# How Do SIs Manage Conflicts of Interest in Principal Trading under MiFID II? ▴ Question

**Published:** 2025-08-17
**Categories:** Question

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![A spherical Liquidity Pool is bisected by a metallic diagonal bar, symbolizing an RFQ Protocol and its Market Microstructure. Imperfections on the bar represent Slippage challenges in High-Fidelity Execution](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-optimization-within-principals-market-microstructure-framework.jpg)

![A marbled sphere symbolizes a complex institutional block trade, resting on segmented platforms representing diverse liquidity pools and execution venues. This visualizes sophisticated RFQ protocols, ensuring high-fidelity execution and optimal price discovery within dynamic market microstructure for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/principal-rfq-aggregation-digital-asset-derivative-execution-optimization.jpg)

## Concept

Under the Markets in Financial Instruments Directive II (MiFID II), a Systematic Internaliser (SI) is an investment firm that, on an organised, frequent, systematic, and substantial basis, deals on its own account by executing client orders outside of a regulated market (RM), [multilateral trading facility](https://prime.greeks.live/area/multilateral-trading-facility/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (MTF), or [organised trading facility](https://prime.greeks.live/area/organised-trading-facility/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (OTF). This principal trading activity, where the firm acts as the counterparty to its clients’ trades, is central to the SI model. While this can provide clients with a valuable source of liquidity, it also creates inherent conflicts of interest. The primary conflict arises from the fact that the SI’s financial interests are directly opposed to those of its clients.

When a client buys a financial instrument, the SI is selling it, and vice versa. This creates a situation where the SI could potentially profit from offering less favorable prices to its clients.

![A vertically stacked assembly of diverse metallic and polymer components, resembling a modular lens system, visually represents the layered architecture of institutional digital asset derivatives. Each distinct ring signifies a critical market microstructure element, from RFQ protocol layers to aggregated liquidity pools, ensuring high-fidelity execution and capital efficiency within a Prime RFQ framework](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-execution-stack.jpg)

## The Inherent Conflict in Principal Trading

[Principal trading](https://prime.greeks.live/area/principal-trading/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is the practice of a firm trading for its own account, rather than on behalf of its clients. In the context of an SI, this means that when a client wishes to execute a trade, the SI may choose to fill that order from its own inventory of [financial instruments](https://prime.greeks.live/question/how-does-the-concept-of-best-execution-apply-to-illiquid-or-bespoke-financial-instruments/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). This presents a clear conflict of interest, as the SI’s desire to maximize its own profits may not align with the client’s desire to obtain the best possible price. For example, an SI might be tempted to widen the bid-ask spread to increase its profit margin on a trade, to the detriment of the client.

![A dark, reflective surface displays a luminous green line, symbolizing a high-fidelity RFQ protocol channel within a Crypto Derivatives OS. This signifies precise price discovery for digital asset derivatives, ensuring atomic settlement and optimizing portfolio margin](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-pathway-optimizing-principal-liquidity-and-capital-efficiency.jpg)

## MiFID II’s Approach to Conflicts of Interest

[MiFID II](https://prime.greeks.live/area/mifid-ii/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) recognizes the potential for [conflicts of interest](https://prime.greeks.live/area/conflicts-of-interest/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) within the SI model and establishes a framework to manage them. The directive moves beyond the previous “reasonable steps” standard of MiFID I, requiring firms to take all “appropriate steps” to identify, prevent, and manage conflicts of interest. This higher standard necessitates a more proactive and comprehensive approach to conflict management. MiFID II also emphasizes that disclosure of conflicts of interest is a measure of last resort, to be used only when organizational and administrative arrangements are insufficient to prevent risks of damage to client interests.

- **[Systematic Internaliser](https://prime.greeks.live/area/systematic-internaliser/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (SI)** ▴ An investment firm that executes [client orders](https://prime.greeks.live/question/how-can-a-dealers-system-differentiate-between-an-rfq-from-an-informed-client-versus-an-uninformed-client/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) against its own book on a frequent and systematic basis.

- **Principal Trading** ▴ The practice of a firm trading for its own account.

- **Conflict of Interest** ▴ A situation in which the interests of the SI are in opposition to the interests of its clients.

![The abstract image features angular, parallel metallic and colored planes, suggesting structured market microstructure for digital asset derivatives. A spherical element represents a block trade or RFQ protocol inquiry, reflecting dynamic implied volatility and price discovery within a dark pool](https://options.greeks.live/wp-content/uploads/2025/07/optimized-institutional-digital-asset-derivatives-rfq-protocol-framework-ensuring-principal-best-execution-and-latent-liquidity-capture.jpg)

![A modular, spherical digital asset derivatives intelligence core, featuring a glowing teal central lens, rests on a stable dark base. This represents the precision RFQ protocol execution engine, facilitating high-fidelity execution and robust price discovery within an institutional principal's operational framework](https://options.greeks.live/wp-content/uploads/2025/07/principal-trading-digital-asset-derivatives-rfq-execution-core.jpg)

## Strategy

To manage the conflicts of interest inherent in principal trading, SIs must develop and implement a comprehensive strategy that is embedded in their organizational culture and daily operations. This strategy revolves around three key pillars ▴ a robust conflicts of [interest policy](https://prime.greeks.live/question/how-should-a-firms-order-execution-policy-address-conflicts-of-interest-in-rfq-trades/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), a commitment to best execution, and adherence to stringent [transparency requirements](https://prime.greeks.live/question/what-are-the-key-differences-in-reporting-requirements-between-public-post-trade-transparency-and-regulatory-transaction-reporting-for-lis-orders/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).

![Intricate core of a Crypto Derivatives OS, showcasing precision platters symbolizing diverse liquidity pools and a high-fidelity execution arm. This depicts robust principal's operational framework for institutional digital asset derivatives, optimizing RFQ protocol processing and market microstructure for best execution](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-engine-microstructure-execution-system.jpg)

## Developing a Robust Conflicts of Interest Policy

[Under MiFID](https://prime.greeks.live/question/what-are-the-key-differences-in-best-execution-obligations-for-rfqs-under-mifid-i-vs-mifid-ii/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) II, SIs are required to establish, implement, and maintain an effective conflicts of interest policy. This policy must be appropriate to the size and organization of the firm and the nature, scale, and complexity of its business. The policy should identify, with reference to the specific services and activities of the SI, the circumstances which constitute or may give rise to a conflict of interest entailing a material risk of damage to the interests of one or more clients. It must also specify the procedures to be followed and measures to be adopted in order to manage such conflicts.

![Interlocking transparent and opaque geometric planes on a dark surface. This abstract form visually articulates the intricate Market Microstructure of Institutional Digital Asset Derivatives, embodying High-Fidelity Execution through advanced RFQ protocols](https://options.greeks.live/wp-content/uploads/2025/07/geometric-abstraction-of-institutional-digital-asset-derivatives-market-microstructure-driving-high-fidelity-execution-via-principal-rfq-protocols-and-optimal-liquidity-aggregation.jpg)

## The Role of the Management Body

The management body of the SI has overall responsibility for ensuring that the firm complies with its obligations under MiFID II, including those related to conflicts of interest. The management body must approve the conflicts of interest policy and is responsible for its implementation and ongoing effectiveness. This includes ensuring that all relevant staff are aware of the policy and receive appropriate training.

![A sleek, multi-faceted plane represents a Principal's operational framework and Execution Management System. A central glossy black sphere signifies a block trade digital asset derivative, executed with atomic settlement via an RFQ protocol's private quotation](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-derivatives-rfq-principal-os-high-fidelity-execution.jpg)

## The Centrality of Best Execution

The obligation to provide [best execution](https://prime.greeks.live/area/best-execution/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is a cornerstone of investor protection under MiFID II and a key tool for managing conflicts of interest in principal trading. SIs must take all sufficient steps to obtain the best possible result for their clients, taking into account a range of execution factors, including price, costs, speed, likelihood of execution and settlement, size, and nature of the order. When an SI executes a client order against its own book, it must be able to demonstrate that the price offered to the client is fair and in line with the [best execution obligation](https://prime.greeks.live/area/best-execution-obligation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).

> The best execution obligation requires firms to take all sufficient steps to obtain the best possible result for their clients on a continuous basis.

![Modular plates and silver beams represent a Prime RFQ for digital asset derivatives. This principal's operational framework optimizes RFQ protocol for block trade high-fidelity execution, managing market microstructure and liquidity pools](https://options.greeks.live/wp-content/uploads/2025/08/digital-asset-derivatives-rfq-protocols-principal-execution-layer.jpg)

## Order Execution Policy

To ensure compliance with the best [execution obligation](https://prime.greeks.live/question/how-does-the-best-execution-obligation-apply-differently-to-liquid-equities-versus-illiquid-otc-derivatives/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), SIs must establish and implement an [order execution policy](https://prime.greeks.live/area/order-execution-policy/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). This policy must include, for each class of financial instruments, information on the different venues where the SI executes its client orders and the factors affecting the choice of execution venue. When an SI executes orders against its own book, it is considered an execution venue for the purposes of the order execution policy.

### Execution Factors Under MiFID II

| Factor | Description |
| --- | --- |

![A symmetrical, angular mechanism with illuminated internal components against a dark background, abstractly representing a high-fidelity execution engine for institutional digital asset derivatives. This visualizes the market microstructure and algorithmic trading precision essential for RFQ protocols, multi-leg spread strategies, and atomic settlement within a Principal OS framework, ensuring capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/precision-execution-engine-for-institutional-digital-asset-derivatives-rfq.jpg)

## Transparency as a Conflict Management Tool

MiFID II’s [transparency](https://prime.greeks.live/area/transparency/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) requirements are designed to shed light on the prices at which financial instruments are traded, thereby empowering investors and helping to ensure a level playing field between different trading venues. For SIs, these requirements are a crucial element of their conflict management strategy. By making their quotes public, SIs provide clients with a benchmark against which to assess the fairness of the prices they are offered.

![Symmetrical, institutional-grade Prime RFQ component for digital asset derivatives. Metallic segments signify interconnected liquidity pools and precise price discovery](https://options.greeks.live/wp-content/uploads/2025/07/principals-prime-os-for-digital-asset-derivatives-rfq-execution.jpg)

## Pre-Trade and Post-Trade Transparency

SIs are subject to both pre-trade and [post-trade transparency](https://prime.greeks.live/area/post-trade-transparency/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) obligations. [Pre-trade transparency](https://prime.greeks.live/area/pre-trade-transparency/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) requires SIs to make public their firm quotes in liquid instruments up to a certain size. Post-trade transparency requires SIs to make public the price, volume, and time of the trades they have executed as close to real-time as is technically possible.

![A dynamic visual representation of an institutional trading system, featuring a central liquidity aggregation engine emitting a controlled order flow through dedicated market infrastructure. This illustrates high-fidelity execution of digital asset derivatives, optimizing price discovery within a private quotation environment for block trades, ensuring capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/principal-os-driving-high-fidelity-execution-for-digital-asset-derivatives-through-optimized-rfq-protocols-and-smart-order-routing.jpg)

![A futuristic system component with a split design and intricate central element, embodying advanced RFQ protocols. This visualizes high-fidelity execution, precise price discovery, and granular market microstructure control for institutional digital asset derivatives, optimizing liquidity provision and minimizing slippage](https://options.greeks.live/wp-content/uploads/2025/07/advanced-rfq-protocols-for-digital-asset-derivatives-price-discovery.jpg)

## Execution

The effective execution of a conflict of interest management strategy requires a combination of robust systems, clear procedures, and a culture of compliance. For SIs, this means translating the principles of their conflicts of interest policy, best execution obligation, and transparency requirements into concrete operational processes.

![Internal hard drive mechanics, with a read/write head poised over a data platter, symbolize the precise, low-latency execution and high-fidelity data access vital for institutional digital asset derivatives. This embodies a Principal OS architecture supporting robust RFQ protocols, enabling atomic settlement and optimized liquidity aggregation within complex market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-precision-execution-system-microstructure.jpg)

## Implementing the Conflicts of Interest Policy

The implementation of the conflicts of interest policy begins with the identification of potential conflicts. SIs must maintain a record of the kinds of services or activities carried out by or on behalf of the firm in which a conflict of interest entailing a material risk of damage to the interests of one or more clients has arisen or, in the case of an ongoing service or activity, may arise. This record should be regularly updated.

![A chrome cross-shaped central processing unit rests on a textured surface, symbolizing a Principal's institutional grade execution engine. It integrates multi-leg options strategies and RFQ protocols, leveraging real-time order book dynamics for optimal price discovery in digital asset derivatives, minimizing slippage and maximizing capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/principals-high-fidelity-rfq-execution-digital-asset-derivatives-hub.jpg)

## Managing Identified Conflicts

Once a conflict of interest has been identified, the SI must take appropriate steps to manage it. These steps may include:

- **Information barriers** ▴ Establishing “Chinese walls” to prevent the flow of confidential information between different parts of the business.

- **Segregation of duties** ▴ Ensuring that the individuals responsible for executing client orders are separate from those who manage the firm’s own proprietary trading activities.

- **Remuneration policies** ▴ Designing remuneration structures that do not create incentives for staff to act against the interests of clients.

![A polished, dark blue domed component, symbolizing a private quotation interface, rests on a gleaming silver ring. This represents a robust Prime RFQ framework, enabling high-fidelity execution for institutional digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/08/optimized-execution-for-institutional-digital-asset-derivatives-rfq.jpg)

## Ensuring Best Execution in Practice

To ensure best execution, SIs must have in place a process for monitoring the effectiveness of [their order execution](https://prime.greeks.live/guide/why-sophisticated-traders-are-moving-their-execution-off-the-public-order-book/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) arrangements and policy. This includes regularly assessing the quality of execution offered by the different execution venues listed in [their order execution policy](https://prime.greeks.live/question/what-specific-data-should-an-institutional-trader-request-from-a-liquidity-provider-regarding-their-last-look-policy/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), including their own internal execution facility. SIs must be able to demonstrate to their clients, upon request, that they have executed their orders in accordance with their order execution policy.

> SIs must be able to demonstrate that the price offered to the client is fair and in line with the best execution obligation.

![A complex, faceted geometric object, symbolizing a Principal's operational framework for institutional digital asset derivatives. Its translucent blue sections represent aggregated liquidity pools and RFQ protocol pathways, enabling high-fidelity execution and price discovery](https://options.greeks.live/wp-content/uploads/2025/08/principals-prime-os-digital-asset-derivatives-rfq-execution.jpg)

## Monitoring Execution Quality

The monitoring of execution quality should be a continuous process. SIs should use a variety of metrics to assess their execution performance, including:

- **Price improvement** ▴ The extent to which the execution price is better than the quoted price.

- **Effective spread** ▴ The difference between the price at which a security is bought and sold, taking into account any price improvement.

- **Speed of execution** ▴ The time it takes to execute an order from the moment it is received.

![Precision-engineered system components in beige, teal, and metallic converge at a vibrant blue interface. This symbolizes a critical RFQ protocol junction within an institutional Prime RFQ, facilitating high-fidelity execution and atomic settlement for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/principal-rfq-connectivity-layer-for-digital-asset-derivatives-execution.jpg)

## Meeting Transparency Obligations

SIs must have the necessary systems and procedures in place to meet their pre-trade and post-trade transparency obligations. This includes having the ability to publish their quotes in a manner that is easily accessible to other market participants and to report their trades to an [Approved Publication Arrangement](https://prime.greeks.live/area/approved-publication-arrangement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (APA) in a timely manner.

### Transparency Requirements for SIs

| Requirement | Description | Timing |
| --- | --- | --- |

![Modular institutional-grade execution system components reveal luminous green data pathways, symbolizing high-fidelity cross-asset connectivity. This depicts intricate market microstructure facilitating RFQ protocol integration for atomic settlement of digital asset derivatives within a Principal's operational framework, underpinned by a Prime RFQ intelligence layer](https://options.greeks.live/wp-content/uploads/2025/07/modular-high-fidelity-execution-architecture-for-institutional-digital-asset-derivatives-rfq-protocol-integration-and-principals-operational-framework-optimization.jpg)

## References

- Dechert LLP. “MiFID II – Conflicts of interest.” 2017.

- “MiFID II implementation ▴ the Systematic Internaliser regime.” 2017.

- Autorité des marchés financiers. “Implementing MiFID 2 pre- and post-trade transparency requirements in France.” 2016.

- Laven Partners. “Conflicts of interest under MiFID II ▴ Not a simple matter of semantics.” 2017.

- Hogan Lovells. “MiFID II.” 2016.

![Two reflective, disc-like structures, one tilted, one flat, symbolize the Market Microstructure of Digital Asset Derivatives. This metaphor encapsulates RFQ Protocols and High-Fidelity Execution within a Liquidity Pool for Price Discovery, vital for a Principal's Operational Framework ensuring Atomic Settlement](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-high-fidelity-execution-liquidity-aggregation-optimizing-market-microstructure-principal-trading-best-execution-atomic-settlement.jpg)

## Reflection

The MiFID II framework for Systematic Internalisers represents a significant step forward in the regulation of principal trading. By placing a greater emphasis on the prevention and management of conflicts of interest, the directive seeks to ensure that SIs act in the best interests of [their clients](https://prime.greeks.live/question/why-did-esmas-binary-options-ban-apply-to-retail-clients-but-not-professional-clients/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), even when their own financial interests are at stake. The effectiveness of this framework, however, will ultimately depend on the commitment of SIs to embedding a culture of compliance and integrity within their organizations. The challenge for SIs is not simply to comply with the letter of the law, but to embrace the spirit of the regulations and to build relationships with their clients that are based on trust and transparency.

![Abstract depiction of an advanced institutional trading system, featuring a prominent sensor for real-time price discovery and an intelligence layer. Visible circuitry signifies algorithmic trading capabilities, low-latency execution, and robust FIX protocol integration for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-prime-os-high-fidelity-rfq-protocols.jpg)

## Glossary

<a href="https://prime.greeks.live/area/multilateral-trading-facility/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A fractured, polished disc with a central, sharp conical element symbolizes fragmented digital asset liquidity. This Principal RFQ engine ensures high-fidelity execution, precise price discovery, and atomic settlement within complex market microstructure, optimizing capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/principal-rfq-engine-unifying-fragmented-digital-asset-derivatives-liquidity-for-best-execution.jpg)

## Multilateral Trading Facility

Meaning ▴ A Multilateral Trading Facility is a regulated trading system operated by an investment firm or market operator that brings together multiple third-party buying and selling interests in financial instruments, typically operating under discretionary rules rather than a formal exchange. </a><a href="https://prime.greeks.live/area/organised-trading-facility/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![The abstract visual depicts a sophisticated, transparent execution engine showcasing market microstructure for institutional digital asset derivatives. Its central matching engine facilitates RFQ protocol execution, revealing internal algorithmic trading logic and high-fidelity execution pathways](https://options.greeks.live/wp-content/uploads/2025/07/principal-rfq-engine-for-institutional-digital-asset-derivatives.jpg)

## Organised Trading Facility

Meaning ▴ An Organised Trading Facility (OTF) represents a specific type of multilateral system, as defined under MiFID II, designed for the trading of non-equity instruments. </a><a href="https://prime.greeks.live/question/how-does-the-concept-of-best-execution-apply-to-illiquid-or-bespoke-financial-instruments/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Interconnected translucent rings with glowing internal mechanisms symbolize an RFQ protocol engine. This Principal's Operational Framework ensures High-Fidelity Execution and precise Price Discovery for Institutional Digital Asset Derivatives, optimizing Market Microstructure and Capital Efficiency via Atomic Settlement](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-engine-high-fidelity-execution.jpg)

## Financial Instruments

Best execution for illiquid assets is a systematic process of proving fairness through structured price discovery and rigorous documentation. </a><a href="https://prime.greeks.live/area/principal-trading/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sharp, dark, precision-engineered element, indicative of a targeted RFQ protocol for institutional digital asset derivatives, traverses a secure liquidity aggregation conduit. This interaction occurs within a robust market microstructure platform, symbolizing high-fidelity execution and atomic settlement under a Principal's operational framework for best execution](https://options.greeks.live/wp-content/uploads/2025/07/principal-grade-digital-asset-derivatives-rfq-protocol-execution-engine.jpg)

## Principal Trading

Meaning ▴ Principal Trading defines the operational paradigm where a financial entity engages in market transactions utilizing its own capital and balance sheet, rather than executing orders on behalf of clients. </a><a href="https://prime.greeks.live/area/conflicts-of-interest/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A stylized abstract radial design depicts a central RFQ engine processing diverse digital asset derivatives flows. Distinct halves illustrate nuanced market microstructure, optimizing multi-leg spreads and high-fidelity execution, visualizing a Principal's Prime RFQ managing aggregated inquiry and latent liquidity](https://options.greeks.live/wp-content/uploads/2025/07/principal-rfq-execution-engine-optimizing-digital-asset-derivatives-market-microstructure-for-institutional-liquidity-aggregation.jpg)

## Conflicts of Interest

Meaning ▴ Conflicts of Interest arise when an entity or individual possesses multiple interests that could potentially bias their professional judgment or actions, particularly in a manner that disadvantages a client or counterparty. </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">
![Two distinct ovular components, beige and teal, slightly separated, reveal intricate internal gears. This visualizes an Institutional Digital Asset Derivatives engine, emphasizing automated RFQ execution, complex market microstructure, and high-fidelity execution within a Principal's Prime RFQ for optimal price discovery and block trade capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-automated-rfq-execution-microstructure-revealing-principal-prime-os-intelligence-layer-for-high-fidelity-execution-and-capital-efficiency.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/area/systematic-internaliser/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precision-engineered blue mechanism, symbolizing a high-fidelity execution engine, emerges from a rounded, light-colored liquidity pool component, encased within a sleek teal institutional-grade shell. This represents a Principal's operational framework for digital asset derivatives, demonstrating algorithmic trading logic and smart order routing for block trades via RFQ protocols, ensuring atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/institutional-crypto-derivatives-os-core-algorithmic-execution-engine.jpg)

## Systematic Internaliser

Meaning ▴ A Systematic Internaliser (SI) is a financial institution executing client orders against its own capital on an organized, frequent, systematic basis off-exchange. </a><a href="https://prime.greeks.live/question/how-can-a-dealers-system-differentiate-between-an-rfq-from-an-informed-client-versus-an-uninformed-client/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sophisticated, multi-component system propels a sleek, teal-colored digital asset derivative trade. The complex internal structure represents a proprietary RFQ protocol engine with liquidity aggregation and price discovery mechanisms](https://options.greeks.live/wp-content/uploads/2025/07/principals-high-fidelity-rfq-engine-for-digital-asset-derivatives-execution.jpg)

## Client Orders

A dealer's system differentiates clients by using a dynamic scoring model that analyzes behavioral history and RFQ context to quantify adverse selection risk. </a><a href="https://prime.greeks.live/question/what-are-the-key-differences-in-reporting-requirements-between-public-post-trade-transparency-and-regulatory-transaction-reporting-for-lis-orders/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Precision-engineered modular components, with teal accents, align at a central interface. This visually embodies an RFQ protocol for institutional digital asset derivatives, facilitating principal liquidity aggregation and high-fidelity execution](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineered-institutional-digital-asset-derivatives-rfq-execution-interface-for-atomic-settlement.jpg)

## Transparency Requirements

The two reporting streams for LIS orders are architected for different ends ▴ public transparency for market price discovery and regulatory reporting for confidential oversight. </a><a href="https://prime.greeks.live/question/how-should-a-firms-order-execution-policy-address-conflicts-of-interest-in-rfq-trades/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A deconstructed mechanical system with segmented components, revealing intricate gears and polished shafts, symbolizing the transparent, modular architecture of an institutional digital asset derivatives trading platform. This illustrates multi-leg spread execution, RFQ protocols, and atomic settlement processes](https://options.greeks.live/wp-content/uploads/2025/07/deconstructed-principal-trading-system-revealing-core-mechanics-of-digital-asset-derivatives-execution.jpg)

## Interest Policy

A firm’s RFQ policy must be a control system that manages information leakage and enforces objective, data-driven counterparty selection. </a><a href="https://prime.greeks.live/question/what-are-the-key-differences-in-best-execution-obligations-for-rfqs-under-mifid-i-vs-mifid-ii/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Internal, precise metallic and transparent components are illuminated by a teal glow. This visual metaphor represents the sophisticated market microstructure and high-fidelity execution of RFQ protocols for institutional digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-engine-microstructure-prime-os-intelligence-layer-atomic-settlement-precision.jpg)

## Under Mifid

MiFID II transformed RFQ best execution from a procedural policy into a data-driven, provable mandate for optimal outcomes. </a><a href="https://prime.greeks.live/area/best-execution-obligation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek, institutional-grade RFQ engine precisely interfaces with a dark blue sphere, symbolizing a deep latent liquidity pool for digital asset derivatives. This robust connection enables high-fidelity execution and price discovery for Bitcoin Options and multi-leg spread strategies](https://options.greeks.live/wp-content/uploads/2025/07/institutional-crypto-derivatives-rfq-engine-linking-deep-liquidity-pools.jpg)

## Best Execution Obligation

Meaning ▴ The Best Execution Obligation represents a core fiduciary duty requiring financial intermediaries to take all reasonable steps to obtain the most favorable terms available for their clients' orders, considering prevailing market conditions and the specific characteristics of the order. </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">
![A light sphere, representing a Principal's digital asset, is integrated into an angular blue RFQ protocol framework. Sharp fins symbolize high-fidelity execution and price discovery](https://options.greeks.live/wp-content/uploads/2025/07/principals-core-asset-rfq-protocol-framework-for-digital-derivatives.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/order-execution-policy/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Sleek metallic structures with glowing apertures symbolize institutional RFQ protocols. These represent high-fidelity execution and price discovery across aggregated liquidity pools](https://options.greeks.live/wp-content/uploads/2025/07/precision-digital-asset-derivatives-trading-systems-optimizing-rfq-protocols-for-institutional-block-trade-execution.jpg)

## Order Execution Policy

Meaning ▴ An Order Execution Policy defines the systematic procedures and criteria governing how an institutional trading desk processes and routes client or proprietary orders across various liquidity venues. </a><a href="https://prime.greeks.live/question/how-does-the-best-execution-obligation-apply-differently-to-liquid-equities-versus-illiquid-otc-derivatives/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A dark blue, precision-engineered blade-like instrument, representing a digital asset derivative or multi-leg spread, rests on a light foundational block, symbolizing a private quotation or block trade. This structure intersects robust teal market infrastructure rails, indicating RFQ protocol execution within a Prime RFQ for high-fidelity execution and liquidity aggregation in institutional trading](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-framework-multi-leg-spreads-best-execution-capital-efficiency.jpg)

## Execution Obligation

Best execution evolves from navigating visible, fragmented equity markets to systematically constructing fair value in bespoke OTC derivative markets. </a><a href="https://prime.greeks.live/area/transparency/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Interlocked, precision-engineered spheres reveal complex internal gears, illustrating the intricate market microstructure and algorithmic trading of an institutional grade Crypto Derivatives OS. This visualizes high-fidelity execution for digital asset derivatives, embodying RFQ protocols and capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-prime-os-rfq-execution-system.jpg)

## Transparency

Meaning ▴ Transparency refers to the observable access an institutional participant possesses regarding market data, order book dynamics, and execution outcomes within a trading system. </a><a href="https://prime.greeks.live/area/post-trade-transparency/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Intersecting concrete structures symbolize the robust Market Microstructure underpinning Institutional Grade Digital Asset Derivatives. Dynamic spheres represent Liquidity Pools and Implied Volatility](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-framework-optimizing-rfq-execution-and-liquidity-for-principal-trading.jpg)

## Post-Trade Transparency

Meaning ▴ Post-Trade Transparency defines the public disclosure of executed transaction details, encompassing price, volume, and timestamp, after a trade has been completed. </a><a href="https://prime.greeks.live/area/pre-trade-transparency/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Internal mechanism with translucent green guide, dark components. Represents Market Microstructure of Institutional Grade Crypto Derivatives OS](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-crypto-derivatives-rfq-engine-for-high-fidelity-execution.jpg)

## Pre-Trade Transparency

Meaning ▴ Pre-Trade Transparency refers to the real-time dissemination of bid and offer prices, along with associated sizes, prior to the execution of a trade. </a><a href="https://prime.greeks.live/question/what-specific-data-should-an-institutional-trader-request-from-a-liquidity-provider-regarding-their-last-look-policy/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precisely engineered multi-component structure, split to reveal its granular core, symbolizes the complex market microstructure of institutional digital asset derivatives. This visual metaphor represents the unbundling of multi-leg spreads, facilitating transparent price discovery and high-fidelity execution via RFQ protocols within a Principal's operational framework](https://options.greeks.live/wp-content/uploads/2025/07/institutional-grade-digital-asset-derivatives-rfq-protocols-revealing-market-microstructure-for-high-fidelity-execution-and-atomic-settlement-within-principals-operational-framework.jpg)

## Their Order Execution Policy

An institutional trader must request timestamped data on hold times, rejection reasons, and the symmetry of price tolerance application. </a><a href="https://prime.greeks.live/guide/why-sophisticated-traders-are-moving-their-execution-off-the-public-order-book/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A metallic disc intersected by a dark bar, over a teal circuit board. This visualizes Institutional Liquidity Pool access via RFQ Protocol, enabling Block Trade Execution of Digital Asset Options with High-Fidelity Execution](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-principal-operational-framework-market-microstructure-high-fidelity-execution.jpg)

## Their Order Execution

Command direct liquidity and elevate your execution quality for unparalleled market advantage. </a><a href="https://prime.greeks.live/area/approved-publication-arrangement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract intersecting geometric forms, deep blue and light beige, represent advanced RFQ protocols for institutional digital asset derivatives. These forms signify multi-leg execution strategies, principal liquidity aggregation, and high-fidelity algorithmic pricing against a textured global market sphere, reflecting robust market microstructure and intelligence layer](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-multi-leg-execution-algorithmic-pricing-global-liquidity-principal-trading-systemic-integration-high-fidelity-execution.jpg)

## Approved Publication Arrangement

Meaning ▴ An Approved Publication Arrangement (APA) is a regulated entity authorized to publicly disseminate post-trade transparency data for financial instruments, as mandated by regulations such as MiFID II and MiFIR. </a><a href="https://prime.greeks.live/question/why-did-esmas-binary-options-ban-apply-to-retail-clients-but-not-professional-clients/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![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](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-microstructure.jpg)

## Their Clients

ESMA's ban targeted retail clients to prevent harm from high-risk products, while professionals were deemed capable of managing those risks. </a>

**Tags:** [Systematic Internaliser](https://options.greeks.live/area/systematic-internaliser/), [Best Execution Obligation](https://options.greeks.live/area/best-execution-obligation/), [MiFID II](https://options.greeks.live/area/mifid-ii/), [Approved Publication Arrangement](https://options.greeks.live/area/approved-publication-arrangement/), [Conflicts of Interest](https://options.greeks.live/area/conflicts-of-interest/), [Transparency](https://options.greeks.live/area/transparency/)	

## Discover More

- 
### [How Does MiFID II Define an RFQ System and What Are the Implications?](https://options.greeks.live/question/how-does-mifid-ii-define-an-rfq-system-and-what-are-the-implications/)
![Abstract sculpture with intersecting angular planes and a central sphere on a textured dark base. This embodies sophisticated market microstructure and multi-venue liquidity aggregation for institutional digital asset derivatives. This visualizes high-fidelity execution through precise RFQ protocols within a Prime RFQ, optimizing capital efficiency and atomic settlement.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-institutional-digital-asset-derivatives-rfq-execution-2.jpg)

MiFID II defines an RFQ system as a multilateral trading venue, imposing transparency and organizational rules to formalize liquidity sourcing.

- 
### [What Are the Key Regulatory Differences between an OTF and an MTF?](https://options.greeks.live/question/what-are-the-key-regulatory-differences-between-an-otf-and-an-mtf/)
![A precision-engineered metallic component with a central circular mechanism, secured by fasteners, embodies a Prime RFQ engine. It drives institutional liquidity and high-fidelity execution for digital asset derivatives, facilitating atomic settlement of block trades and private quotation within market microstructure.](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineered-institutional-digital-asset-derivatives-platform-rfq-engine-for-high-fidelity-execution-and-atomic-settlement-of-block-trades.jpg)

An OTF permits discretionary execution for non-equities, while an MTF is a non-discretionary, rule-based system for multiple asset types.

- 
### [How Did Systematic Internalisers Evolve after the MiFID II Mandate?](https://options.greeks.live/question/how-did-systematic-internalisers-evolve-after-the-mifid-ii-mandate/)
![This visual represents an advanced Principal's operational framework for institutional digital asset derivatives. A foundational liquidity pool seamlessly integrates dark pool capabilities for block trades. A precision execution pipeline supports diverse digital asset derivatives instruments, facilitated by an RFQ protocol for atomic settlement and best execution across the market microstructure.](https://options.greeks.live/wp-content/uploads/2025/07/principal-crypto-derivatives-os-rfq-execution-microstructure.jpg)

Post-MiFID II, the Systematic Internaliser evolved into a precise, instrument-specific framework for providing controlled, principal-based liquidity.

- 
### [How Do Regulatory Frameworks like MiFID II Impact Algorithmic Transparency and Behavior in Illiquid Derivative Markets?](https://options.greeks.live/question/how-do-regulatory-frameworks-like-mifid-ii-impact-algorithmic-transparency-and-behavior-in-illiquid-derivative-markets/)
![A stylized spherical system, symbolizing an institutional digital asset derivative, rests on a robust Prime RFQ base. Its dark core represents a deep liquidity pool for algorithmic trading. A blue band signifies high-fidelity execution protocols, ensuring optimal price discovery and capital efficiency within market microstructure, enhancing alpha generation.](https://options.greeks.live/wp-content/uploads/2025/08/institutional-grade-rfq-protocol-engine-facilitating-best-execution-and-liquidity-aggregation-for-digital-asset-derivatives.jpg)

MiFID II mandates a systemic framework of transparency and control, transforming algorithmic behavior in illiquid markets into a disciplined, data-driven process.

- 
### [What Are the Core Differences between an SI and a Multilateral Trading Facility?](https://options.greeks.live/question/what-are-the-core-differences-between-an-si-and-a-multilateral-trading-facility/)
![A deconstructed mechanical system with segmented components, revealing intricate gears and polished shafts, symbolizing the transparent, modular architecture of an institutional digital asset derivatives trading platform. This illustrates multi-leg spread execution, RFQ protocols, and atomic settlement processes.](https://options.greeks.live/wp-content/uploads/2025/07/deconstructed-principal-trading-system-revealing-core-mechanics-of-digital-asset-derivatives-execution.jpg)

An SI is a principal dealer executing client orders bilaterally; an MTF is a neutral venue matching multiple third-party interests.

- 
### [How Does MiFID II Differentiate between Multilateral and Bilateral Trading Venues?](https://options.greeks.live/question/how-does-mifid-ii-differentiate-between-multilateral-and-bilateral-trading-venues/)
![A fractured, polished disc with a central, sharp conical element symbolizes fragmented digital asset liquidity. This Principal RFQ engine ensures high-fidelity execution, precise price discovery, and atomic settlement within complex market microstructure, optimizing capital efficiency.](https://options.greeks.live/wp-content/uploads/2025/07/principal-rfq-engine-unifying-fragmented-digital-asset-derivatives-liquidity-for-best-execution.jpg)

MiFID II codifies European trading by separating multilateral, all-to-all venues from bilateral, principal-driven liquidity sources.

- 
### [What Are the Primary Best Execution Obligations for an OTF Operator?](https://options.greeks.live/question/what-are-the-primary-best-execution-obligations-for-an-otf-operator/)
![A macro view reveals a robust metallic component, signifying a critical interface within a Prime RFQ. This secure mechanism facilitates precise RFQ protocol execution, enabling atomic settlement for institutional-grade digital asset derivatives, embodying high-fidelity execution.](https://options.greeks.live/wp-content/uploads/2025/07/core-secure-institutional-digital-asset-derivatives-rfq-trade-system-element.jpg)

An OTF operator's best execution duty is to fuse discretionary judgment with transparent processes to secure optimal client outcomes.

- 
### [How Does the OTF’s Discretionary Model Impact Best Execution Obligations under MiFID II?](https://options.greeks.live/question/how-does-the-otfs-discretionary-model-impact-best-execution-obligations-under-mifid-ii/)
![A beige spool feeds dark, reflective material into an advanced processing unit, illuminated by a vibrant blue light. This depicts high-fidelity execution of institutional digital asset derivatives through a Prime RFQ, enabling precise price discovery for aggregated RFQ inquiries within complex market microstructure, ensuring atomic settlement.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-engine-prime-os-3.jpg)

The OTF's discretionary model transforms best execution from a purely algorithmic check into a governed, auditable judgment call.

- 
### [How Does the Classification of an RFQ Platform as an OTF versus an MTF Affect Its Obligations?](https://options.greeks.live/question/how-does-the-classification-of-an-rfq-platform-as-an-otf-versus-an-mtf-affect-its-obligations/)
![A precision-engineered component, like an RFQ protocol engine, displays a reflective blade and numerical data. It symbolizes high-fidelity execution within market microstructure, driving price discovery, capital efficiency, and algorithmic trading for institutional Digital Asset Derivatives on a Prime RFQ.](https://options.greeks.live/wp-content/uploads/2025/07/high-fidelity-execution-engine-core-for-institutional-digital-asset-derivatives-rfq-protocol-price-discovery.jpg)

The classification of an RFQ platform as an OTF or MTF determines its core obligations, primarily through the allowance of discretionary execution in the former.

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---

**Original URL:** https://options.greeks.live/question/how-do-sis-manage-conflicts-of-interest-in-principal-trading-under-mifid-ii/
