# How Does MiFID II Define Best Execution for OTC Derivatives? ▴ Question

**Published:** 2025-08-05
**Categories:** Question

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## Concept

The Markets in Financial Instruments Directive II (MiFID II) defines best execution for over-the-counter (OTC) derivatives through a principles-based mandate that compels an investment firm to construct and adhere to a rigorous operational framework. This framework’s objective is to ensure the firm takes all [sufficient steps](https://prime.greeks.live/area/sufficient-steps/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to obtain the best possible result for its clients on a consistent basis. For [OTC derivatives](https://prime.greeks.live/area/otc-derivatives/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), this definition expands far beyond the simple pursuit of the best price, creating a multi-dimensional analytical challenge for the executing firm. The directive acknowledges the inherent structural differences of OTC markets, which lack a central order book and are characterized by bilateral negotiations and fragmented liquidity.

Consequently, the regulation requires firms to establish a systematic process, their “execution policy,” which must be evidence-based and demonstrably effective. This policy serves as the architectural blueprint for how a firm will weigh a series of prescribed “[execution factors](https://prime.greeks.live/area/execution-factors/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)” to achieve the optimal outcome for a client order. The application of this principle is dynamic, adapting to the unique characteristics of each derivative instrument, the client’s classification, and the prevailing market conditions. The core of the obligation lies in the firm’s ability to prove, through data and documentation, that its [execution strategy](https://prime.greeks.live/area/execution-strategy/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) was not just reasonable, but systematically designed to prioritize the client’s interests across all relevant performance vectors.

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## The Execution Factors Framework

[MiFID II](https://prime.greeks.live/area/mifid-ii/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) enumerates a set of execution factors that a firm must consider when designing its [execution policy](https://prime.greeks.live/area/execution-policy/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) and executing client orders. The directive’s text moves the obligation from “all reasonable steps” under MiFID I to “all sufficient steps,” a subtle but significant semantic shift that implies a higher and more demonstrable standard of care. For OTC derivatives, the weighting of these factors is a critical strategic decision.

The primary execution factors include:

- **Price** This remains a critical component, but in the OTC context, it is a more complex variable. The firm must check the fairness of a proposed price by gathering relevant market data and, where possible, comparing it to similar or comparable products. This requires access to reliable data sources and internal valuation models.

- **Costs** This factor encompasses all explicit and implicit costs associated with the transaction. This includes not only the firm’s own fees or commissions but also any clearing and settlement fees and the implicit cost represented by the bid-ask spread offered by a counterparty.

- **Speed of Execution** In volatile markets or for time-sensitive strategies, the speed at which a quote can be secured and a trade executed can be a dominant factor.

- **Likelihood of Execution and Settlement** This pertains to the certainty that the trade can be completed at the desired size and subsequently settled without issue. It directly relates to the chosen counterparty’s reliability and operational stability.

- **Size and Nature of the Order** A large or complex multi-leg derivative order presents different challenges than a small, vanilla transaction. The execution strategy must account for the potential market impact of the order and the capacity of counterparties to handle it without causing adverse price movements.

> The MiFID II best execution standard for OTC derivatives requires a holistic analysis of total consideration, where price is one of several critical components in a structured and evidence-based decision-making process.

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## Application to OTC Derivatives

The defining characteristic of applying [best execution](https://prime.greeks.live/area/best-execution/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to OTC derivatives is the absence of centralized, transparent price feeds that exist for exchange-traded instruments. This reality places a significant operational burden on the firm to construct its own view of fairness and value. When executing an OTC trade, a firm cannot simply point to a screen price as justification. Instead, it must demonstrate a process.

This process often involves soliciting quotes from multiple counterparties through a [Request for Quote](https://prime.greeks.live/area/request-for-quote/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (RFQ) protocol. A single-dealer approach is permissible only if the firm can show on an ongoing basis that this consistently leads to the best result for the client. For most firms, this is a high bar to clear, making a multi-dealer or multi-venue approach a systemic necessity.

The firm’s execution policy must detail the criteria for selecting counterparties, which extends beyond their pricing to include their creditworthiness, operational robustness, and historical performance. This creates a qualitative overlay to the purely quantitative analysis of price and costs, reflecting the systemic risks inherent in bilateral trading.

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## Strategy

A compliant and effective best execution strategy for OTC derivatives is built upon two pillars ▴ a meticulously designed Execution Policy and a robust, data-driven monitoring system. The strategy is not a static document but a living framework that guides decision-making and adapts to changing market structures and client needs. It translates the regulatory principles of MiFID II into a concrete operational plan that can be audited, tested, and refined.

The development of this strategy begins with a thorough analysis of the firm’s business model, client base, and the specific types of OTC instruments it handles. The directive explicitly requires that the execution policy consider the specific characteristics of different financial instruments. Therefore, a one-size-fits-all approach is strategically flawed and non-compliant. The strategy must differentiate its approach for a standardized [interest rate swap](https://prime.greeks.live/area/interest-rate-swap/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) versus a highly structured, exotic derivative, as the optimal execution path for each will vary significantly.

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## How Do Firms Construct an Execution Policy?

Constructing the Execution Policy is the primary strategic exercise. This document must be clear, detailed, and provided to clients, who must consent to it. It must articulate the relative importance the firm assigns to each of the execution factors for different classes of instruments and for different client types (retail vs. professional). For professional clients trading complex OTC derivatives, factors like likelihood of execution, [counterparty risk](https://prime.greeks.live/area/counterparty-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), and minimizing market impact often take precedence over pure price considerations.

The policy must also identify the execution venues and counterparties the firm relies on to deliver best execution. This requires a systematic due diligence process for selecting and continually evaluating [liquidity providers](https://prime.greeks.live/area/liquidity-providers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). The strategic selection of counterparties is a core risk management function, assessing not just their pricing capabilities but also their financial stability and operational integrity.

The policy must explain the process for soliciting quotes and the criteria used to make the final execution decision. This provides a clear, auditable trail that substantiates the firm’s adherence to its own strategic framework.

> A firm’s execution policy is the strategic blueprint that translates the abstract principles of MiFID II into a verifiable and systematic process for delivering optimal client outcomes.

The table below illustrates how a firm might strategically weight execution factors for different types of OTC derivatives, demonstrating the required level of granularity.

### Strategic Weighting of Execution Factors for OTC Derivatives

| Execution Factor | Vanilla Interest Rate Swap (IRS) | Exotic Equity Option |
| --- | --- | --- |
| Price | High Importance (Market is relatively standardized; price is a key competitive differentiator). | Medium Importance (Valuation is model-dependent; certainty of execution can be more critical). |
| Costs (Spread & Fees) | High Importance (Spreads are tight and transparent; costs are a significant part of total consideration). | Medium Importance (Implicit costs of risk and complexity are harder to quantify than explicit fees). |
| Speed of Execution | Medium Importance (Dependent on market volatility, but generally less critical than for momentum-driven products). | High Importance (Underlying asset prices can move rapidly, making timely execution vital). |
| Likelihood of Execution | High Importance (High degree of certainty is expected for standard products). | Very High Importance (Finding a counterparty willing and able to price and take on the specific risk profile is paramount). |
| Counterparty Risk | Medium Importance (Often centrally cleared, mitigating some bilateral risk). | Very High Importance (Often bilateral, making the counterparty’s creditworthiness a primary concern). |

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## Monitoring Effectiveness and Proving Compliance

The strategy cannot end with the policy’s creation. MiFID II mandates that firms monitor the effectiveness of their execution arrangements and policy to identify and correct any deficiencies. This introduces a feedback loop into the system.

The strategic framework must include a plan for regular, systematic reviews of execution quality. This is achieved through [Transaction Cost Analysis](https://prime.greeks.live/area/transaction-cost-analysis/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (TCA).

For OTC derivatives, TCA is more complex than for listed equities. It involves capturing pre-trade quote data from all solicited counterparties, not just the winning one. The analysis compares the executed price against a range of benchmarks, such as the mid-price at the time of execution, the prices of comparable products, or the firm’s own internal valuation models.

The strategy must define what data will be captured, how it will be analyzed, and what actions will be taken if the monitoring process reveals underperformance or deficiencies in the execution policy. This ongoing, data-driven vigilance is the core of a defensible best execution strategy.

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## Execution

The execution of a best execution framework for OTC derivatives is a function of operational architecture, quantitative discipline, and rigorous documentation. It transforms the strategic policy from a document into a series of repeatable, auditable actions embedded within the firm’s trading workflow. Success hinges on the firm’s ability to systematically gather data, analyze it in real-time, and preserve a comprehensive record of its decision-making process for every single trade.

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## The Operational Playbook for an OTC Derivative Trade

Executing a single OTC derivative trade in compliance with MiFID II involves a detailed, multi-stage process. This operational playbook ensures that the principles of the firm’s execution policy are applied consistently.

- **Order Receipt and Characterization** Upon receiving a client order, the system first classifies it based on the instrument’s characteristics (e.g. vanilla swap, complex option), the client’s category (professional/retail), and any specific instructions. This initial step determines the precise path the order will take through the execution workflow.

- **Pre-Trade Analysis and Counterparty Selection** The system consults the firm’s execution policy to identify the approved list of counterparties for that specific instrument class. A pre-trade check assesses current market volatility, liquidity conditions, and any relevant news. Based on the order’s size and complexity, a determination is made on the optimal number of counterparties to include in the RFQ process.

- **Competitive Quote Solicitation** An RFQ is sent simultaneously to the selected group of counterparties. The system must be designed to capture all responses, including quotes, declines to quote, and response times. This creates the foundational dataset for the execution decision.

- **Multi-Factor Quote Analysis** This is the core analytical step. The system aggregates the quotes and enriches them with other data points as mandated by the execution policy. This includes calculating the spread to a benchmark mid-price, factoring in any explicit fees, and pulling in quantitative scores for counterparty credit risk and settlement efficiency. The “best” quote is identified based on this holistic “[total consideration](https://prime.greeks.live/area/total-consideration/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)” analysis.

- **Execution and Record Keeping** The order is executed with the chosen counterparty. Immediately, the system captures and timestamps all relevant data ▴ the client order, all quotes received, the justification for the selected counterparty (especially if it was not the best price), the execution time, and the executed price. This forms the immutable audit trail for the trade.

- **Post-Trade Monitoring (TCA)** The trade data is fed into the firm’s TCA system. Here, the execution quality is formally measured against the defined benchmarks. This analysis is aggregated over time to review the performance of counterparties and the effectiveness of the overall execution policy, feeding back into the strategic review process.

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## What Are the Core Components of an RTS 28 Report?

While the RTS 27 reporting requirement for venues has been suspended, investment firms are still subject to the principles of [RTS 28](https://prime.greeks.live/area/rts-28/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), which requires them to publish an annual summary of the top five execution venues used and a summary of the quality of execution obtained. The execution workflow must be designed to capture the necessary data to produce this report. Key components include a breakdown of trading volumes by instrument class, client type, and venue, along with a qualitative summary of how the firm has monitored and verified that it is delivering best execution. This report is the public-facing evidence of the firm’s internal execution discipline.

> Effective execution is the point where strategic policy meets operational reality, transforming regulatory requirements into a data-driven, systematic process that is both compliant and performance-oriented.

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## Quantitative Modeling and Data Analysis

A robust execution framework relies on quantitative data to move beyond subjective judgment. The following table provides a granular example of the data analysis performed during the “Multi-Factor Quote Analysis” step for a hypothetical 5-year Euro interest rate swap.

### Quantitative Quote Analysis for a €100m 5Y EUR IRS

| Counterparty | Quoted Price (bps) | Spread to Mid (bps) | Counterparty Risk Score (1-10) | Implicit Cost (€) | Total Consideration Score |
| --- | --- | --- | --- | --- | --- |
| Dealer A | 2.55 | 0.5 | 3 | €2,500 | 9.2 / 10 |
| Dealer B | 2.54 | 0.4 | 5 | €2,000 | 8.5 / 10 |
| Dealer C | 2.56 | 0.6 | 2 | €3,000 | 9.0 / 10 |
| Dealer D | 2.58 | 0.8 | 1 | €4,000 | 7.8 / 10 |

In this model, the “Total Consideration Score” is a weighted average calculation defined in the execution policy. It might, for instance, assign a 50% weight to Implicit Cost, a 40% weight to Counterparty Risk Score, and 10% to other factors. Based on this quantitative framework, Dealer A would be selected for execution, even though Dealer B offered a slightly better price. The system would automatically log this justification, providing a clear, data-backed rationale for the decision that satisfies the regulator’s demand for an evidence-based process.

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## References

- Khwaja, Amir. “MiFID II and Best Execution for Derivatives.” Clarus Financial Technology, 21 Oct. 2015.

- European Securities and Markets Authority. “Questions and answers on MiFID II and MiFIR investor protection topics.” ESMA35-43-349, 2017.

- “Best Execution Under MiFID II.” ITG, 2017.

- “MiFID II ▴ Best Execution.” Financial Markets Law Committee, 2016.

- “Guide to best execution.” Autorité des Marchés Financiers (AMF), 30 Oct. 2017.

- “RTS 27 and RTS 28 in the FCA Spotlight.” Cosegic, 2021.

- “Connecting the dots between Article 27, RTS 27, and RTS 28.” S&P Global, 12 Feb. 2018.

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## Reflection

The architecture of MiFID II’s best execution framework for OTC derivatives compels a profound internal examination. It moves the conversation from mere compliance to operational excellence. The regulations provide the blueprint, but the ultimate structure is a reflection of a firm’s own commitment to precision, transparency, and client-centricity. The systems built to satisfy these rules are more than just a regulatory shield; they are a central nervous system for managing risk and optimizing performance.

Consider your own operational framework. Does it treat best execution as a checklist to be completed or as a dynamic system for generating a competitive edge? The data gathered for compliance is also the data that reveals inefficiencies, highlights counterparty strengths, and uncovers hidden costs.

Viewing this regulatory mandate through a performance lens transforms it from a burden into an asset. The ultimate question is how your firm chooses to architect its response ▴ as a simple fulfillment of obligation, or as the engine of a more intelligent and efficient trading operation.

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## Glossary

<a href="https://prime.greeks.live/area/sufficient-steps/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Sufficient Steps

Meaning ▴ Sufficient Steps constitute the minimum, verifiable sequence of operations required to achieve a defined, deterministic outcome within a financial protocol or system, ensuring operational closure and state transition. </a><a href="https://prime.greeks.live/area/otc-derivatives/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Otc Derivatives

Meaning ▴ OTC Derivatives are bilateral financial contracts executed directly between two counterparties, outside the regulated environment of a centralized exchange. </a><a href="https://prime.greeks.live/area/execution-strategy/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Execution Strategy

Meaning ▴ A defined algorithmic or systematic approach to fulfilling an order in a financial market, aiming to optimize specific objectives like minimizing market impact, achieving a target price, or reducing transaction costs. </a><a href="https://prime.greeks.live/area/execution-factors/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Execution Factors

Meaning ▴ Execution Factors are the quantifiable, dynamic variables that directly influence the outcome and quality of a trade execution within institutional digital asset markets. </a><a href="https://prime.greeks.live/area/execution-policy/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Execution Policy

Meaning ▴ An Execution Policy defines a structured set of rules and computational logic governing the handling and execution of financial orders within a trading system. </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">
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## 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/best-execution/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## 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/request-for-quote/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Request for Quote

Meaning ▴ A Request for Quote, or RFQ, constitutes a formal communication initiated by a potential buyer or seller to solicit price quotations for a specified financial instrument or block of instruments from one or more liquidity providers. </a><a href="https://prime.greeks.live/area/interest-rate-swap/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Interest Rate Swap

Meaning ▴ An Interest Rate Swap (IRS) is a bilateral over-the-counter derivative contract in which two parties agree to exchange future interest payments over a specified period, based on a predetermined notional principal amount. </a><a href="https://prime.greeks.live/area/counterparty-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Counterparty Risk

Meaning ▴ Counterparty risk denotes the potential for financial loss stemming from a counterparty's failure to fulfill its contractual obligations in a transaction. </a><a href="https://prime.greeks.live/area/liquidity-providers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Translucent, multi-layered forms evoke an institutional RFQ engine, its propeller-like elements symbolizing high-fidelity execution and algorithmic trading. This depicts precise price discovery, deep liquidity pool dynamics, and capital efficiency within a Prime RFQ for digital asset derivatives block trades](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-engine-14.jpg)

## Liquidity Providers

Meaning ▴ Liquidity Providers are market participants, typically institutional entities or sophisticated trading firms, that facilitate efficient market operations by continuously quoting bid and offer prices for financial instruments. </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">
![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)

## 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><a href="https://prime.greeks.live/area/total-consideration/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A central core, symbolizing a Crypto Derivatives OS and Liquidity Pool, is intersected by two abstract elements. These represent Multi-Leg Spread and Cross-Asset Derivatives executed via RFQ Protocol](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-derivatives-rfq-protocol-multi-leg-spread-execution.jpg)

## Total Consideration

Meaning ▴ Total Consideration represents the comprehensive economic value exchanged in a transaction, encompassing all components of payment, fees, and other direct or indirect value transfers. </a><a href="https://prime.greeks.live/area/rts-28/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract geometric planes delineate distinct institutional digital asset derivatives liquidity pools. Stark contrast signifies market microstructure shift via advanced RFQ protocols, ensuring high-fidelity execution](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-derivatives-execution-protocol-integrating-rfq-liquidity-and-advanced-market-microstructure.jpg)

## Rts 28

Meaning ▴ RTS 28 refers to Regulatory Technical Standard 28 under MiFID II, which mandates investment firms and market operators to publish annual reports on the quality of execution of transactions on trading venues and for financial instruments. </a>

**Tags:** [Best Execution](https://options.greeks.live/area/best-execution/), [Regulatory Technical Standards](https://options.greeks.live/area/regulatory-technical-standards/), [RTS 28](https://options.greeks.live/area/rts-28/), [Execution Factors](https://options.greeks.live/area/execution-factors/), [Transaction Cost Analysis](https://options.greeks.live/area/transaction-cost-analysis/), [MiFID II](https://options.greeks.live/area/mifid-ii/)	

## Discover More

- 
### [How Do Regulatory Frameworks like MiFID II Impact RFQ Best Practices and Information Disclosure?](https://options.greeks.live/question/how-do-regulatory-frameworks-like-mifid-ii-impact-rfq-best-practices-and-information-disclosure/)
![A metallic, modular trading interface with black and grey circular elements, signifying distinct market microstructure components and liquidity pools. A precise, blue-cored probe diagonally integrates, representing an advanced RFQ engine for granular price discovery and atomic settlement of multi-leg spread strategies in institutional digital asset derivatives. This optimizes capital efficiency.](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-protocol-system-facilitating-high-fidelity-execution-price-discovery.jpg)

MiFID II transforms RFQ protocols by mandating a data-driven system to prove the "best possible result" for clients.

- 
### [What Are the Key Differences between the Us and Eu Best Execution Regimes?](https://options.greeks.live/question/what-are-the-key-differences-between-the-us-and-eu-best-execution-regimes/)
![A cutaway view reveals an advanced RFQ protocol engine for institutional digital asset derivatives. Intricate coiled components represent algorithmic liquidity provision and portfolio margin calculations. Translucent sections expose the quantitative analytics core enabling high-fidelity execution and low-latency order routing for Bitcoin options.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-protocol-engine-digital-asset-derivatives-core-internal-mechanism-visualized.jpg)

The core difference is the US's prescriptive, data-driven focus on routing conflicts versus the EU's principles-based, holistic duty of care.

- 
### [How Does MiFID II Define All Sufficient Steps for Best Execution in an RFQ Context?](https://options.greeks.live/question/how-does-mifid-ii-define-all-sufficient-steps-for-best-execution-in-an-rfq-context/)
![Polished metallic rods, spherical joints, and reflective blue components within beige casings, depict a Crypto Derivatives OS. This engine drives institutional digital asset derivatives, optimizing RFQ protocols for high-fidelity execution, robust price discovery, and capital efficiency within complex market microstructure via algorithmic trading.](https://options.greeks.live/wp-content/uploads/2025/07/optimized-rfq-protocol-engine-driving-institutional-digital-asset-derivatives-market-microstructure-execution.jpg)

MiFID II's "all sufficient steps" requires a provable, systematic process to achieve the best possible RFQ outcome for clients.

- 
### [How Does the Rfq Process Contribute to Demonstrating Best Execution under Mifid Ii?](https://options.greeks.live/question/how-does-the-rfq-process-contribute-to-demonstrating-best-execution-under-mifid-ii/)
![Transparent geometric forms symbolize high-fidelity execution and price discovery across market microstructure. A teal element signifies dynamic liquidity pools for digital asset derivatives. An opaque dome embodies principal's capital for private quotation and portfolio margin, depicting RFQ protocols on a Prime RFQ.](https://options.greeks.live/wp-content/uploads/2025/07/high-fidelity-rfq-execution-for-institutional-digital-asset-derivatives-1.jpg)

The RFQ process provides a structured, competitive, and auditable data trail for demonstrating best execution under MiFID II.

- 
### [What Specific Metrics Should a Firm Use to Compare Execution Venues for Debt Securities?](https://options.greeks.live/question/what-specific-metrics-should-a-firm-use-to-compare-execution-venues-for-debt-securities/)
![A proprietary Prime RFQ platform featuring extending blue/teal components, representing a multi-leg options strategy or complex RFQ spread. The labeled band 'F331 46 1' denotes a specific strike price or option series within an aggregated inquiry for high-fidelity execution, showcasing granular market microstructure data points.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-protocol-1.jpg)

A firm must use a dynamic, multi-factor model comparing price, cost, speed, and certainty of execution.

- 
### [What Are the Primary Best Execution Factors under the MiFID II Framework?](https://options.greeks.live/question/what-are-the-primary-best-execution-factors-under-the-mifid-ii-framework/)
![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)

MiFID II best execution demands a systematic, data-driven framework to demonstrably secure the best possible client outcome.

- 
### [How Does MiFID II’s Best Execution Framework Affect the Use of Request for Quote Systems?](https://options.greeks.live/question/how-does-mifid-iis-best-execution-framework-affect-the-use-of-request-for-quote-systems/)
![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)

MiFID II mandates that RFQ systems evolve from simple price inquiry tools into auditable, data-centric frameworks proving optimal execution.

- 
### [How Do You Evidence Best Execution for OTC Derivatives under MiFID II?](https://options.greeks.live/question/how-do-you-evidence-best-execution-for-otc-derivatives-under-mifid-ii/)
![Precision cross-section of an institutional digital asset derivatives system, revealing intricate market microstructure. Toroidal halves represent interconnected liquidity pools, centrally driven by an RFQ protocol. This Prime RFQ architecture enables high-fidelity execution, optimizing multi-leg spread strategies and capital efficiency.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-prime-os-architecture-revealing-precision-rfq-protocol-engine-for-optimal-high-fidelity-execution-and-latent-liquidity-aggregation.jpg)

Evidencing MiFID II best execution for OTCs requires a systematic architecture for capturing, analyzing, and justifying every decision.

- 
### [How Do Regulatory Frameworks like MiFID II Influence the Use of RFQ for Best Execution?](https://options.greeks.live/question/how-do-regulatory-frameworks-like-mifid-ii-influence-the-use-of-rfq-for-best-execution/)
![A metallic, cross-shaped mechanism centrally positioned on a highly reflective, circular silicon wafer. The surrounding border reveals intricate circuit board patterns, signifying the underlying Prime RFQ and intelligence layer. This setup symbolizes high-fidelity execution within market microstructure, enabling algorithmic trading for institutional-grade digital asset derivatives and RFQ protocols with atomic settlement.](https://options.greeks.live/wp-content/uploads/2025/08/the-core-institutional-digital-asset-derivatives-rfq-os-engine-for-high-fidelity-market-microstructure.jpg)

MiFID II transforms the RFQ into a data-driven, auditable process, mandating a systematic approach to proving best execution.

---

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---

**Original URL:** https://options.greeks.live/question/how-does-mifid-ii-define-best-execution-for-otc-derivatives/
