-does-information-asymmetry-in-an-rfq-workflow-affect-the-price-discovery-process-for-illiquid-assets/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) for all market participants.

A market where the most valuable order flow is systematically peeled away to an off-exchange venue is a market that struggles to establish a true, consensus price for an asset. The result is often [wider spreads](https://prime.greeks.live/question/what-are-the-strategic-trade-offs-between-using-last-look-and-quoting-wider-spreads/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) on the primary market and increased implicit costs for investors executing larger, more complex orders that require the depth of a central limit [order book](https://prime.greeks.live/area/order-book/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).

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## What Is the Purpose of a Tick Size Regime?

A tick size regime mandates the minimum price increment in which an instrument can be quoted and traded. Its primary function is to impose order on the price [discovery process](https://prime.greeks.live/question/how-does-information-asymmetry-in-an-rfq-workflow-affect-the-price-discovery-process-for-illiquid-assets/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). By setting a minimum quoting increment, the regime prevents a chaotic race to the bottom where [market participants](https://prime.greeks.live/question/in-what-ways-does-multilateral-netting-improve-capital-efficiency-for-market-participants/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) undercut each other by economically insignificant amounts. This practice, known as “pennying” or sub-pennying, adds message traffic and complexity to the market without providing real economic value.

It can destabilize the order book by creating flickering quotes and making it difficult for liquidity providers to maintain their positions. A standardized tick size fosters a more stable and resilient market by increasing the depth of liquidity available at each price point. When participants cannot undercut each other by a fraction of a cent, they are incentivized to compete by posting larger sizes at the established price levels, leading to a more robust and reliable market for everyone.

> The MiFID II tick size framework for SIs sought to balance the potential for off-exchange price improvement with the need to maintain robust price discovery on lit venues.

The European Securities and Markets Authority ([ESMA](https://prime.greeks.live/area/esma/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)) intervened to address these concerns. ESMA clarified that while [price improvement](https://prime.greeks.live/area/price-improvement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is a legitimate goal, it must be “meaningful” to be considered justified. It stated that marginal improvements that do not bring “any real benefits to investors” could undermine the efficient valuation of instruments. This was widely interpreted to mean that any price improvement offered by an SI should be at least one full tick better than the exchange price, or at the midpoint of the bid-ask spread.

This guidance was a critical step in recalibrating the system, pushing SIs to compete on substantial price improvements rather than on fractional pricing advantages that threatened the health of the broader [market ecosystem](https://prime.greeks.live/question/what-are-the-unintended-consequences-of-speed-bumps-on-the-broader-market-ecosystem/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). The debate culminated in regulatory amendments to extend the [tick size regime](https://prime.greeks.live/area/tick-size-regime/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to SIs for equity instruments, formally leveling the playing field and prioritizing the integrity of public market price formation.

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## Strategy

For the institutional investor, the application of the MiFID II tick size regime to Systematic Internalisers translates into a strategic re-evaluation of execution venue selection. The core calculus shifts from a simple pursuit of any available price improvement to a more sophisticated analysis of [execution quality](https://prime.greeks.live/question/how-does-a-best-execution-committee-quantify-and-compare-execution-quality-across-different-venues/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). The initial exemption for SIs presented a clear, if potentially flawed, strategy ▴ route orders to SIs to capture fractional price enhancements. With the harmonization of tick sizes, the strategic landscape becomes more complex, forcing a deeper consideration of what constitutes “[best execution](https://prime.greeks.live/area/best-execution/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)” and how different liquidity pools contribute to it.

The most direct strategic consequence for investors is the change in the nature of transaction costs. A key study by the French Autorité des Marchés Financiers (AMF) conducted after the regime’s implementation provides critical insight. The study found that for the most liquid securities, the standardized tick sizes led to a slight widening of the bid-ask spread. For an aggressive trader ▴ one who “crosses the spread” by executing immediately at the prevailing market price ▴ this represents a direct increase in cost.

However, for a passive participant who places a limit order and waits for it to be filled, the wider spread can represent a source of profit. This dynamic alters the strategic incentives for different types of trading activity.

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## How Did the Regime Affect Different Market Participants?

The most significant finding of the AMF study was a net reduction in the effective [transaction cost](https://prime.greeks.live/area/transaction-cost/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) for end-client accounts. This occurred even as costs rose for high-frequency trading (HFT) firms and dedicated market makers. This suggests that the regime successfully reallocated costs within the market ecosystem.

The increased stability and reduced “noise” in the order book created a more favorable environment for institutional investors to work their orders, leading to better overall execution prices that more than compensated for the wider spreads. The regime effectively filtered out the high-frequency quoting activity that added little to [price discovery](https://prime.greeks.live/area/price-discovery/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), allowing for more stable and predictable execution.

> Despite wider spreads on some securities, the regime ultimately lowered effective transaction costs for end investors by improving market quality and reducing noise.

This improvement in [market quality](https://prime.greeks.live/area/market-quality/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is a central strategic consideration. The AMF study confirmed that the tick size regime led to a positive impact on the depth of liquidity available at the best bid and offer. For an investor needing to execute a significant order, having more shares available at the best price is a substantial benefit. It reduces the [market impact](https://prime.greeks.live/area/market-impact/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) of their trade and increases the probability of a successful fill at a favorable price.

The reduction in order book “noise,” measured by a significant drop in the number of messages, also contributes to a more efficient market. It lowers the technological burden on all participants and makes it easier to discern true trading intent from fleeting, algorithmically generated quotes.

### Table 1 ▴ Strategic Impact on Market Participants

| Participant Group | Impact on Execution Costs | Strategic Rationale |
| --- | --- | --- |
| End Investors (Clients) | Net Decrease | Execution costs were reduced due to improved market quality, increased depth at the best price levels, and less market noise, which outweighed the effect of slightly wider spreads. |
| Passive Traders | Potential Increase in Revenue | Those who provide liquidity via limit orders benefited directly from the wider bid-ask spreads, earning a greater return for their passive participation. |
| Aggressive Traders | Direct Increase in Cost | Participants who demand immediate liquidity by crossing the spread paid a higher direct cost due to the widening of the spread on the most liquid securities. |
| HFTs & Market Makers | Net Increase | Costs for these participants rose, partly due to increased aggressiveness required in periods of stress and the removal of sub-tick quoting advantages. |

### Table 2 ▴ Illustrative Market Quality Metrics Post-Regime

| Security Category | Change in Spread | Change in Depth at BBO | Change in Message Traffic |
| --- | --- | --- | --- |
| Large Cap (CAC 40) | Increase (approx. +45% for affected stocks) | Positive Increase | Significant Decrease |
| Mid Cap (SRD) | Increase (approx. +44% for affected stocks) | Positive Increase | Significant Decrease |
| Small Cap (SME) | Variable (decrease for some, increase for others) | Improved Liquidity | More Dynamic Order Book |

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## Execution

The execution of institutional orders in the post-[MiFID II](https://prime.greeks.live/area/mifid-ii/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) environment requires a framework that internalizes the structural changes brought about by the harmonized tick size regime. The ultimate decision to apply the tick size rules to Systematic Internalisers was a deliberate act of financial engineering designed to protect the central price formation mechanism of lit markets. For the buy-side execution desk, this regulatory alignment means that the process of sourcing liquidity must be rooted in a robust, data-driven analysis of all available venues, with a clear understanding of the trade-offs between them.

The primary operational shift is in the function of Smart Order Routers (SORs). Previously, an SOR might have been programmed with a simple logic ▴ preference any venue, including an SI, that offers any degree of price improvement, no matter how small. Today, that logic is insufficient. An effective SOR must be calibrated to recognize that price improvement from an SI is only possible at specific, discrete intervals ▴ a full tick increment or the midpoint of the spread.

The execution algorithm must therefore weigh the probability of achieving a full tick of improvement at an SI against the available depth and certainty of execution on a primary exchange. This is a more complex computational problem, requiring the SOR to assess not just the price, but also the size and likelihood of a fill across multiple, now more comparable, venues.

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## An Operational Playbook for Best Execution

Achieving best execution in this standardized environment involves a systematic, multi-stage process. It moves beyond simple cost minimization to a holistic assessment of execution quality, incorporating factors like market impact, information leakage, and liquidity capture. A modern execution desk’s playbook should incorporate the following steps:

- 
**Pre-Trade Analysis** The process begins with a thorough analysis of the order’s characteristics. Is it a small order in a highly liquid stock, or a large block in a less liquid name? The size of the order relative to the average daily volume and the available depth on the order book will heavily influence the optimal execution strategy.
For smaller orders, the benefit of seeking price improvement at an SI may be substantial. For larger orders, minimizing market impact by accessing the deep liquidity of a lit venue may be the primary concern.

- 
**Venue Evaluation** The next step is a dynamic evaluation of all potential execution venues. This involves more than just looking at the displayed price. The execution desk must consider the SI’s historical performance in providing [meaningful price improvement](https://prime.greeks.live/question/how-can-an-institution-quantitatively-measure-price-improvement-within-a-governed-rfq-system/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) for similar orders.
It must also assess the depth and resilience of the [lit market](https://prime.greeks.live/area/lit-market/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)’s order book. The decision to route to an SI is now a bet on securing a non-trivial price enhancement, a bet that must be weighed against the certainty of the lit market.

- 
**Algorithmic Strategy Selection** Based on the pre-trade analysis, the trader selects the most appropriate execution algorithm. This could be a simple liquidity-seeking algorithm for small orders, or a more sophisticated implementation shortfall or VWAP algorithm for larger blocks. The chosen algorithm must be intelligent enough to probe SIs for [meaningful price](https://prime.greeks.live/question/how-can-institutions-differentiate-between-price-reversion-and-trading-along-a-genuine-price-trend/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) improvement while simultaneously working the order on lit exchanges to capture available liquidity without signaling trading intent to the broader market.

- 
**Post-Trade [Transaction Cost Analysis](https://prime.greeks.live/area/transaction-cost-analysis/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (TCA)** The final stage is a rigorous post-trade analysis. TCA is essential to validate the execution strategy and refine it for future trades. By comparing the execution price against various benchmarks (e.g. arrival price, interval VWAP), the desk can quantify the value added or lost through its routing decisions.
The findings of the AMF study, which showed a net benefit for end investors, can be confirmed or challenged through internal TCA. This feedback loop is critical for the continuous improvement of the execution process.

> Effective execution now hinges on sophisticated order routing technology that seeks substantial, full-tick price improvements from SIs while simultaneously leveraging the deep liquidity of lit exchanges.

Ultimately, the MiFID II tick size regime for SIs benefits the end investor by fostering a healthier, more robust market ecosystem. It forces competition between trading venues to occur on the basis of substantive factors like liquidity and meaningful price improvement, rather than on the ability to undercut quotes by insignificant amounts. For the end investor, this translates into a market that is more stable, more predictable, and, as the evidence suggests, cheaper to trade in.

The cost of execution is reduced not by chasing pennies, but by operating in a market with deeper liquidity, less noise, and a more reliable price discovery process. The regime rewards strategic, patient execution over simple, reactive routing, a structural shift that benefits the long-term investor.

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## References

- Deutsche Bank Autobahn. “MiFID II ▴ Systematic Internalisers ▴ Tick Sizes and Price Improvement.” 2017.

- Autorité des Marchés Financiers (AMF). “MIFID II ▴ IMPACT OF THE NEW TICK SIZE REGIME AFTER SEVERAL MONTHS OF IMPLEMENTATION.” 2019.

- Euronext. “Systematic Internalisers and Tick Sizes (MiFID II).” 2018.

- Deutsche Bank Autobahn. “MiFID II ▴ Systematic Internalisers ▴ Tick Sizes and Price Improvement ▴ Responses to ESMA Consultation.” 2018.

- The TRADE. “EC agrees to apply tick size regime to SIs, but with an amendment.” 2018.

- O’Hara, Maureen. Market Microstructure Theory. Blackwell Publishers, 1995.

- Harris, Larry. Trading and Exchanges ▴ Market Microstructure for Practitioners. Oxford University Press, 2003.

- European Securities and Markets Authority (ESMA). “MiFID II Amends – RTS 1.” 2018.

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## Reflection

The resolution of the tick size debate within MiFID II provides a clear lesson in market architecture. It demonstrates that the rules governing the smallest increments of price have a disproportionate impact on the behavior of the entire system. The data suggests a net benefit for the end investor, but this outcome was achieved by prioritizing the systemic health of public price discovery over the allure of fractional, off-exchange advantages. This prompts a deeper consideration of your own execution framework.

How is your system calibrated to distinguish between superficial cost savings and true execution quality? Does your analytical toolkit, from pre-trade assessment to post-trade TCA, accurately measure the hidden costs of market impact and the tangible benefits of accessing deep, stable liquidity? The knowledge of this regime is one component; its integration into a superior operational system is what creates a durable strategic edge.

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## Glossary

<a href="https://prime.greeks.live/question/what-are-the-regulatory-differences-between-on-exchange-and-off-exchange-trading/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Off-Exchange Price Improvement

The core regulatory difference is the architectural choice between centrally cleared, transparent exchanges and bilaterally managed, opaque OTC networks. </a><a href="https://prime.greeks.live/area/systematic-internalisers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Systematic Internalisers

Meaning ▴ A market participant, typically a broker-dealer, systematically executing client orders against its own inventory or other client orders off-exchange, acting as principal. </a><a href="https://prime.greeks.live/area/tick-size/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Tick Size

Meaning ▴ Tick Size defines the minimum permissible price increment for a financial instrument on an exchange, establishing the smallest unit by which a security's price can change or an order can be placed. </a><a href="https://prime.greeks.live/question/how-does-information-asymmetry-in-an-rfq-workflow-affect-the-price-discovery-process-for-illiquid-assets/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Price Discovery Process

Information asymmetry in an RFQ for illiquid assets degrades price discovery by introducing uncertainty and risk, which dealers price into their quotes. </a><a href="https://prime.greeks.live/question/how-do-smart-order-routers-decide-between-sending-an-order-to-a-dark-pool-versus-an-rfq-platform/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Smart Order Routers

A Smart Order Router routes to dark pools for anonymity and price improvement, pivoting to RFQs for execution certainty in large or illiquid trades. </a><a href="https://prime.greeks.live/question/what-are-the-strategic-trade-offs-between-using-last-look-and-quoting-wider-spreads/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Wider Spreads

The choice between last look and wider spreads is a core architectural decision balancing price against execution certainty. </a><a href="https://prime.greeks.live/area/order-book/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Order Book

Meaning ▴ An Order Book is a real-time electronic ledger detailing all outstanding buy and sell orders for a specific financial instrument, organized by price level and sorted by time priority within each level. </a><a href="https://prime.greeks.live/question/in-what-ways-does-multilateral-netting-improve-capital-efficiency-for-market-participants/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Geometric panels, light and dark, interlocked by a luminous diagonal, depict an institutional RFQ protocol for digital asset derivatives. Central nodes symbolize liquidity aggregation and price discovery within a Principal's execution management system, enabling high-fidelity execution and atomic settlement in market microstructure](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-protocol-execution-engine-1.jpg)

## Market Participants

Multilateral netting enhances capital efficiency by compressing numerous gross obligations into a single net position, reducing settlement risk and freeing capital. </a><a href="https://prime.greeks.live/question/how-does-information-asymmetry-in-an-rfq-workflow-affect-the-price-discovery-process-for-illiquid-assets/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek, angular metallic system, an algorithmic trading engine, features a central intelligence layer. It embodies high-fidelity RFQ protocols, optimizing price discovery and best execution for institutional digital asset derivatives, managing counterparty risk and slippage](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-digital-asset-derivatives-rfq-engine-for-best-execution.jpg)

## Discovery Process

Information asymmetry in an RFQ for illiquid assets degrades price discovery by introducing uncertainty and risk, which dealers price into their quotes. </a><a href="https://prime.greeks.live/area/price-improvement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Sharp, transparent, teal structures and a golden line intersect a dark void. This symbolizes market microstructure for institutional digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-precision-execution-leveraging-granular-market-microstructure-intelligence.jpg)

## Price Improvement

Meaning ▴ Price improvement denotes the execution of a trade at a more advantageous price than the prevailing National Best Bid and Offer (NBBO) at the moment of order submission. </a><a href="https://prime.greeks.live/area/esma/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A gleaming, translucent sphere with intricate internal mechanisms, flanked by precision metallic probes, symbolizes a sophisticated Principal's RFQ engine. This represents the atomic settlement of multi-leg spread strategies, enabling high-fidelity execution and robust price discovery within institutional digital asset derivatives markets, minimizing latency and slippage for optimal alpha generation and capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/inst-digital-asset-deriv-rfq-os-for-optimal-high-fidelity-trade-exec.jpg)

## Esma

Meaning ▴ ESMA, the European Securities and Markets Authority, functions as an independent European Union agency responsible for safeguarding the stability of the EU's financial system by ensuring the integrity, transparency, efficiency, and orderly functioning of securities markets, alongside enhancing investor protection. </a><a href="https://prime.greeks.live/question/what-are-the-unintended-consequences-of-speed-bumps-on-the-broader-market-ecosystem/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Interlocking dark modules with luminous data streams represent an institutional-grade Crypto Derivatives OS. It facilitates RFQ protocol integration for multi-leg spread execution, enabling high-fidelity execution, optimal price discovery, and capital efficiency in market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution.jpg)

## Market Ecosystem

Speed bumps re-architect market time, creating complex trade-offs between price stability, liquidity fragmentation, and true price accessibility. </a><a href="https://prime.greeks.live/area/tick-size-regime/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A central split circular mechanism, half teal with liquid droplets, intersects four reflective angular planes. This abstractly depicts an institutional RFQ protocol for digital asset options, enabling principal-led liquidity provision and block trade execution with high-fidelity price discovery within a low-latency market microstructure, ensuring capital efficiency and atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-rfq-protocol-core-system-for-high-fidelity-execution-and-aggregated-liquidity.jpg)

## Tick Size Regime

Meaning ▴ A Tick Size Regime specifies the minimum allowable price increment for an asset's quotation and trading, directly influencing order book granularity and the fundamental mechanics of price discovery within a defined market segment. </a><a href="https://prime.greeks.live/question/how-does-a-best-execution-committee-quantify-and-compare-execution-quality-across-different-venues/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Intersecting multi-asset liquidity channels with an embedded intelligence layer define this precision-engineered framework. It symbolizes advanced institutional digital asset RFQ protocols, visualizing sophisticated market microstructure for high-fidelity execution, mitigating counterparty risk and enabling atomic settlement across crypto derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-rfq-execution-system-microstructure-dynamics.jpg)

## Execution Quality

A Best Execution Committee systematically architects superior trading outcomes by quantifying performance against multi-dimensional benchmarks and comparing venues through rigorous, data-driven analysis. </a><a href="https://prime.greeks.live/area/best-execution/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![The image features layered structural elements, representing diverse liquidity pools and market segments within a Principal's operational framework. A sharp, reflective plane intersects, symbolizing high-fidelity execution and price discovery via private quotation protocols for institutional digital asset derivatives, emphasizing atomic settlement nodes](https://options.greeks.live/wp-content/uploads/2025/07/systemic-interplay-for-institutional-digital-asset-derivatives-execution-via-advanced-rfq-protocols.jpg)

## Best Execution

Meaning ▴ Best Execution is the obligation to obtain the most favorable terms reasonably available for a client's order. </a><a href="https://prime.greeks.live/area/transaction-cost/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Polished metallic disks, resembling data platters, with a precise mechanical arm poised for high-fidelity execution. This embodies an institutional digital asset derivatives platform, optimizing RFQ protocol for efficient price discovery, managing market microstructure, and leveraging a Prime RFQ intelligence layer to minimize execution latency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-precision-execution-via-advanced-rfq-protocols-and-prime-os-intelligence-layer-for-optimal-market-microstructure.jpg)

## Transaction Cost

Meaning ▴ Transaction Cost represents the total quantifiable economic friction incurred during the execution of a trade, encompassing both explicit costs such as commissions, exchange fees, and clearing charges, alongside implicit costs like market impact, slippage, and opportunity cost. </a><a href="https://prime.greeks.live/area/price-discovery/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek Prime RFQ interface features a luminous teal display, signifying real-time RFQ Protocol data and dynamic Price Discovery within Market Microstructure. A detached sphere represents an optimized Block Trade, illustrating High-Fidelity Execution and Liquidity Aggregation for Institutional Digital Asset Derivatives](https://options.greeks.live/wp-content/uploads/2025/08/advanced-rfq-protocol-engine-for-institutional-digital-asset-derivatives.jpg)

## Price Discovery

Meaning ▴ Price discovery is the continuous, dynamic process by which the market determines the fair value of an asset through the collective interaction of supply and demand. </a><a href="https://prime.greeks.live/area/market-quality/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sophisticated institutional digital asset derivatives platform unveils its core market microstructure. Intricate circuitry powers a central blue spherical RFQ protocol engine on a polished circular surface](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-prime-os-unveiling-rfq-protocol-engine-market-microstructure-for-optimal-price-discovery-and-high-fidelity-execution.jpg)

## Market Quality

Meaning ▴ Market Quality quantifies the operational efficacy and structural integrity of a trading venue, encompassing factors such as liquidity depth, bid-ask spread tightness, price discovery efficiency, and the resilience of execution against adverse selection. </a><a href="https://prime.greeks.live/area/market-impact/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract geometric forms converge around a central RFQ protocol engine, symbolizing institutional digital asset derivatives trading. Transparent elements represent real-time market data and algorithmic execution paths, while solid panels denote principal liquidity and robust counterparty relationships](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-core-for-high-fidelity-execution.jpg)

## Market Impact

Meaning ▴ Market Impact refers to the observed change in an asset's price resulting from the execution of a trading order, primarily influenced by the order's size relative to available liquidity and prevailing market conditions. </a><a href="https://prime.greeks.live/area/execution-costs/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Glossy, intersecting forms in beige, blue, and teal embody RFQ protocol efficiency, atomic settlement, and aggregated liquidity for institutional digital asset derivatives. The sleek design reflects high-fidelity execution, prime brokerage capabilities, and optimized order book dynamics for capital efficiency](https://options.greeks.live/wp-content/uploads/2025/08/precision-engineered-digital-asset-derivatives-execution-via-optimized-rfq-protocols-enhancing-principal-operational-frameworks.jpg)

## Execution Costs

Meaning ▴ The aggregate financial decrement incurred during the process of transacting an order in a financial market. </a><a href="https://prime.greeks.live/area/mifid-ii/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![An abstract composition featuring two overlapping digital asset liquidity pools, intersected by angular structures representing multi-leg RFQ protocols. This visualizes dynamic price discovery, high-fidelity execution, and aggregated liquidity within institutional-grade crypto derivatives OS, optimizing capital efficiency and mitigating counterparty risk](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-optimizing-aggregated-liquidity-and-multi-leg-execution-via-advanced-market-microstructure.jpg)

## Mifid Ii

Meaning ▴ MiFID II, the Markets in Financial Instruments Directive II, constitutes a comprehensive regulatory framework enacted by the European Union to govern financial markets, investment firms, and trading venues. </a><a href="https://prime.greeks.live/question/how-can-an-institution-quantitatively-measure-price-improvement-within-a-governed-rfq-system/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek, disc-shaped system, with concentric rings and a central dome, visually represents an advanced Principal's operational framework. It integrates RFQ protocols for institutional digital asset derivatives, facilitating liquidity aggregation, high-fidelity execution, and real-time risk management](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-protocol-engine-digital-asset-derivatives-execution.jpg)

## Meaningful Price Improvement

Quantifying price improvement is the precise calibration of execution outcomes against a dynamic, counterfactual benchmark. </a><a href="https://prime.greeks.live/area/lit-market/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Precisely balanced blue spheres on a beam and angular fulcrum, atop a white dome. This signifies RFQ protocol optimization for institutional digital asset derivatives, ensuring high-fidelity execution, price discovery, capital efficiency, and systemic equilibrium in multi-leg spreads](https://options.greeks.live/wp-content/uploads/2025/07/systemic-equilibrium-in-digital-asset-derivatives-rfq-protocols.jpg)

## Lit Market

Meaning ▴ A lit market is a trading venue providing mandatory pre-trade transparency. </a><a href="https://prime.greeks.live/question/how-can-institutions-differentiate-between-price-reversion-and-trading-along-a-genuine-price-trend/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Sleek, dark components with a bright turquoise data stream symbolize a Principal OS enabling high-fidelity execution for institutional digital asset derivatives. This infrastructure leverages secure RFQ protocols, ensuring precise price discovery and minimal slippage across aggregated liquidity pools, vital for multi-leg spreads](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-rfq-protocol-systemic-execution-interface.jpg)

## Meaningful Price

Institutions differentiate trend from reversion by integrating quantitative signals with real-time order flow analysis to decode market intent. </a><a href="https://prime.greeks.live/area/transaction-cost-analysis/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A complex, intersecting arrangement of sleek, multi-colored blades illustrates institutional-grade digital asset derivatives trading. This visual metaphor represents a sophisticated Prime RFQ facilitating RFQ protocols, aggregating dark liquidity, and enabling high-fidelity execution for multi-leg spreads, optimizing capital efficiency and mitigating counterparty risk](https://options.greeks.live/wp-content/uploads/2025/07/sophisticated-multi-asset-rfq-architecture-visualizing-institutional-digital-derivatives-execution-liquidity-aggregation-and-prime-os-orchestration-for-high-fidelity-performance.jpg)

## Transaction Cost Analysis

Meaning ▴ Transaction Cost Analysis (TCA) is the quantitative methodology for assessing the explicit and implicit costs incurred during the execution of financial trades. </a>

**Tags:** [Systematic Internaliser](https://options.greeks.live/area/systematic-internaliser/), [Price Improvement](https://options.greeks.live/area/price-improvement/), [Market Quality](https://options.greeks.live/area/market-quality/), [Best Execution](https://options.greeks.live/area/best-execution/), [Transaction Cost](https://options.greeks.live/area/transaction-cost/), [Transaction Cost Analysis](https://options.greeks.live/area/transaction-cost-analysis/)	

## Discover More

- 
### [How Has the Rise of Systematic Internalisers Changed the Competitive Landscape for Traditional Stock Exchanges?](https://options.greeks.live/question/how-has-the-rise-of-systematic-internalisers-changed-the-competitive-landscape-for-traditional-stock-exchanges/)
![A sophisticated mechanism features a segmented disc, indicating dynamic market microstructure and liquidity pool partitioning. This system visually represents an RFQ protocol's price discovery process, crucial for high-fidelity execution of institutional digital asset derivatives and managing counterparty risk within a Prime RFQ.](https://options.greeks.live/wp-content/uploads/2025/07/advanced-digital-asset-derivatives-rfq-liquidity-aggregation-system.jpg)

Systematic Internalisers re-architected market competition by offering principal-based, discrete execution, challenging exchanges on price and market impact.

- 
### [How Does the MiFID II Tick Size Regime Affect Price Improvement from Systematic Internalisers?](https://options.greeks.live/question/how-does-the-mifid-ii-tick-size-regime-affect-price-improvement-from-systematic-internalisers/)
![Intersecting metallic structures symbolize RFQ protocol pathways for institutional digital asset derivatives. They represent high-fidelity execution of multi-leg spreads across diverse liquidity pools. Spheres denote aggregated inquiry and price discovery within a robust Prime RFQ, optimizing capital efficiency and mitigating systemic risk.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-framework-optimizing-multi-leg-spreads-and-liquidity-aggregation-for-best-execution.jpg)

The MiFID II tick size regime creates artificial spreads on lit markets, enabling SIs to offer price improvement within those spreads.

- 
### [What Are the Key Differences in Demonstrating Best Execution between Lit Markets and RFQ Protocols?](https://options.greeks.live/question/what-are-the-key-differences-in-demonstrating-best-execution-between-lit-markets-and-rfq-protocols/)
![A dark, articulated multi-leg spread structure crosses a simpler underlying asset bar on a teal Prime RFQ platform. This visualizes institutional digital asset derivatives execution, leveraging high-fidelity RFQ protocols for optimal capital efficiency and precise price discovery.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-prime-os-execution.jpg)

Demonstrating best execution is a function of protocol architecture; one requires forensic analysis of public data, the other requires procedural validation of a private auction.

- 
### [How Do LIS Waivers Impact Best Execution Obligations for Institutional Traders in Europe?](https://options.greeks.live/question/how-do-lis-waivers-impact-best-execution-obligations-for-institutional-traders-in-europe/)
![A central, multi-layered cylindrical component rests on a highly reflective surface. This core quantitative analytics engine facilitates high-fidelity execution. The mirrored surface symbolizes a transparent liquidity pool, optimizing market microstructure for institutional digital asset derivatives via robust RFQ protocols. It's a critical element for efficient price discovery.](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-engine-core-optimization.jpg)

LIS waivers structurally alter best execution by shifting the focus from lit-market price to minimizing total cost via market impact control.

- 
### [How Does the SI Framework Alter the Measurement of Execution Quality for Block Trades?](https://options.greeks.live/question/how-does-the-si-framework-alter-the-measurement-of-execution-quality-for-block-trades/)
![A futuristic, institutional-grade sphere, diagonally split, reveals a glowing teal core of intricate circuitry. This represents a high-fidelity execution engine for digital asset derivatives, facilitating private quotation via RFQ protocols, embodying market microstructure for latent liquidity and precise price discovery.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-engine-prime-os.jpg)

The SI framework transforms execution quality measurement from a lit-market comparison to a multi-factor analysis of impact mitigation.

- 
### [What Regulatory Changes Have Impacted the Growth and Operation of Anonymous Trading Venues?](https://options.greeks.live/question/what-regulatory-changes-have-impacted-the-growth-and-operation-of-anonymous-trading-venues/)
![Precision-engineered institutional-grade Prime RFQ component, showcasing a reflective sphere and teal control. This symbolizes RFQ protocol mechanics, emphasizing high-fidelity execution, atomic settlement, and capital efficiency in digital asset derivatives market microstructure.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-precision-execution-system-design.jpg)

Regulatory shifts re-architected dark liquidity, mandating a dynamic, data-driven approach to execution system design.

- 
### [How Does the Rise of Systematic Internalisers Change the Strategic Considerations for Best Execution in Europe?](https://options.greeks.live/question/how-does-the-rise-of-systematic-internalisers-change-the-strategic-considerations-for-best-execution-in-europe/)
![A central Prime RFQ core powers institutional digital asset derivatives. Translucent conduits signify high-fidelity execution and smart order routing for RFQ block trades. Peripheral modules symbolize aggregated liquidity pools, enabling precise price discovery, mitigating counterparty risk, and optimizing portfolio margin.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-liquidity-aggregation-engine.jpg)

The rise of Systematic Internalisers reframes European best execution from a public market quest to a sophisticated process of sourcing private, principal liquidity with demonstrable price improvement.

- 
### [How Did MiFID II Tick Size Rules Affect High-Frequency Trading Strategies?](https://options.greeks.live/question/how-did-mifid-ii-tick-size-rules-affect-high-frequency-trading-strategies/)
![A transparent sphere, representing a granular digital asset derivative or RFQ quote, precisely balances on a proprietary execution rail. This symbolizes high-fidelity execution within complex market microstructure, driven by rapid price discovery from an institutional-grade trading engine, optimizing capital efficiency.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-precision-1.jpg)

MiFID II's tick rules recalibrated the market's OS, forcing HFTs to evolve from simple latency arbitrage to complex, multi-venue risk managers.

- 
### [Could the Inclusion of Pre-Trade Data in a Consolidated Tape Have a Different Impact than Post-Trade Data Alone?](https://options.greeks.live/question/could-the-inclusion-of-pre-trade-data-in-a-consolidated-tape-have-a-different-impact-than-post-trade-data-alone/)
![Two abstract, segmented forms intersect, representing dynamic RFQ protocol interactions and price discovery mechanisms. The layered structures symbolize liquidity aggregation across multi-leg spreads within complex market microstructure. This visualizes institutional execution pathways, emphasizing atomic settlement and capital efficiency in digital asset derivatives.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-microstructure.jpg)

The inclusion of pre-trade data transforms a consolidated tape from a historical record into a live system for decision support.

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        "caption": "A dark green, robust device showcases a central, recessed circular control. This interface is a critical component for institutional trading, enabling precise RFQ protocol execution. It facilitates high-fidelity execution for complex multi-leg spreads and digital asset derivatives, ensuring optimal price discovery and capital efficiency. The integrated intelligence layer supports sophisticated algorithmic trading, managing counterparty risk and enhancing market microstructure for prime brokerage clients via a Crypto Derivatives OS."
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                "text": "A tick size regime mandates the minimum price increment in which an instrument can be quoted and traded. Its primary function is to impose order on the price discovery process. By setting a minimum quoting increment, the regime prevents a chaotic race to the bottom where market participants undercut each other by economically insignificant amounts. This practice, known as \"pennying\" or sub-pennying, adds message traffic and complexity to the market without providing real economic value. It can destabilize the order book by creating flickering quotes and making it difficult for liquidity providers to maintain their positions. A standardized tick size fosters a more stable and resilient market by increasing the depth of liquidity available at each price point. When participants cannot undercut each other by a fraction of a cent, they are incentivized to compete by posting larger sizes at the established price levels, leading to a more robust and reliable market for everyone."
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                "text": "The most significant finding of the AMF study was a net reduction in the effective transaction cost for end-client accounts. This occurred even as costs rose for high-frequency trading (HFT) firms and dedicated market makers. This suggests that the regime successfully reallocated costs within the market ecosystem. The increased stability and reduced \"noise\" in the order book created a more favorable environment for institutional investors to work their orders, leading to better overall execution prices that more than compensated for the wider spreads. The regime effectively filtered out the high-frequency quoting activity that added little to price discovery, allowing for more stable and predictable execution."
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---

**Original URL:** https://options.greeks.live/question/does-the-mifid-ii-tick-size-regime-for-sis-ultimately-benefit-or-harm-the-end-investors-execution-costs/
