# How Does Onboarding an SI Impact a Firm's Best Execution Policy and Procedures? ▴ Question

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

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![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)

![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)

## Concept

The decision to onboard a [Systematic Internaliser](https://prime.greeks.live/area/systematic-internaliser/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (SI) is an architectural commitment that fundamentally re-engineers a firm’s execution framework. It represents a deliberate shift from being a pure agent that routes all orders to [external venues](https://prime.greeks.live/question/what-are-the-primary-security-differences-between-an-esb-and-an-api-gateway-for-external-connections/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to becoming a principal that can internalize order flow. This is a structural evolution. A firm that operates an SI is building a proprietary liquidity source, dealing on its own account to execute client orders.

This act transforms the very nature of its [best execution](https://prime.greeks.live/area/best-execution/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) obligation. The mandate expands from simply finding the best external price to proving that the firm’s own internalized price is superior or equivalent to what is available in the broader market.

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)), an SI is an investment firm that deals on its own account by executing [client orders](https://prime.greeks.live/area/client-orders/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) outside of a regulated market or trading facility on an organized, frequent, and systematic basis. This framework was designed to increase transparency in over-the-counter (OTC) markets by bringing significant bilateral trading activity into a regulated and reportable structure. When a firm crosses specific trading volume thresholds in a particular instrument, it is obligated to register as an SI.

Alternatively, a firm can voluntarily opt-in to the SI regime to leverage its strategic benefits. This status carries significant responsibilities, including pre-trade [quote transparency](https://prime.greeks.live/area/quote-transparency/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) and post-trade reporting obligations.

> Onboarding a Systematic Internaliser fundamentally alters a firm’s market-facing posture and its internal responsibilities.

![Two abstract, polished components, diagonally split, reveal internal translucent blue-green fluid structures. This visually represents the Principal's Operational Framework for Institutional Grade Digital Asset Derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-rfq-execution-prime-os-liquidity-framework.jpg)

## The Architectural Shift from Agency to Principal

The operational impact of this shift is profound. A traditional agency broker’s systems, such as its Order Management System (OMS) and [Smart Order Router](https://prime.greeks.live/area/smart-order-router/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (SOR), are calibrated to scan a universe of external exchanges and multilateral trading facilities (MTFs) to find optimal liquidity. When the firm becomes an SI, its own trading book becomes the first potential destination for a [client order](https://prime.greeks.live/question/how-can-a-firm-measure-the-toxicity-of-a-clients-order-flow/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).

This requires a complete recalibration of the firm’s technological and procedural architecture. The SOR logic must be rewritten to incorporate the internal SI as a primary [execution venue](https://prime.greeks.live/area/execution-venue/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), complete with rules that govern when and how flow is internalized.

This creates a dual mandate. The firm must act in its clients’ best interests by providing best execution, while simultaneously managing the risk of its own principal positions. This duality is the central challenge and opportunity of the SI model.

The firm gains control over the execution process and the ability to capture the bid-ask spread, but it also assumes the market risk associated with its inventory and a heightened regulatory burden to prevent [conflicts of interest](https://prime.greeks.live/area/conflicts-of-interest/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). The [best execution policy](https://prime.greeks.live/area/best-execution-policy/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is the governing document that must navigate this complex new reality, ensuring that the firm’s principal activities demonstrably benefit its clients.

![A sleek, bi-component digital asset derivatives engine reveals its intricate core, symbolizing an advanced RFQ protocol. This Prime RFQ component enables high-fidelity execution and optimal price discovery within complex market microstructure, managing latent liquidity for institutional operations](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-engine-optimal-execution.jpg)

## How Does SI Status Redefine Best Execution?

For a non-SI firm, the best [execution policy](https://prime.greeks.live/area/execution-policy/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) primarily outlines the process for selecting external brokers and venues. It details the factors considered ▴ price, costs, speed, likelihood of execution ▴ and the governance structure for reviewing those choices. When an SI is onboarded, the policy must evolve into a more complex document that justifies the firm’s [internal execution](https://prime.greeks.live/question/how-can-an-internal-matching-engine-reduce-execution-costs-for-a-broker-dealer-in-the-crypto-market/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) pathway. It must articulate with precision how the firm ensures that internalizing an order is the best possible outcome for the client.

This involves establishing a clear and verifiable framework for benchmarking SI quotes against the public market, typically the European Best Bid and Offer (EBBO). The policy must define the mechanics of [price improvement](https://prime.greeks.live/area/price-improvement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), demonstrating that the SI execution price is better than the prevailing market price. It must also address the qualitative aspects of best execution.

For example, executing a large order through the SI might minimize [market impact](https://prime.greeks.live/question/how-do-dark-pool-executions-complicate-the-calibration-of-market-impact-models-based-on-lit-market-data/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) compared to placing it on a lit exchange, a tangible benefit that the policy must be able to account for and evidence. The document transforms from an external-facing venue selection guide to an internal-facing charter of self-governance, proving that the firm’s proprietary liquidity pool serves its clients’ ultimate interests.

![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)

![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](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-protocol-engine-digital-asset-derivatives-core-internal-mechanism-visualized.jpg)

## Strategy

The strategic decision to operate a Systematic Internaliser is driven by a desire to gain greater control over the execution value chain, create new revenue streams, and offer a differentiated service to clients. By internalizing [order flow](https://prime.greeks.live/area/order-flow/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), a firm can capture a portion of the bid-ask spread that would otherwise go to external market makers. This provides a direct financial incentive.

Moreover, it allows the firm to provide liquidity to clients on a principal basis, which can be particularly valuable for large or illiquid trades where sourcing liquidity on public venues could lead to significant market impact and information leakage. The SI becomes a strategic asset for managing and executing difficult orders discreetly.

A key advantage for the buy-side clients trading with an SI is the shifting of operational burdens. When a buy-side firm routes an order to an SI, the responsibility for trade reporting under MiFID II falls to the SI. This offloads a significant administrative and compliance task from the client, making the SI an attractive counterparty.

For the sell-side firm operating the SI, this service is a powerful marketing tool and a way to attract order flow. The strategic positioning is clear ▴ the SI offers not just execution, but a more efficient, compliant, and potentially cost-effective trading relationship.

![Abstract depiction of an institutional digital asset derivatives execution system. A central market microstructure wheel supports a Prime RFQ framework, revealing an algorithmic trading engine for high-fidelity execution of multi-leg spreads and block trades via advanced RFQ protocols, optimizing capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-prime-os-rfq-execution-system-1.jpg)

## Re-Architecting the Order Routing Framework

Implementing an SI necessitates a fundamental redesign of a firm’s order routing logic. The Smart Order Router (SOR) can no longer be a simple tool for finding the best price across a set of external venues. It must evolve into a sophisticated decision-making engine that intelligently balances internal and external execution pathways.

The new SOR logic must incorporate a series of checks and balances. When a client order is received for an instrument in which the firm is an SI, the router’s first action is to query the internal SI engine for a quote. This quote must then be compared in real-time against the prevailing market prices from reference data feeds. The SOR’s ruleset must then decide the next step based on the firm’s best execution policy:

- **Price Improvement** ▴ If the SI can offer a price that is better than the EBBO, the order may be executed internally. The policy must define the minimum threshold for what constitutes meaningful price improvement.

- **Size Improvement** ▴ The SI may be able to fill a larger quantity of the order at a competitive price than is available on lit markets, reducing the need to sweep multiple venues.

- **Reduced Market Impact** ▴ For large orders, internal execution avoids signaling the client’s intent to the wider market, which is a critical component of best execution.

- **Latency Considerations** ▴ Internal execution can be faster, but the policy must weigh speed against price and other factors.

This logic requires a robust technology stack capable of processing vast amounts of market data, generating internal quotes, and making routing decisions in milliseconds. The strategy is to build an execution system where the internal SI venue must compete for order flow against external venues on a fair and transparent basis, with the client’s best interest as the ultimate arbiter.

> A firm’s best execution policy must evolve from a simple venue selection guide to a sophisticated governance framework for its own internal market.

![Two distinct, polished spherical halves, beige and teal, reveal intricate internal market microstructure, connected by a central metallic shaft. This embodies an institutional-grade RFQ protocol for digital asset derivatives, enabling high-fidelity execution and atomic settlement across disparate liquidity pools for principal block trades](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-high-fidelity-execution-prime-os.jpg)

## Comparative Analysis of Order Handling Protocols

The structural changes introduced by an SI are best understood through a direct comparison of the [order handling](https://prime.greeks.live/area/order-handling/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) process before and after its implementation. The following table illustrates the strategic shift across key operational domains.

| Operational Domain | Before SI Onboarding (Agency Model) | After SI Onboarding (Principal Model) |
| --- | --- | --- |
| Primary Liquidity Source | External venues (Exchanges, MTFs, Dark Pools) | Internal firm capital is the first-look source; external venues for benchmark and residual flow |
| Execution Counterparty | Anonymous market participants on external venues | The firm itself, acting as principal |
| Price Discovery Mechanism | Passive discovery from public order books and external quotes | Active, proprietary quote generation benchmarked against the market |
| Best Execution Proof | Demonstrating diligent selection of external venues and brokers | Quantitatively proving internal execution quality against external market benchmarks (e.g. EBBO) |
| Trade Reporting Obligation | Responsibility may lie with the firm or its broker, depending on the arrangement | The SI firm assumes the post-trade reporting obligation, simplifying client workflow |
| Primary Risk | Operational risk in routing and counterparty risk with brokers | Market risk from holding principal positions and compliance risk from managing conflicts of interest |

![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)

## Managing the Inherent Conflict of Interest

The dual role of agent and principal introduces a structural conflict of interest that must be managed with extreme care. The firm has a fiduciary duty to achieve the best outcome for its clients, but its trading desk, which manages the SI’s risk, is incentivized to maximize profit from [principal trading](https://prime.greeks.live/area/principal-trading/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). The best execution policy and its associated procedures are the primary tools for mitigating this conflict.

A robust governance framework is essential. This typically involves an independent best execution committee or function that is separate from the trading desk. This committee is responsible for overseeing the SI’s performance, reviewing [execution quality](https://prime.greeks.live/area/execution-quality/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) reports, and ensuring that the SOR’s logic remains aligned with client interests. The policy must mandate periodic, evidence-based reviews of the SI’s performance against a range of external venues.

If the SI consistently fails to provide competitive pricing or execution quality, the policy should require the SOR to route flow away from it. This creates a system of accountability where the internal venue must continuously earn its right to execute client orders.

![A sleek, white, semi-spherical Principal's operational framework opens to precise internal FIX Protocol components. A luminous, reflective blue sphere embodies an institutional-grade digital asset derivative, symbolizing optimal price discovery and a robust liquidity pool](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-high-fidelity-execution-5.jpg)

![A central processing core with intersecting, transparent structures revealing intricate internal components and blue data flows. This symbolizes an institutional digital asset derivatives platform's Prime RFQ, orchestrating high-fidelity execution, managing aggregated RFQ inquiries, and ensuring atomic settlement within dynamic market microstructure, optimizing capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-trading-system-facilitating-high-fidelity-rfq-protocol-optimization-for-best-execution-and-atomic-settlement.jpg)

## Execution

The execution phase of onboarding a Systematic Internaliser moves beyond strategic planning into the granular details of policy amendment, technological integration, and quantitative oversight. This is where the architectural vision is translated into operational reality. A firm’s best execution policy becomes a dynamic, data-driven document that both guides and governs the firm’s principal trading activity. The process requires a multidisciplinary effort, involving compliance, legal, technology, and trading teams to ensure that the new operational model is robust, compliant, and commercially viable.

The core of the execution challenge lies in creating a system that is demonstrably fair. Every aspect of the SI’s operation, from the generation of quotes to the post-trade analysis of execution quality, must be transparent and auditable. The firm must be able to produce detailed records at a moment’s notice to a regulator or a client, proving that a specific order executed on the SI received a better outcome than would have been achieved on any other reasonable alternative venue. This requires a significant investment in data infrastructure and analytical capabilities.

![Segmented beige and blue spheres, connected by a central shaft, expose intricate internal mechanisms. This represents institutional RFQ protocol dynamics, emphasizing price discovery, high-fidelity execution, and capital efficiency within digital asset derivatives market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-optimal-execution.jpg)

## The Operational Playbook Amending the Best Execution Policy

Modifying the firm’s best execution policy is the foundational step in the operational rollout of an SI. This is not a minor update; it is a comprehensive overhaul that redefines the firm’s duties and procedures. The following steps provide a procedural guide for this critical task:

- **Formal Declaration of SI Status** ▴ The policy must begin by clearly stating that the firm operates as a Systematic Internaliser for specific asset classes or instruments. It should explicitly add the firm’s SI entity to its list of execution venues.

- **Codification of the Order Handling Logic** ▴ This section must detail the precise circumstances under which an order will be routed to the SI. It should describe the SOR’s decision-making process, including the initial check for an internal quote and the criteria for routing externally.

- **Definition of Price Referencing and Improvement** ▴ The policy must specify the public reference price that will be used for benchmarking SI quotes (e.g. the EBBO from a specific data provider). It must also quantitatively define “price improvement,” establishing a clear standard that the SI’s execution must meet or exceed.

- **Disclosure of Conflicts of Interest** ▴ The document must transparently disclose the potential conflict of interest arising from the firm acting as a principal counterparty. It should then detail the controls and governance structures in place to mitigate these conflicts, such as the oversight of an independent committee.

- **Specification of Qualitative Factors** ▴ The policy should articulate how the SI addresses qualitative execution factors. For instance, it should explain the benefits of reduced market impact and how the firm assesses this benefit when determining the best course of action for a client order.

- **Establishment of a Review and Governance Protocol** ▴ The policy must mandate a formal, periodic review of the SI’s execution quality. This includes defining the frequency of reviews, the metrics to be used, and the composition of the oversight committee responsible for the review.

![Precision-engineered components of an institutional-grade system. The metallic teal housing and visible geared mechanism symbolize the core algorithmic execution engine for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-institutional-digital-asset-derivatives-rfq-execution-layer.jpg)

## Quantitative Modeling and Data Analysis

A successful SI operation is built on a foundation of rigorous quantitative analysis. The firm must continuously monitor its execution quality to satisfy its best execution obligations and to optimize its pricing and risk management models. This requires a sophisticated data analysis framework.

> Effective execution as a Systematic Internaliser depends on a robust quantitative framework to continuously validate and prove the quality of internal fills against the broader market.

The following table presents a sample of a Best Execution Monitoring Dashboard, illustrating the key metrics that a firm would track to evaluate the performance of its SI. This data provides the evidence base for the Best Execution Committee’s oversight function.

| Metric | Description | Sample Value | Target Threshold |
| --- | --- | --- | --- |
| Price Improvement Rate | Percentage of SI trades executed at a price better than the EBBO. | 92.5% | > 90% |
| Average Price Improvement | The average monetary value of price improvement per share or unit. | €0.0015 | > €0.0010 |
| Execution at Midpoint | Percentage of SI trades executed at the midpoint of the EBBO. | 45.0% | > 40% |
| Quote Rejection Rate | Percentage of times the SI declines to provide a quote when requested. | 1.2% | < 2% |
| Mean Execution Latency | Average time from order receipt to execution confirmation. | 150 microseconds | < 200 microseconds |
| Adverse Selection Metric | Post-trade price movement against the SI’s position (e.g. 1-minute post-trade). | -0.2 bps | Monitor for trends |

![A modular, institutional-grade device with a central data aggregation interface and metallic spigot. This Prime RFQ represents a robust RFQ protocol engine, enabling high-fidelity execution for institutional digital asset derivatives, optimizing capital efficiency and best execution](https://options.greeks.live/wp-content/uploads/2025/08/principals-institutional-digital-asset-derivatives-prime-os-for-optimized-rfq-protocol-best-execution-system.jpg)

## System Integration and Technological Architecture

The technological backbone of an SI is complex. It must seamlessly integrate with the firm’s existing trading infrastructure while providing new capabilities for quoting, risk management, and reporting. The architecture typically includes:

- **A Quoting Engine** ▴ This component is responsible for generating firm quotes in real-time. It takes inputs from the firm’s internal pricing models, risk management system, and live market data feeds.

- **FIX Protocol Connectivity** ▴ The system must use industry-standard Financial Information eXchange (FIX) protocols to receive client orders and disseminate quotes and execution reports.

- **Integration with OMS/EMS** ▴ The SI must be fully integrated with the firm’s Order and Execution Management Systems to ensure a seamless workflow from client order entry to settlement.

- **A Data Capture and Analytics Platform** ▴ This is a critical component for meeting best execution obligations. The system must capture time-stamped data for every client order, internal quote, external market price, and execution. This data feeds the [Transaction Cost Analysis](https://prime.greeks.live/area/transaction-cost-analysis/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (TCA) and reporting systems.

- **A Surveillance System** ▴ The firm needs a dedicated system to monitor for potential market abuse or manipulation related to the SI’s activity and to ensure compliance with all regulatory obligations.

Building this architecture is a significant undertaking, but it is the price of entry for firms wishing to compete as a principal liquidity provider in the modern market landscape. The investment in technology and data is what enables a firm to navigate the complexities of the SI regime and deliver on its promise of superior execution.

![An exposed high-fidelity execution engine reveals the complex market microstructure of an institutional-grade crypto derivatives OS. Precision components facilitate smart order routing and multi-leg spread strategies](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-engine-microstructure-2.jpg)

## References

- Rapid Addition. “The Evolving Role of Systematic Internalisation Under MiFID II.” Rapid Addition, 2020.

- CFA Institute. “MiFID II and Systematic Internalisers ▴ If Only Someone Knew This Would Happen.” CFA Institute Enterprising Investor, 13 July 2018.

- International Capital Market Association. “MiFID II implementation ▴ the Systematic Internaliser regime.” ICMA, 6 April 2017.

- SmartStream Technologies. “Systematic Internalisation Under MiFID II ▴ What’s Needed Now.” SmartStream, 2018.

- “MiFID II Systematic Internalizers Raise Concerns.” Traders Magazine, 2017.

- European Securities and Markets Authority. “Questions and Answers on MiFID II and MiFIR market structures topics.” ESMA70-872942901-38, 2021.

- Lehalle, Charles-Albert, and Sophie Laruelle, editors. Market Microstructure in Practice. 2nd ed. World Scientific Publishing, 2018.

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

![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)

## Reflection

Integrating a Systematic Internaliser into a firm’s operational fabric is a profound undertaking. It compels a re-examination of the very definition of execution quality and the firm’s role within the market ecosystem. The process moves a firm beyond the selection of external pathways and into the construction of its own internal market. The policies and procedures discussed are the blueprints for this construction, but the ultimate success of the architecture depends on a continuous commitment to self-scrutiny.

The quantitative metrics and governance frameworks provide the necessary checks and balances. Yet, the true measure of the system lies in its ability to adapt. Markets evolve, technologies advance, and regulatory landscapes shift. A static best execution policy, however well-crafted, will eventually become obsolete.

Therefore, consider the framework presented here as a starting point. How does your firm’s current intelligence gathering and analytical capability support such a dynamic and self-critical system? The ultimate edge is found not in the initial build, but in the perpetual process of refinement and optimization, turning a regulatory obligation into a core competitive advantage.

![Intricate metallic mechanisms portray a proprietary matching engine or execution management system. Its robust structure enables algorithmic trading and high-fidelity execution for institutional digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-engine-market-microstructure.jpg)

## Glossary

<a href="https://prime.greeks.live/area/systematic-internaliser/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![The image depicts two interconnected modular systems, one ivory and one teal, symbolizing robust institutional grade infrastructure for digital asset derivatives. Glowing internal components represent algorithmic trading engines and intelligence layers facilitating RFQ protocols for high-fidelity execution and atomic settlement of multi-leg spreads](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-platform-1.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/what-are-the-primary-security-differences-between-an-esb-and-an-api-gateway-for-external-connections/?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)

## External Venues

An API Gateway provides perimeter defense for external threats; an ESB ensures process integrity among trusted internal systems. </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 central precision-engineered RFQ engine orchestrates high-fidelity execution across interconnected market microstructure. This Prime RFQ node facilitates multi-leg spread pricing and liquidity aggregation for institutional digital asset derivatives, minimizing slippage](https://options.greeks.live/wp-content/uploads/2025/08/high-fidelity-rfq-execution-for-institutional-crypto-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/client-orders/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Symmetrical, engineered system displays translucent blue internal mechanisms linking two large circular components. This represents an institutional-grade Prime RFQ for digital asset derivatives, enabling RFQ protocol execution, high-fidelity execution, price discovery, dark liquidity management, and atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-engine-prime-os-core.jpg)

## Client Orders

Meaning ▴ Client Orders represent the formal instructions submitted by an institutional principal to an execution system, specifying the intent to buy or sell a defined quantity of a particular digital asset derivative at certain price and time parameters. </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">
![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)

## 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/quote-transparency/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A robust circular Prime RFQ component with horizontal data channels, radiating a turquoise glow signifying price discovery. This institutional-grade RFQ system facilitates high-fidelity execution for digital asset derivatives, optimizing market microstructure and capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-rfq-engine-for-digital-asset-derivatives-execution.jpg)

## Quote Transparency

Meaning ▴ Quote Transparency refers to the systemic visibility and accessibility of bid and offer prices, alongside their corresponding sizes, across a market or specific trading venue. </a><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 precision-engineered institutional digital asset derivatives execution system cutaway. The teal Prime RFQ casing reveals intricate market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-prime-os-rfq-protocol-core-engine.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/question/how-can-a-firm-measure-the-toxicity-of-a-clients-order-flow/?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)

## Client Order

A firm measures order flow toxicity by using volume-synchronized models to detect the statistical signatures of informed trading. </a><a href="https://prime.greeks.live/area/execution-venue/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![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)

## Execution Venue

Meaning ▴ An Execution Venue refers to a regulated facility or system where financial instruments are traded, encompassing entities such as regulated markets, multilateral trading facilities (MTFs), organized trading facilities (OTFs), and systematic internalizers. </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">
![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)

## 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/conflicts-of-interest/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek, futuristic institutional grade platform with a translucent teal dome signifies a secure environment for private quotation and high-fidelity execution. A dark, reflective sphere represents an intelligence layer for algorithmic trading and price discovery within market microstructure, ensuring capital efficiency for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/precision-rfq-execution-for-institutional-digital-asset-derivatives-1.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/question/how-can-an-internal-matching-engine-reduce-execution-costs-for-a-broker-dealer-in-the-crypto-market/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A dual-toned cylindrical component features a central transparent aperture revealing intricate metallic wiring. This signifies a core RFQ processing unit for Digital Asset Derivatives, enabling rapid Price Discovery and High-Fidelity Execution](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-engine-core-best-execution-prime-os.jpg)

## Internal Execution

An internal matching engine reduces broker-dealer costs by creating a private liquidity pool to capture spreads and avoid external fees. </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">
![An exposed institutional digital asset derivatives engine reveals its market microstructure. The polished disc represents a liquidity pool for price discovery](https://options.greeks.live/wp-content/uploads/2025/07/high-fidelity-digital-asset-derivatives-rfq-execution-system.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/area/price-improvement/?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)

## Price Improvement

Meaning ▴ Price improvement denotes the execution of a trade at a more advantageous price than the prevailing National Best Bid and Offer (NBBO) at the moment of order submission. </a><a href="https://prime.greeks.live/question/how-do-dark-pool-executions-complicate-the-calibration-of-market-impact-models-based-on-lit-market-data/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![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)

## Market Impact

Dark pool executions complicate impact model calibration by introducing a censored data problem, skewing lit market data and obscuring true liquidity. </a><a href="https://prime.greeks.live/area/order-flow/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek pen hovers over a luminous circular structure with teal internal components, symbolizing precise RFQ initiation. This represents high-fidelity execution for institutional digital asset derivatives, optimizing market microstructure and achieving atomic settlement within a Prime RFQ liquidity pool](https://options.greeks.live/wp-content/uploads/2025/07/optimizing-digital-asset-derivatives-rfq-through-prime-os-precision.jpg)

## Order Flow

Meaning ▴ Order Flow represents the real-time sequence of executable buy and sell instructions transmitted to a trading venue, encapsulating the continuous interaction of market participants' supply and demand. </a><a href="https://prime.greeks.live/area/order-handling/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![An abstract, precisely engineered construct of interlocking grey and cream panels, featuring a teal display and control. This represents an institutional-grade Crypto Derivatives OS for RFQ protocols, enabling high-fidelity execution, liquidity aggregation, and market microstructure optimization within a Principal's operational framework for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/08/integrated-principal-trading-system-modules-for-institutional-digital-asset-derivatives-rfq-execution-and-optimized-market-microstructure.jpg)

## Order Handling

Meaning ▴ Order Handling defines the comprehensive, end-to-end process of managing a trade instruction from its initial creation through its complete lifecycle, encompassing validation, routing, execution, and post-trade reporting within an institutional digital asset derivatives framework. </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">
![Precision-engineered modular components display a central control, data input panel, and numerical values on cylindrical elements. This signifies an institutional Prime RFQ for digital asset derivatives, enabling RFQ protocol aggregation, high-fidelity execution, algorithmic price discovery, and volatility surface calibration for portfolio margin](https://options.greeks.live/wp-content/uploads/2025/07/firm-fx-options-rfq-trade-system-key-microstructure-data-flow-core-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/execution-quality/?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)

## 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/transaction-cost-analysis/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![An abstract composition of interlocking, precisely engineered metallic plates represents a sophisticated institutional trading infrastructure. Visible perforations within a central block symbolize optimized data conduits for high-fidelity execution and capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-multi-leg-execution-layer.jpg)

## Transaction Cost Analysis

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

**Tags:** [Conflicts of Interest](https://options.greeks.live/area/conflicts-of-interest/), [Principal Trading](https://options.greeks.live/area/principal-trading/), [Execution Policy](https://options.greeks.live/area/execution-policy/), [Order Handling](https://options.greeks.live/area/order-handling/), [Price Improvement](https://options.greeks.live/area/price-improvement/), [Systematic Internaliser](https://options.greeks.live/area/systematic-internaliser/)	

## Discover More

- 
### [How Do Systematic Internalisers Impact the Best Execution Obligations under MiFID II?](https://options.greeks.live/question/how-do-systematic-internalisers-impact-the-best-execution-obligations-under-mifid-ii/)
![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. This visualizes high-fidelity execution pathways for principal's capital, minimizing slippage and optimizing capital efficiency.](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)

Systematic Internalisers re-architect execution by offering a regulated, principal-based liquidity source impacting best execution analysis.

- 
### [How Do Regulatory Frameworks like MiFID II Influence the Choice between RFQ and CLOB Execution Venues?](https://options.greeks.live/question/how-do-regulatory-frameworks-like-mifid-ii-influence-the-choice-between-rfq-and-clob-execution-venues/)
![A glowing green ring encircles a dark, reflective sphere, symbolizing a principal's intelligence layer for high-fidelity RFQ execution. It reflects intricate market microstructure, signifying precise algorithmic trading for institutional digital asset derivatives, optimizing price discovery and managing latent liquidity.](https://options.greeks.live/wp-content/uploads/2025/07/core-institutional-digital-asset-derivatives-rfq-execution-system-hub.jpg)

MiFID II mandates a data-driven process, making the RFQ vs. CLOB choice a function of verifiable execution quality, not mere preference.

- 
### [How Do Smart Order Routers Implement the Strategic Logic of a MiFID II Best Execution Policy?](https://options.greeks.live/question/how-do-smart-order-routers-implement-the-strategic-logic-of-a-mifid-ii-best-execution-policy/)
![A precision metallic mechanism with radiating blades and blue accents, representing an institutional-grade Prime RFQ for digital asset derivatives. It signifies high-fidelity execution via RFQ protocols, leveraging dark liquidity and smart order routing within market microstructure.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-engine.jpg)

A Smart Order Router systematically encodes a MiFID II best execution policy into an automated, data-driven, and auditable routing logic.

- 
### [How Does the Si Regime Alter Best Execution Obligations for Asset Managers?](https://options.greeks.live/question/how-does-the-si-regime-alter-best-execution-obligations-for-asset-managers/)
![A high-fidelity institutional digital asset derivatives execution platform. A central conical hub signifies precise price discovery and aggregated inquiry for RFQ protocols. Linear pathways represent advanced algorithmic trading routes, ensuring capital efficiency and best execution within market microstructure, crucial for options trading.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-protocol-high-fidelity-digital-asset-derivatives-execution-1.jpg)

The SI regime transforms best execution from a policy document into a dynamic, data-driven process of venue selection and performance analysis.

- 
### [Under What Circumstances Can an Investment Firm Be Deemed to Have Met Its Best Execution Obligation?](https://options.greeks.live/question/under-what-circumstances-can-an-investment-firm-be-deemed-to-have-met-its-best-execution-obligation/)
![Close-up of intricate mechanical components symbolizing a robust Prime RFQ for institutional digital asset derivatives. These precision parts reflect market microstructure and high-fidelity execution within an RFQ protocol framework, ensuring capital efficiency and optimal price discovery for Bitcoin options.](https://options.greeks.live/wp-content/uploads/2025/07/engineered-core-systems-driving-institutional-digital-asset-derivatives-rfq-protocol-execution.jpg)

A firm meets its best execution obligation by operating a demonstrable, data-driven system designed to secure optimal client outcomes.

- 
### [What Is the Role of a Best Execution Committee in Preventing Regulatory Failures?](https://options.greeks.live/question/what-is-the-role-of-a-best-execution-committee-in-preventing-regulatory-failures/)
![A sleek, institutional-grade system processes a dynamic stream of market microstructure data, projecting a high-fidelity execution pathway for digital asset derivatives. This represents a private quotation RFQ protocol, optimizing price discovery and capital efficiency through an intelligence layer.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-rfq-digital-asset-derivatives-execution-microstructure-prime-os.jpg)

A Best Execution Committee is a governance system that translates the fiduciary duty of superior execution into a quantifiable, auditable process.

- 
### [How Does the Integration of Execution Pathways Affect Best Execution Compliance and Reporting?](https://options.greeks.live/question/how-does-the-integration-of-execution-pathways-affect-best-execution-compliance-and-reporting/)
![Prime RFQ visualizes institutional digital asset derivatives RFQ protocol and high-fidelity execution. Glowing liquidity streams converge at intelligent routing nodes, aggregating market microstructure for atomic settlement, mitigating counterparty risk within dark liquidity.](https://options.greeks.live/wp-content/uploads/2025/08/prime-os-high-fidelity-digital-asset-derivatives-rfq-protocol.jpg)

The integration of execution pathways transforms best execution from a compliance task into a data engineering challenge of unifying disparate data streams to prove and enhance performance.

- 
### [How Does the SI Regime Impact a Buy-Side Firm’s Best Execution Policy?](https://options.greeks.live/question/how-does-the-si-regime-impact-a-buy-side-firms-best-execution-policy/)
![A conceptual image illustrates a sophisticated RFQ protocol engine, depicting the market microstructure of institutional digital asset derivatives. Two semi-spheres, one light grey and one teal, represent distinct liquidity pools or counterparties within a Prime RFQ, connected by a complex execution management system for high-fidelity execution and atomic settlement of Bitcoin options or Ethereum futures.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-market-microstructure-2.jpg)

The SI regime forces a buy-side firm’s best execution policy to evolve into a data-driven, multi-venue analytical framework.

- 
### [How Do Regulators Define the Scope of Best Execution beyond Price?](https://options.greeks.live/question/how-do-regulators-define-the-scope-of-best-execution-beyond-price/)
![Polished, curved surfaces in teal, black, and beige delineate the intricate market microstructure of institutional digital asset derivatives. These distinct layers symbolize segregated liquidity pools, facilitating optimal RFQ protocol execution and high-fidelity execution, minimizing slippage for large block trades and enhancing capital efficiency.](https://options.greeks.live/wp-content/uploads/2025/07/precision-rfq-protocol-execution-institutional-digital-asset-derivatives-flow.jpg)

Regulators define best execution as a multi-dimensional fiduciary duty to optimize client outcomes across price, cost, speed, and certainty.

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        "url": "https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-engine-price-discovery.jpg",
        "caption": "This abstract mechanical system symbolizes an advanced institutional-grade Crypto Derivatives OS. Its central multi-bladed engine represents a high-frequency trading and smart order routing mechanism, processing RFQ protocols for digital asset derivatives. Visible internal market microstructure and intricate wiring denote FIX protocol connectivity. This infrastructure ensures best execution, liquidity aggregation, portfolio margin optimization, and atomic settlement, mitigating slippage and counterparty risk for alpha generation."
    },
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        "Best Execution",
        "Best Execution Policy",
        "Client Orders",
        "Conflicts of Interest",
        "Execution Policy",
        "Execution Quality",
        "Execution Venue",
        "Market Microstructure",
        "MiFID II",
        "Order Flow",
        "Order Handling",
        "Price Improvement",
        "Principal Trading",
        "Quote Transparency",
        "Regulatory Compliance",
        "Smart Order Router",
        "Systematic Internaliser",
        "Transaction Cost Analysis"
    ]
}
```

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```


---

**Original URL:** https://options.greeks.live/question/how-does-onboarding-an-si-impact-a-firms-best-execution-policy-and-procedures/
