# How Does MiFID II Specifically Define the Best Execution Factors for SORs? ▴ Question

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

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## Concept

The operational directive for a [Smart Order Router](https://prime.greeks.live/area/smart-order-router/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (SOR) under the Markets in Financial Instruments Directive II ([MiFID II](https://prime.greeks.live/area/mifid-ii/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)) is an exercise in multi-dimensional optimization. The regulation mandates a shift from a simplistic view of routing ▴ merely finding a destination for an order ▴ to a sophisticated, evidence-based process of achieving the best possible result for the client. An SOR, at its core, is an automated system designed to navigate the complexities of fragmented liquidity. Its function is to dissect and place orders across various trading venues to secure an optimal execution outcome.

MiFID II formalizes this by compelling firms to move beyond single-factor analysis, such as price, and to integrate a broader set of criteria into their execution logic. This transforms the [SOR](https://prime.greeks.live/area/sor/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) from a simple routing tool into a key component of a firm’s compliance and [execution quality](https://prime.greeks.live/area/execution-quality/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) architecture.

The directive specifies a series of [execution factors](https://prime.greeks.live/area/execution-factors/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) that must be considered. These are price, costs, speed, likelihood of execution and settlement, size, and the nature of the order. The regulation requires firms to take all “sufficient steps” to obtain the best result, a notable elevation from the previous “reasonable steps” standard. This change in language signifies a heightened regulatory expectation for demonstrable proof of execution quality.

For an SOR, this means its underlying algorithm must be calibrated to weigh these factors dynamically. The weighting is dependent on the client’s status (retail or professional), the specific financial instrument, and the prevailing market conditions. The SOR’s decision-making process must be transparent, auditable, and systematically documented within the firm’s [best execution policy](https://prime.greeks.live/area/best-execution-policy/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).

> MiFID II redefines a Smart Order Router’s function from simple order placement to a complex, evidence-based system for achieving optimal client outcomes across multiple execution factors.

This regulatory framework fundamentally alters the design and deployment of SORs. The technology must be capable of capturing, processing, and acting upon a vast amount of data in real-time. This includes not only the lit order books of exchanges but also the liquidity available in dark pools and other off-exchange venues. The SOR’s logic must be sophisticated enough to understand the trade-offs between the execution factors.

For instance, chasing the best possible price might compromise the speed of execution or increase the risk of information leakage, which could lead to adverse price movements. The SOR must therefore be configured to align with the firm’s overarching execution strategy, which in turn must be tailored to the specific needs of its clients.

The integration of SORs into a firm’s trading infrastructure under MiFID II is a complex undertaking. It requires a deep understanding of both the regulatory requirements and the technological capabilities of the routing system. The firm must be able to demonstrate to regulators that its SOR is not a “black box” but a carefully calibrated tool that consistently delivers on the promise of [best execution](https://prime.greeks.live/area/best-execution/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).

This involves rigorous pre-deployment testing, continuous monitoring of execution quality, and regular reviews of the SOR’s performance against the prescribed execution factors. The ultimate goal is to create a symbiotic relationship between the firm’s [execution policy](https://prime.greeks.live/area/execution-policy/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) and the SOR’s operational logic, ensuring that every order is handled in a manner that is both compliant and strategically sound.

![Abstract geometric forms depict a Prime RFQ for institutional digital asset derivatives. A central RFQ engine drives block trades and price discovery with high-fidelity execution](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-engine-optimizing-market-microstructure-for-high-fidelity-execution.jpg)

![An intricate, transparent digital asset derivatives engine visualizes market microstructure and liquidity pool dynamics. Its precise components signify high-fidelity execution via FIX Protocol, facilitating RFQ protocols for block trade and multi-leg spread strategies within an institutional-grade Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-digital-asset-derivatives-rfq-liquidity-ecosystem.jpg)

## Strategy

Developing a strategic framework for a Smart [Order Router](https://prime.greeks.live/question/how-does-an-rfq-router-differ-from-a-traditional-smart-order-router/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) under MiFID II involves translating the regulation’s principles into a concrete, operational blueprint. The primary objective is to construct an SOR logic that is both compliant and commercially effective. This requires a firm to define its interpretation of “best execution” for different client segments and asset classes, and then to codify this interpretation into the SOR’s decision-making matrix. The strategy must address the inherent tensions between the various execution factors and establish a clear hierarchy for how the SOR should prioritize them in different scenarios.

![A precision-engineered, multi-layered system architecture for institutional digital asset derivatives. Its modular components signify robust RFQ protocol integration, facilitating efficient price discovery and high-fidelity execution for complex multi-leg spreads, minimizing slippage and adverse selection in market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-institutional-digital-asset-derivatives-rfq-execution-platform.jpg)

## Calibrating the Execution Factors

The core of the [SOR strategy](https://prime.greeks.live/area/sor-strategy/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) lies in the calibration of the execution factors. For a retail client, the total consideration, which combines the price of the financial instrument and all associated costs, is typically the most important factor. The SOR’s algorithm for retail orders would therefore be heavily weighted towards minimizing this total cost.

This involves routing orders to venues that offer the best price and have the lowest execution fees. The SOR must also consider any rebates or other incentives offered by trading venues, as these can impact the overall cost of execution.

For professional clients, the calculus is often more complex. While price and cost remain important, factors such as speed, likelihood of execution, and [market impact](https://prime.greeks.live/area/market-impact/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) can take on greater significance, especially for large or illiquid orders. A strategically designed SOR will employ different routing logic for these types of orders.

It might, for example, prioritize speed and certainty of execution over achieving the absolute best price at a single point in time. This could involve slicing a large order into smaller child orders and routing them to multiple venues simultaneously, a technique known as “spray and pray.” Alternatively, the SOR might use a more passive strategy, placing orders in dark pools to minimize information leakage and market impact.

![A precision-engineered system with a central gnomon-like structure and suspended sphere. This signifies high-fidelity execution for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/precision-engine-for-institutional-digital-asset-derivatives-rfq.jpg)

## Venue Analysis and Selection

A critical component of the SOR strategy is the ongoing analysis and selection of execution venues. MiFID II requires firms to have a clear and evidence-based process for choosing where to route orders. This means the SOR cannot be statically configured to favor a small number of preferred venues.

Instead, it must dynamically assess the execution quality available across a wide range of exchanges, multilateral trading facilities (MTFs), and systematic internalisers (SIs). This requires the SOR to have access to a rich stream of data on venue performance, including metrics on execution speed, fill rates, and post-trade price reversion.

The table below illustrates a simplified framework for how an SOR might evaluate different execution venues based on the MiFID II factors. In a real-world application, this analysis would be far more granular and data-intensive.

| Execution Venue | Primary Strength | Typical Use Case | SOR Prioritization Logic |
| --- | --- | --- | --- |

![A Principal's RFQ engine core unit, featuring distinct algorithmic matching probes for high-fidelity execution and liquidity aggregation. This price discovery mechanism leverages private quotation pathways, optimizing crypto derivatives OS operations for atomic settlement within its systemic architecture](https://options.greeks.live/wp-content/uploads/2025/08/principals-rfq-engine-driving-optimal-digital-asset-derivatives.jpg)

## How Does Algorithmic Trading Relate to SORs?

The strategy for an SOR is deeply intertwined with the firm’s broader approach to [algorithmic trading](https://prime.greeks.live/area/algorithmic-trading/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). MiFID II defines algorithmic trading broadly, and many SORs fall under this definition. This triggers a host of additional organizational and compliance requirements, including the need for rigorous testing of algorithms, real-time monitoring of trading activity, and the implementation of “kill switch” functionality to prevent disorderly trading.

The SOR strategy must therefore be integrated into the firm’s overall risk management framework for algorithmic trading. This includes setting pre-trade risk controls, monitoring for potential market abuse, and ensuring that the SOR’s behavior is consistent with the firm’s stated execution policy.

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## Execution

The execution phase of implementing a MiFID II-compliant [Smart Order](https://prime.greeks.live/question/can-a-smart-order-router-effectively-blend-rfq-and-dark-pool-strategies-for-a-single-large-order/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) Router involves the practical application of the firm’s best execution strategy. This is where the theoretical framework is translated into concrete technological and procedural reality. It requires a meticulous approach to system design, continuous performance monitoring, and robust governance. The objective is to create an SOR that not only adheres to the letter of the regulation but also delivers a tangible improvement in execution quality for the firm’s clients.

![Precision system for institutional digital asset derivatives. Translucent elements denote multi-leg spread structures and RFQ protocols](https://options.greeks.live/wp-content/uploads/2025/07/precision-execution-infrastructure-for-institutional-digital-asset-derivatives-request-for-quote-protocol-optimization.jpg)

## SOR Algorithm Design and Parameterization

The heart of the execution process is the design of the SOR’s algorithm. This algorithm must be capable of ingesting a wide array of market data and applying the firm’s execution policy to make real-time routing decisions. The following list outlines the key steps in this process:

- **Data Ingestion** ▴ The SOR must be connected to real-time data feeds from all relevant execution venues. This includes Level 2 market data, which provides visibility into the depth of the order book, as well as data on trading volumes, execution latencies, and venue fees.

- **Order Classification** ▴ The SOR must be able to classify incoming orders based on a variety of criteria, including client type (retail or professional), instrument type, order size, and any specific client instructions. This classification determines which set of execution logic will be applied.

- **Factor Weighting** ▴ For each order classification, the SOR must apply a pre-defined set of weights to the MiFID II execution factors. These weights are determined by the firm’s best execution policy and reflect the relative importance of each factor for that specific type of order.

- **Venue Scoring** ▴ The SOR uses the weighted factors to calculate an execution quality score for each available venue. This score is a composite measure that reflects the venue’s ability to deliver on the firm’s best execution objectives for that particular order.

- **Routing Decision** ▴ The SOR routes the order, or a portion of it, to the venue with the highest execution quality score. For large orders, the SOR may split the order into multiple child orders and route them to different venues to optimize the execution outcome.

![Intersecting opaque and luminous teal structures symbolize converging RFQ protocols for multi-leg spread execution. Surface droplets denote market microstructure granularity and slippage](https://options.greeks.live/wp-content/uploads/2025/07/rfq-protocols-for-digital-asset-derivatives-high-fidelity-execution.jpg)

## Performance Monitoring and Transaction Cost Analysis

Once the SOR is operational, its performance must be continuously monitored to ensure that it is meeting its objectives. This involves a combination of real-time surveillance and post-trade analysis. [Transaction Cost Analysis](https://prime.greeks.live/area/transaction-cost-analysis/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) ([TCA](https://prime.greeks.live/area/tca/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)) is a critical tool in this process.

TCA allows the firm to measure the effectiveness of its SOR by comparing the actual execution price against a variety of benchmarks. The table below provides an example of a TCA report for a hypothetical SOR.

| Metric | Definition | SOR Performance | Interpretation |
| --- | --- | --- | --- |

![A reflective surface supports a sharp metallic element, stabilized by a sphere, alongside translucent teal prisms. This abstractly represents institutional-grade digital asset derivatives RFQ protocol price discovery within a Prime RFQ, emphasizing high-fidelity execution and liquidity pool optimization](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-derivatives-rfq-prime-os-microstructure-optimization.jpg)

## What Are the Governance and Oversight Requirements?

The execution of an SOR strategy under MiFID II is not solely a technological challenge. It also requires a robust governance and oversight framework. The firm’s senior management is ultimately responsible for ensuring that the firm complies with its best execution obligations. This responsibility cannot be delegated to the SOR or the IT department.

The firm must establish a formal governance committee that is responsible for overseeing the firm’s best execution arrangements. This committee should be composed of senior individuals from across the firm, including representatives from the front office, compliance, risk management, and technology.

The committee’s responsibilities should include:

- **Reviewing and approving the firm’s best execution policy.**

- **Overseeing the design and implementation of the SOR.**

- **Reviewing TCA reports and other performance metrics.**

- **Investigating any instances of poor execution quality.**

- **Ensuring that the SOR is updated in response to changes in market structure or regulation.**

By establishing a clear and effective governance framework, the firm can ensure that its SOR is not only a powerful tool for optimizing execution but also a key component of its overall compliance and risk management strategy.

![A sphere split into light and dark segments, revealing a luminous core. This encapsulates the precise Request for Quote RFQ protocol for institutional digital asset derivatives, highlighting high-fidelity execution, optimal price discovery, and advanced market microstructure within aggregated liquidity pools](https://options.greeks.live/wp-content/uploads/2025/07/high-fidelity-execution-framework-for-institutional-digital-asset-derivatives-request-for-quote-protocol-optimization.jpg)

## References

- 1. European Parliament and Council of the European Union. “Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU.” Official Journal of the European Union, 2014.

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

- 3. Gomber, Peter, et al. “High-frequency trading.” Goethe University Frankfurt, Working Paper, 2011.

- 4. Hogan Lovells. “MiFID II – Algorithmic and high-frequency trading for investment firms.” Hogan Lovells Publication, 2016.

- 5. Nasdaq. “Smart Order Routing, Execution algorithms and MiFID II preparations.” Nasdaq Publication, 2017.

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

- 7. FCA. “Markets in Financial Instruments Directive II Implementation ▴ Policy Statement II.” Financial Conduct Authority, 2017.

- 8. Jain, Pankaj K. “Institutional design and liquidity on stock exchanges.” Journal of Financial Markets, vol. 8, no. 1, 2005, pp. 1-33.

![A central rod, symbolizing an RFQ inquiry, links distinct liquidity pools and market makers. A transparent disc, an execution venue, facilitates price discovery](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-rfq-protocol-execution-optimization.jpg)

## Reflection

The integration of a Smart Order Router within the MiFID II framework is a testament to the evolving relationship between regulation, technology, and market structure. The directive’s mandate for “all sufficient steps” compels firms to move beyond a check-the-box approach to compliance and to engage in a continuous process of self-assessment and optimization. The SOR is a critical instrument in this process, a technological embodiment of the firm’s commitment to its clients’ best interests.

As you refine your own execution architecture, consider how your SOR not only navigates the complexities of today’s fragmented markets but also anticipates the challenges of tomorrow’s. The ultimate competitive advantage lies in the ability to transform regulatory obligation into a source of strategic differentiation and operational excellence.

![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)

## Glossary

<a href="https://prime.greeks.live/area/smart-order-router/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek, institutional-grade device featuring a reflective blue dome, representing a Crypto Derivatives OS Intelligence Layer for RFQ and Price Discovery. Its metallic arm, symbolizing Pre-Trade Analytics and Latency monitoring, ensures High-Fidelity Execution for Multi-Leg Spreads](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-execution-intelligence-layer.jpg)

## Smart Order Router

Meaning ▴ A Smart Order Router (SOR) is an algorithmic trading mechanism designed to optimize order execution by intelligently routing trade instructions across multiple liquidity venues. </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 intricate, transparent cylindrical system depicts a sophisticated RFQ protocol for digital asset derivatives. Internal glowing elements signify high-fidelity execution and algorithmic trading](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-protocol-architecture.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/execution-quality/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Interconnected teal and beige geometric facets form an abstract construct, embodying a sophisticated RFQ protocol for institutional digital asset derivatives. This visualizes multi-leg spread structuring, liquidity aggregation, high-fidelity execution, principal risk management, capital efficiency, and atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-for-multi-leg-spread-execution-and-optimal-liquidity-aggregation.jpg)

## Execution Quality

Meaning ▴ Execution Quality quantifies the efficacy of an order's fill, assessing how closely the achieved trade price aligns with the prevailing market price at submission, alongside consideration for speed, cost, and market impact. </a><a href="https://prime.greeks.live/area/sor/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A translucent institutional-grade platform reveals its RFQ execution engine with radiating intelligence layer pathways. Central price discovery mechanisms and liquidity pool access points are flanked by pre-trade analytics modules for digital asset derivatives and multi-leg spreads, ensuring high-fidelity execution](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-core-platform.jpg)

## Sor

Meaning ▴ A Smart Order Router (SOR) is an algorithmic execution module designed to intelligently direct client orders to the optimal execution venue or combination of venues, considering a pre-defined set of parameters. </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">
![A precise, multi-faceted geometric structure represents institutional digital asset derivatives RFQ protocols. Its sharp angles denote high-fidelity execution and price discovery for multi-leg spread strategies, symbolizing capital efficiency and atomic settlement within a Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-derivatives-rfq-execution-microstructure-framework.jpg)

## 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/best-execution-policy/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A polished metallic needle, crowned with a faceted blue gem, precisely inserted into the central spindle of a reflective digital storage platter. This visually represents the high-fidelity execution of institutional digital asset derivatives via RFQ protocols, enabling atomic settlement and liquidity aggregation through a sophisticated Prime RFQ intelligence layer for optimal price discovery and alpha generation](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-optimization-for-high-fidelity-execution-and-liquidity-aggregation-via-prime-os-intelligence-layer.jpg)

## Best Execution Policy

Meaning ▴ The Best Execution Policy defines the obligation for a broker-dealer or trading firm to execute client orders on terms most favorable to the client. </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">
![Precision-engineered abstract components depict institutional digital asset derivatives trading. A central sphere, symbolizing core asset price discovery, supports intersecting elements representing multi-leg spreads and aggregated inquiry](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-microstructure-optimization.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/execution-policy/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Two diagonal cylindrical elements. The smooth upper mint-green pipe signifies optimized RFQ protocols and private quotation streams](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-microstructure-optimization-1.jpg)

## 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/question/how-does-an-rfq-router-differ-from-a-traditional-smart-order-router/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Sleek, off-white cylindrical module with a dark blue recessed oval interface. This represents a Principal's Prime RFQ gateway for institutional digital asset derivatives, facilitating private quotation protocol for block trade execution, ensuring high-fidelity price discovery and capital efficiency through low-latency liquidity aggregation](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-portal-optimal-institutional-digital-asset-execution.jpg)

## Order Router

An RFQ router sources liquidity via discreet, bilateral negotiations, while a smart order router uses automated logic to find liquidity across fragmented public markets. </a><a href="https://prime.greeks.live/area/sor-strategy/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precision instrument probes a speckled surface, visualizing market microstructure and liquidity pool dynamics within a dark pool. This depicts RFQ protocol execution, emphasizing price discovery for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-flow.jpg)

## Sor Strategy

Meaning ▴ A Smart Order Routing (SOR) Strategy constitutes an algorithmic framework designed to systematically analyze and direct an order to the optimal execution venue or combination of venues, considering parameters such as price, liquidity depth, execution speed, and market impact across a fragmented market landscape. </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">
![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)

## 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/algorithmic-trading/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A multi-faceted crystalline structure, featuring sharp angles and translucent blue and clear elements, rests on a metallic base. This embodies Institutional Digital Asset Derivatives and precise RFQ protocols, enabling High-Fidelity Execution](https://options.greeks.live/wp-content/uploads/2025/07/high-fidelity-digital-asset-derivatives-rfq-market-microstructure.jpg)

## Algorithmic Trading

Meaning ▴ Algorithmic trading is the automated execution of financial orders using predefined computational rules and logic, typically designed to capitalize on market inefficiencies, manage large order flow, or achieve specific execution objectives with minimal market impact. </a><a href="https://prime.greeks.live/question/can-a-smart-order-router-effectively-blend-rfq-and-dark-pool-strategies-for-a-single-large-order/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![An intricate system visualizes an institutional-grade Crypto Derivatives OS. Its central high-fidelity execution engine, with visible market microstructure and FIX protocol wiring, enables robust RFQ protocols for digital asset derivatives, optimizing capital efficiency via liquidity aggregation](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-engine-price-discovery.jpg)

## Smart Order

A Smart Order Router systematically blends dark pool anonymity with RFQ certainty to minimize impact and secure liquidity for large orders. </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 precision-engineered control mechanism, featuring a ribbed dial and prominent green indicator, signifies Institutional Grade Digital Asset Derivatives RFQ Protocol optimization. This represents High-Fidelity Execution, Price Discovery, and Volatility Surface calibration for Algorithmic Trading](https://options.greeks.live/wp-content/uploads/2025/07/principal-operational-framework-precision-calibration-for-institutional-digital-asset-derivatives-rfq-protocol-high-fidelity-execution-prime-os-and-volatility-surface-optimization.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/tca/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Two sharp, teal, blade-like forms crossed, featuring circular inserts, resting on stacked, darker, elongated elements. This represents intersecting RFQ protocols for institutional digital asset derivatives, illustrating multi-leg spread construction and high-fidelity execution](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-best-execution.jpg)

## Tca

Meaning ▴ Transaction Cost Analysis (TCA) represents a quantitative methodology designed to evaluate the explicit and implicit costs incurred during the execution of financial trades. </a>

**Tags:** [SOR Strategy](https://options.greeks.live/area/sor-strategy/), [Best Execution](https://options.greeks.live/area/best-execution/), [Market Microstructure](https://options.greeks.live/area/market-microstructure/), [Execution Quality](https://options.greeks.live/area/execution-quality/), [SOR](https://options.greeks.live/area/sor/), [RTS 27](https://options.greeks.live/area/rts-27/)	

## Discover More

- 
### [How Does MiFID II Define Best Execution for Request for Quote Systems?](https://options.greeks.live/question/how-does-mifid-ii-define-best-execution-for-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 defines best execution for RFQs as a demonstrable process of taking all sufficient steps to achieve the best total outcome for a client.

- 
### [How Does MiFID II Redefine Best Execution for Opaque Trading Venues?](https://options.greeks.live/question/how-does-mifid-ii-redefine-best-execution-for-opaque-trading-venues/)
![A complex, multi-layered electronic component with a central connector and fine metallic probes. This represents a critical Prime RFQ module for institutional digital asset derivatives trading, enabling high-fidelity execution of RFQ protocols, price discovery, and atomic settlement for multi-leg spreads with minimal latency.](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-rfq-engine-driving-best-execution-and-liquidity.jpg)

MiFID II redefines best execution for opaque venues by mandating data-driven proof of superior outcomes across multiple factors.

- 
### [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.

- 
### [What Are the Practical Implications of RTS 27 and RTS 28 for a Firm’s Algorithmic Trading Desk?](https://options.greeks.live/question/what-are-the-practical-implications-of-rts-27-and-rts-28-for-a-firms-algorithmic-trading-desk/)
![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. It signifies Market Microstructure Optimization and Atomic Settlement on a Prime RFQ.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-principal-operational-framework-market-microstructure-high-fidelity-execution.jpg)

RTS 27/28 mandates a data-driven architecture, turning algorithmic execution into a quantifiable, defensible, and strategic asset.

- 
### [What Is the Strategic Importance of an Execution Policy under the MiFID II Framework?](https://options.greeks.live/question/what-is-the-strategic-importance-of-an-execution-policy-under-the-mifid-ii-framework/)
![Abstract geometric planes, translucent teal representing dynamic liquidity pools and implied volatility surfaces, intersect a dark bar. This signifies FIX protocol driven algorithmic trading and smart order routing. Opaque grey forms denote the Principal's operational framework ensuring high-fidelity execution within market microstructure for digital asset derivatives.](https://options.greeks.live/wp-content/uploads/2025/07/optimized-institutional-digital-asset-derivatives-rfq-liquidity-aggregation.jpg)

A MiFID II execution policy is a firm's operational blueprint for delivering and proving superior, data-driven client outcomes.

- 
### [How Can a Firm Demonstrate That It Has Achieved Best Execution for a Professional Client?](https://options.greeks.live/question/how-can-a-firm-demonstrate-that-it-has-achieved-best-execution-for-a-professional-client/)
![A detailed view of an institutional-grade Digital Asset Derivatives trading interface, featuring a central liquidity pool visualization through a clear, tinted disc. Subtle market microstructure elements are visible, suggesting real-time price discovery and order book dynamics. This represents a Prime RFQ component for high-fidelity execution of RFQ protocols in multi-leg spread strategies.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-rfq-execution-system-microstructure-display.jpg)

A firm demonstrates best execution by systematically evidencing that its data-driven process was optimally designed to serve the client's specific order context.

- 
### [What Are the Primary Regulatory Frameworks Governing Best Execution in the US and Europe?](https://options.greeks.live/question/what-are-the-primary-regulatory-frameworks-governing-best-execution-in-the-us-and-europe/)
![A teal and white sphere precariously balanced on a light grey bar, itself resting on an angular base, depicts market microstructure at a critical price discovery point. This visualizes high-fidelity execution of digital asset derivatives via RFQ protocols, emphasizing capital efficiency and risk aggregation within a Principal trading desk's operational framework.](https://options.greeks.live/wp-content/uploads/2025/07/precision-institutional-digital-asset-derivatives-rfq-execution-strategy.jpg)

The primary regulatory frameworks for best execution in the US and Europe mandate a demonstrable, data-driven process for achieving the most favorable client outcomes in fragmented markets.

- 
### [How Did MiFID II Change the Definition of Best Execution for Professional Clients?](https://options.greeks.live/question/how-did-mifid-ii-change-the-definition-of-best-execution-for-professional-clients/)
![A sleek, metallic platform features a sharp blade resting across its central dome. This visually represents the precision of institutional-grade digital asset derivatives RFQ execution. It symbolizes high-fidelity execution and atomic settlement within market microstructure, ensuring capital efficiency and mitigating counterparty risk.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-precision-1.jpg)

MiFID II transformed best execution for professionals into a data-driven mandate requiring demonstrable proof of process across multiple execution factors.

- 
### [How Does the Choice between an Si and Mtf Impact a Firm’s Best Execution Policy?](https://options.greeks.live/question/how-does-the-choice-between-an-si-and-mtf-impact-a-firms-best-execution-policy/)
![A split spherical mechanism reveals intricate internal components. This symbolizes an Institutional Digital Asset Derivatives Prime RFQ, enabling high-fidelity RFQ protocol execution, optimal price discovery, and atomic settlement for block trades and multi-leg spreads.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-prime-os-revealing-rfq-execution-core-mechanics.jpg)

The choice between an SI or MTF model dictates whether a firm's best execution policy prioritizes proprietary quote quality or multilateral venue efficiency.

---

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---

**Original URL:** https://options.greeks.live/question/how-does-mifid-ii-specifically-define-the-best-execution-factors-for-sors/
