# How Does SI Growth Affect an Asset Manager's Broker Selection Criteria? ▴ Question

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

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## Concept

The proliferation of [Systematic Internalisers](https://prime.greeks.live/area/systematic-internalisers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) represents a fundamental re-architecting of the European liquidity landscape, a structural transformation that directly recalibrates an asset manager’s calculus for [broker selection](https://prime.greeks.live/area/broker-selection/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). Your operational framework and execution philosophy are directly impacted by this evolution. The core of this change moves the execution process beyond a simplistic model of routing orders to a public exchange.

It introduces a network of bilateral, principal-based liquidity pools that fundamentally alters the dynamics of [price discovery](https://prime.greeks.live/area/price-discovery/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), market impact, and operational responsibility. Understanding this shift is paramount to maintaining a competitive edge in [execution quality](https://prime.greeks.live/area/execution-quality/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).

A [Systematic Internaliser](https://prime.greeks.live/area/systematic-internaliser/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), or SI, is an investment firm that, on an organised, frequent, systematic, and substantial basis, deals on its own account when executing client orders outside a regulated market, an MTF, or an OTF. This definition, codified 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 not merely regulatory text; it is the blueprint for a new type of execution venue. An SI operates as a private liquidity source, using its own capital to complete trades with its clients.

When an [asset manager](https://prime.greeks.live/question/what-is-the-strategic-impact-of-research-unbundling-on-an-asset-managers-business-model/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) sends an order to a broker operating as an SI, the broker is the direct counterparty to the trade. This is a principal trade, a direct engagement with the broker’s own balance sheet, which carries a different set of considerations than an agency trade where the broker is simply a conduit to a [central limit order book](https://prime.greeks.live/area/central-limit-order-book/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).

The mandate for this market structure was born from a regulatory desire to increase transparency in off-exchange trading. Before MiFID II, much of this activity occurred in a less structured Over-The-Counter (OTC) market. The SI regime was designed to bring a significant portion of this bilateral trading into a more formal, regulated, and reportable framework.

The operational reality for an asset manager is that a growing percentage of equity and fixed-income volume is now executed through these channels. To ignore or misunderstand the function of SIs is to ignore a vast and growing reservoir of potential liquidity, one that your chosen brokers are increasingly leveraging to define their execution services.

> The rise of SIs compels asset managers to re-evaluate broker relationships through the lens of principal trading risk, execution quality, and operational efficiency.

This structural shift has profound implications for the principle of [Best Execution](https://prime.greeks.live/area/best-execution/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). Under MiFID II, the obligation to achieve the best possible result for clients was explicitly extended to the buy-side. [Asset managers](https://prime.greeks.live/question/which-technological-innovations-are-most-critical-for-mitigating-t1-settlement-risk-for-asset-managers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) can no longer simply delegate this responsibility to their brokers; they must construct and demonstrate a robust internal process for ensuring and verifying superior execution outcomes. This requires a sophisticated understanding of all available execution venues, including SIs.

The selection of a broker is now intrinsically linked to the asset manager’s own regulatory burden to prove diligence. The choice of one broker over another must be justified not by historical relationship or convenience, but by a data-driven analysis of their ability to provide superior results across a range of metrics, including price, cost, speed, and likelihood of execution.

The growth of the SI regime is a direct consequence of these new market dynamics. For broker-dealers, achieving SI status is a strategic decision. It allows them to internalize client order flow, leveraging their own inventory and risk-taking capacity to provide liquidity. This model offers them a competitive advantage, enabling them to offer potential [price improvement](https://prime.greeks.live/area/price-improvement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) and reduce the market footprint of their clients’ orders.

For the asset manager, this presents both an opportunity and a challenge. The opportunity lies in accessing this unique liquidity to achieve better execution. The challenge lies in developing the sophisticated due diligence and analysis framework required to select the right SI partners and to continuously monitor their performance within a complex, fragmented market ecosystem.

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## Strategy

The ascent of Systematic Internalisers necessitates a complete overhaul of the traditional broker selection scorecard. The criteria upon which asset managers evaluate their execution partners must evolve from a simple assessment of commission rates and research quality to a multi-dimensional analysis of the broker’s market structure, technological capabilities, and risk profile. The decision is a strategic one, impacting everything from transaction costs to regulatory compliance. A modern, effective selection strategy is built upon a granular understanding of how a broker’s SI operations create value and manage risk.

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## Rethinking Execution Quality Metrics

The primary strategic consideration is the quantifiable impact of the SI on execution quality. This analysis must be forensic, moving beyond surface-level price comparisons. The ability of an SI to offer price improvement is a foundational benefit. By executing trades against their own capital, SIs can offer prices that are better than the prevailing European Best Bid and Offer (EBBO) on lit exchanges.

This often involves executing a client’s buy order at the midpoint of the bid-ask spread, providing a tangible cost saving on every share traded. An asset manager’s strategy must involve capturing and analyzing this price improvement data with precision.

[Market impact](https://prime.greeks.live/area/market-impact/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is a second, equally critical component of execution quality. Directing a large institutional order to a public exchange can signal intent to the broader market, causing prices to move adversely before the order is fully executed. This information leakage is a significant hidden cost of trading. SIs provide a mechanism to mitigate this risk.

Because the trade is bilateral and executed off-book, it does not create a visible footprint on the central limit order book. This discretion is invaluable for asset managers executing large block orders, preserving the integrity of their trading strategy and preventing adverse price selection. The strategic evaluation of a broker must include an assessment of their capacity to absorb large orders with minimal impact, a direct function of the depth and sophistication of their SI liquidity pool.

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## How Does SI Liquidity Interact with the Broader Market?

The interaction between SI liquidity and the wider market is a complex dynamic. While SIs can reduce the impact of a single large trade, the aggregate effect of SI growth is a topic of regulatory debate. A concern is that diverting significant order flow away from lit markets could reduce public price discovery and overall market transparency.

For an asset manager, the strategic implication is the need to partner with brokers who can demonstrate a holistic approach to liquidity sourcing. A superior broker will use a [Smart Order Router](https://prime.greeks.live/area/smart-order-router/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (SOR) that intelligently accesses SI liquidity as one of several available pools, balancing the benefits of impact mitigation with the need to interact with public markets for optimal price discovery across the entire order lifecycle.

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## Operational Efficiency as a Strategic Asset

The operational architecture of the SI regime provides a distinct strategic advantage to the asset manager. Under MiFID II, the responsibility for making a trade public typically falls to the executing venue. When an asset manager trades with a broker on its SI, the broker assumes the obligation of [trade reporting](https://prime.greeks.live/area/trade-reporting/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). This is a significant transfer of operational and administrative burden.

The process of post-trade reporting is complex, requiring timely and accurate data submission to an Approved Publication Arrangement (APA). Outsourcing this function to the SI broker frees up internal resources at the asset management firm, reduces the risk of reporting errors, and streamlines the post-trade workflow.

This operational dividend must be a key pillar of the selection strategy. When evaluating potential broker partners, an asset manager should conduct a thorough review of their reporting infrastructure. This includes assessing the robustness of their systems, their contingency plans, and their track record of reporting accuracy.

A failure by the SI to report correctly can create regulatory risk for all parties involved. Therefore, the selection process must treat the broker’s operational competence as a core strategic requirement.

> The broker selection process must evolve to weigh a broker’s principal risk profile and reporting capabilities as heavily as its execution algorithms.

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## A New Paradigm for Counterparty Risk Assessment

Engaging with an SI fundamentally changes the nature of the counterparty relationship. In an agency trade on a lit market, the primary [counterparty risk](https://prime.greeks.live/area/counterparty-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is with the central clearinghouse. In an SI trade, the broker-dealer itself is the direct, principal counterparty.

This elevates the importance of counterparty risk assessment to a critical strategic function. The financial health, operational resilience, and ethical standing of the broker are now directly intertwined with the asset manager’s own risk exposure.

The due diligence process must be correspondingly rigorous. It should extend far beyond a review of execution statistics. The asset manager must analyze the broker’s balance sheet, its creditworthiness, and its capital adequacy. It is essential to understand the broker’s internal risk management framework, including how it manages the inventory risk it takes on by operating the SI.

Furthermore, qualitative factors become critically important. The broker’s reputation, its regulatory history, and its culture of compliance are all essential inputs into the selection decision. The asset manager must be confident that the broker operates with integrity and employs fair allocation practices, avoiding any potential for conflicts of interest such as the “cherry-picking” of profitable trades.

The following table outlines a structured framework for comparing potential SI broker partners across these new strategic dimensions:

| Selection Criterion | Primary Metric | Secondary Metric | Qualitative Assessment |
| --- | --- | --- | --- |
| Execution Quality | Average Price Improvement (bps) | Market Impact Cost (bps) | Sophistication of SOR and access to other liquidity |
| Operational Efficiency | Trade Reporting Accuracy Rate | Post-Trade Workflow Integration | Quality and accessibility of operational support |
| Counterparty Risk | Credit Default Swap Spreads | Capital Adequacy Ratios | Regulatory history and compliance culture |
| Liquidity Capacity | Percentage of flow internalized | Maximum order size with minimal impact | Diversity of instruments covered by the SI |

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## Execution

The execution of a strategy that incorporates Systematic Internalisers requires a precise and technologically sophisticated operational playbook. It is in the mechanics of integration, measurement, and oversight that an asset manager truly unlocks the value of these liquidity sources. This is a domain of quantitative analysis, system architecture, and rigorous procedural discipline. Success is predicated on the ability to seamlessly integrate SI liquidity into the trading workflow and to hold SI partners accountable through data-driven performance evaluation.

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## The Operational Playbook Integrating SI Liquidity

The first step in execution is technological integration. An asset manager’s core trading systems, the [Order Management System](https://prime.greeks.live/area/order-management-system/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (OMS) and [Execution Management System](https://prime.greeks.live/area/execution-management-system/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (EMS), must be architected to recognize and interact with SI liquidity. This is primarily the function of the Smart Order Router (SOR).

A generic, off-the-shelf SOR is insufficient. The SOR must be calibrated with a sophisticated logic that understands the unique characteristics of SIs.

This calibration involves several key parameters:

- **Liquidity Discovery** The SOR must be configured to ping SIs for quotes on a pre-trade basis without revealing sensitive order information. This often involves using specific Financial Information eXchange (FIX) protocol tags designed for this purpose.

- **Decision Logic** The router’s algorithm must be able to weigh the potential for price improvement and zero market impact from an SI against the certainty of execution on a lit market. This logic should be dynamic, adjusting based on order size, security volatility, and prevailing market conditions.

- **Conditional Routing** The system should support complex, conditional order types. For example, an order might first seek a fill at the midpoint from a list of preferred SIs. If no fill is available within a specified time, the SOR should then automatically route the order to the lit market to ensure execution.

The execution workflow must also incorporate a feedback loop. Post-trade data from SI executions must be fed back into the pre-trade decision engine. This allows the SOR to learn and adapt, favoring SIs that consistently provide superior execution and de-prioritizing those that do not.

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

## Quantitative Modeling and Transaction Cost Analysis

Effective oversight of SI brokers is impossible without a robust [Transaction Cost Analysis](https://prime.greeks.live/area/transaction-cost-analysis/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (TCA) framework. TCA provides the quantitative evidence required to fulfill the best execution mandate and to conduct meaningful broker reviews. The analysis must be granular, capturing the specific benefits and potential drawbacks of SI execution.

The following table presents a hypothetical TCA report comparing two brokers for a €10 million order to buy a specific stock. Broker A relies heavily on its SI, while Broker B uses a more traditional algorithmic approach focused on lit markets.

| TCA Metric | Broker A (SI-Focused) | Broker B (Algo-Focused) | Formula/Definition |
| --- | --- | --- | --- |
| Arrival Price | €50.00 | €50.00 | The market midpoint price at the time the order is sent to the broker. |
| Average Execution Price | €50.01 | €50.04 | The weighted average price at which the order was filled. |
| Implementation Shortfall | 1 basis point | 4 basis points | (Avg. Exec Price – Arrival Price) / Arrival Price |
| Price Improvement | €5,000 (0.5 bps) | €0 | Value captured by executing at prices better than the EBBO. |
| Market Impact | 0.5 basis points | 3 basis points | The price movement caused by the order’s execution. |
| Percent Internalized | 85% | 5% | The portion of the order executed against the broker’s own capital. |
| Reversion | -1 basis point | 0.5 basis points | Post-trade price movement; negative reversion suggests good impact mitigation. |

This analysis demonstrates the power of the SI. Broker A delivered a significantly lower implementation shortfall, driven by minimal market impact and tangible price improvement. The high internalization rate shows the broker’s commitment to using its own capital to benefit the client.

The negative reversion indicates that the market price tended to fall back after Broker A’s execution, suggesting the trade left a minimal information footprint. This level of quantitative detail is the foundation of modern broker management.

> A rigorous TCA framework transforms the broker relationship from a partnership based on trust to a partnership verified by data.

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## What Is the Structure of an Effective Broker Review?

The execution strategy culminates in a structured, periodic broker review process. This is a formal engagement, typically conducted quarterly, where the asset manager presents its TCA findings to its SI brokers. This is not a confrontational meeting; it is a data-driven dialogue aimed at optimizing performance.

The agenda for such a review should include:

- **Performance Review** A detailed walkthrough of the TCA report, comparing the broker’s performance against its peers and against established benchmarks.

- **Qualitative Assessment** A discussion of the broker’s service levels, operational responsiveness, and any potential issues encountered during the period.

- **Technology and Infrastructure** An update on any changes to the broker’s SOR, matching engine, or risk management systems. The asset manager should probe for details on system enhancements and capacity planning.

- **Regulatory and Compliance Update** A discussion of any changes in the regulatory environment and how the broker is adapting its SI operations to remain compliant. This includes a review of their trade reporting accuracy and any interactions with regulators.

- **Forward-Looking Strategy** A collaborative discussion about how to improve performance in the upcoming quarter. This could involve adjusting SOR parameters, exploring new order types, or setting specific performance targets.

This disciplined, iterative process of integration, measurement, and review ensures that the asset manager is not merely a passive user of SI liquidity. It becomes an active, informed participant, shaping its execution outcomes and holding its partners to the highest standards of performance. This is the ultimate execution of a successful SI strategy.

![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)

## References

- Angel, James J. and Douglas McCabe. “Fairness in Financial Markets ▴ The Case of High Frequency Trading.” Journal of Business Ethics, vol. 112, no. 4, 2013, pp. 585 ▴ 595.

- Bessembinder, Hendrik, et al. “Market-Making Obligations and Firm Value.” Journal of Financial and Quantitative Analysis, vol. 54, no. 5, 2019, pp. 1957-1985.

- Comerton-Forde, Carole, and Tālis J. Putniņš. “Dark trading and price discovery.” Journal of Financial Economics, vol. 118, no. 1, 2015, pp. 70-92.

- European Securities and Markets Authority. “MiFID II and MiFIR ▴ Report on the development in prices for pre- and post-trade data and on the consolidated tape for equity.” ESMA, 2020.

- Foucault, Thierry, et al. “Competition for Order Flow and Smart Order Routers.” The Journal of Finance, vol. 72, no. 1, 2017, pp. 301 ▴ 348.

- Gomber, Peter, et al. “High-Frequency Trading.” SSRN Electronic Journal, 2011.

- Hendershott, Terrence, et al. “Does Algorithmic Trading Improve Liquidity?” The Journal of Finance, vol. 66, no. 1, 2011, pp. 1 ▴ 33.

- Jones, Charles M. “What Do We Know About High-Frequency Trading?” Columbia Business School Research Paper, no. 13-11, 2013.

- Menkveld, Albert J. “High-frequency trading and the new market makers.” Journal of Financial Markets, vol. 16, no. 4, 2013, pp. 712-740.

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

- Pagano, Marco, and Giovanni Cespa. “Market Fragmentation, and the New European Market Model.” European Central Bank, 2012.

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## Reflection

The integration of Systematic Internalisers into the market’s architecture is more than a regulatory footnote; it is a catalyst for introspection. It compels a re-examination of your firm’s core operational philosophies. How is your execution desk currently structured to differentiate between agency and principal liquidity?

Does your internal technology possess the sophistication to not only access these venues but to critically analyze their value proposition in real-time? The data presented by a broker is a starting point; the critical intelligence is derived from your own independent analysis of that data.

The knowledge of how SIs function is a component part of a larger system of institutional intelligence. The true strategic advantage is found in the synthesis of this market structure knowledge with a robust internal framework of technology, quantitative analysis, and rigorous human oversight. As the landscape continues to fragment and evolve, the resilience and effectiveness of your operational architecture will be the ultimate determinant of your ability to deliver superior, risk-adjusted returns. The question then becomes, is your framework built for the market of yesterday, or is it designed to master the complexities of tomorrow?

![A luminous conical element projects from a multi-faceted transparent teal crystal, signifying RFQ protocol precision and price discovery. This embodies institutional grade digital asset derivatives high-fidelity execution, leveraging Prime RFQ for liquidity aggregation and atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineered-rfq-protocol-orchestration-for-institutional-digital-asset-derivatives-high-fidelity-execution.jpg)

## Glossary

<a href="https://prime.greeks.live/area/systematic-internalisers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Systematic Internalisers

Meaning ▴ A market participant, typically a broker-dealer, systematically executing client orders against its own inventory or other client orders off-exchange, acting as principal. </a><a href="https://prime.greeks.live/area/broker-selection/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A metallic disc intersected by a dark bar, over a teal circuit board. This visualizes Institutional Liquidity Pool access via RFQ Protocol, enabling Block Trade Execution of Digital Asset Options with High-Fidelity Execution](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-principal-operational-framework-market-microstructure-high-fidelity-execution.jpg)

## Broker Selection

Meaning ▴ Broker Selection defines the systematic process by which an institutional Principal identifies, evaluates, and engages execution counterparties for digital asset derivatives trading. </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">
![Intersecting concrete structures symbolize the robust Market Microstructure underpinning Institutional Grade Digital Asset Derivatives. Dynamic spheres represent Liquidity Pools and Implied Volatility](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-framework-optimizing-rfq-execution-and-liquidity-for-principal-trading.jpg)

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

## Price Discovery

Meaning ▴ Price discovery is the continuous, dynamic process by which the market determines the fair value of an asset through the collective interaction of supply and demand. </a><a href="https://prime.greeks.live/area/systematic-internaliser/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## 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/area/mifid-ii/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precision sphere, an Execution Management System EMS, probes a Digital Asset Liquidity Pool. This signifies High-Fidelity Execution via Smart Order Routing for institutional-grade digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/principal-rfq-engine-orchestrating-global-digital-asset-derivatives-liquidity-pool-price-discovery-and-high-fidelity-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/central-limit-order-book/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Glossy, intersecting forms in beige, blue, and teal embody RFQ protocol efficiency, atomic settlement, and aggregated liquidity for institutional digital asset derivatives. The sleek design reflects high-fidelity execution, prime brokerage capabilities, and optimized order book dynamics for capital efficiency](https://options.greeks.live/wp-content/uploads/2025/08/precision-engineered-digital-asset-derivatives-execution-via-optimized-rfq-protocols-enhancing-principal-operational-frameworks.jpg)

## Central Limit Order Book

Meaning ▴ A Central Limit Order Book is a digital repository that aggregates all outstanding buy and sell orders for a specific financial instrument, organized by price level and time of entry. </a><a href="https://prime.greeks.live/question/what-is-the-strategic-impact-of-research-unbundling-on-an-asset-managers-business-model/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Symmetrical precision modules around a central hub represent a Principal-led RFQ protocol for institutional digital asset derivatives. This visualizes high-fidelity execution, price discovery, and block trade aggregation within a robust market microstructure, ensuring atomic settlement and capital efficiency via a Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/principal-led-digital-asset-rfq-execution-system-microstructure.jpg)

## Asset Manager

Research unbundling forces an asset manager to architect a transparent, value-driven information supply chain. </a><a href="https://prime.greeks.live/question/which-technological-innovations-are-most-critical-for-mitigating-t1-settlement-risk-for-asset-managers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![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](https://options.greeks.live/wp-content/uploads/2025/07/optimized-institutional-digital-asset-derivatives-rfq-liquidity-aggregation.jpg)

## Asset Managers

Real-time trade affirmation, automated reconciliation, and predictive analytics are the critical technologies for mastering T+1 settlement risk. </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 fractured, polished disc with a central, sharp conical element symbolizes fragmented digital asset liquidity. This Principal RFQ engine ensures high-fidelity execution, precise price discovery, and atomic settlement within complex market microstructure, optimizing capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/principal-rfq-engine-unifying-fragmented-digital-asset-derivatives-liquidity-for-best-execution.jpg)

## 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/price-improvement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Precision-engineered, stacked components embody a Principal OS for institutional digital asset derivatives. This multi-layered structure visually represents market microstructure elements within RFQ protocols, ensuring high-fidelity execution and liquidity aggregation](https://options.greeks.live/wp-content/uploads/2025/07/principal-os-architecture-for-institutional-digital-asset-derivatives-rfq.jpg)

## Price Improvement

Meaning ▴ Price improvement denotes the execution of a trade at a more advantageous price than the prevailing National Best Bid and Offer (NBBO) at the moment of order submission. </a><a href="https://prime.greeks.live/area/market-impact/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A stylized abstract radial design depicts a central RFQ engine processing diverse digital asset derivatives flows. Distinct halves illustrate nuanced market microstructure, optimizing multi-leg spreads and high-fidelity execution, visualizing a Principal's Prime RFQ managing aggregated inquiry and latent liquidity](https://options.greeks.live/wp-content/uploads/2025/07/principal-rfq-execution-engine-optimizing-digital-asset-derivatives-market-microstructure-for-institutional-liquidity-aggregation.jpg)

## 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/smart-order-router/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A marbled sphere symbolizes a complex institutional block trade, resting on segmented platforms representing diverse liquidity pools and execution venues. This visualizes sophisticated RFQ protocols, ensuring high-fidelity execution and optimal price discovery within dynamic market microstructure for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/principal-rfq-aggregation-digital-asset-derivative-execution-optimization.jpg)

## 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/trade-reporting/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precise metallic cross, symbolizing principal trading and multi-leg spread structures, rests on a dark, reflective market microstructure surface. Glowing algorithmic trading pathways illustrate high-fidelity execution and latency optimization for institutional digital asset derivatives via private quotation](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-protocol-execution-architecture.jpg)

## Trade Reporting

Meaning ▴ Trade Reporting mandates the submission of specific transaction details to designated regulatory bodies or trade repositories. </a><a href="https://prime.greeks.live/area/counterparty-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek, multi-faceted plane represents a Principal's operational framework and Execution Management System. A central glossy black sphere signifies a block trade digital asset derivative, executed with atomic settlement via an RFQ protocol's private quotation](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-derivatives-rfq-principal-os-high-fidelity-execution.jpg)

## Counterparty Risk

Meaning ▴ Counterparty risk denotes the potential for financial loss stemming from a counterparty's failure to fulfill its contractual obligations in a transaction. </a><a href="https://prime.greeks.live/area/execution-management-system/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A chrome cross-shaped central processing unit rests on a textured surface, symbolizing a Principal's institutional grade execution engine. It integrates multi-leg options strategies and RFQ protocols, leveraging real-time order book dynamics for optimal price discovery in digital asset derivatives, minimizing slippage and maximizing capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/principals-high-fidelity-rfq-execution-digital-asset-derivatives-hub.jpg)

## Execution Management System

Meaning ▴ An Execution Management System (EMS) is a specialized software application engineered to facilitate and optimize the electronic execution of financial trades across diverse venues and asset classes. </a><a href="https://prime.greeks.live/area/order-management-system/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Sleek metallic structures with glowing apertures symbolize institutional RFQ protocols. These represent high-fidelity execution and price discovery across aggregated liquidity pools](https://options.greeks.live/wp-content/uploads/2025/07/precision-digital-asset-derivatives-trading-systems-optimizing-rfq-protocols-for-institutional-block-trade-execution.jpg)

## Order Management System

Meaning ▴ A robust Order Management System is a specialized software application engineered to oversee the complete lifecycle of financial orders, from their initial generation and routing to execution and post-trade allocation. </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 luminous digital market microstructure diagram depicts intersecting high-fidelity execution paths over a transparent liquidity pool. A central RFQ engine processes aggregated inquiries for institutional digital asset derivatives, optimizing price discovery and capital efficiency within a Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-high-fidelity-execution-principal-operational-framework-price-discovery.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:** [Smart Order Router](https://options.greeks.live/area/smart-order-router/), [Principal Trading](https://options.greeks.live/area/principal-trading/), [Transaction Cost Analysis](https://options.greeks.live/area/transaction-cost-analysis/), [Systematic Internalisers](https://options.greeks.live/area/systematic-internalisers/), [Order Management System](https://options.greeks.live/area/order-management-system/), [Execution Quality](https://options.greeks.live/area/execution-quality/)	

## Discover More

- 
### [How Does a Firm’s Best Execution Policy Evolve over Time?](https://options.greeks.live/question/how-does-a-firms-best-execution-policy-evolve-over-time/)
![A smooth, off-white sphere rests within a meticulously engineered digital asset derivatives RFQ platform, featuring distinct teal and dark blue metallic components. This sophisticated market microstructure enables private quotation, high-fidelity execution, and optimized price discovery for institutional block trades, ensuring capital efficiency and best execution.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-system-microstructure-core.jpg)

A firm's best execution policy evolves from a static compliance document into a dynamic, data-driven operational system to master market complexity.

- 
### [How Does the SI Regime Affect Best Execution Obligations for the Buy-Side?](https://options.greeks.live/question/how-does-the-si-regime-affect-best-execution-obligations-for-the-buy-side/)
![Precision system for institutional digital asset derivatives. Translucent elements denote multi-leg spread structures and RFQ protocols. Perforated bar implies co-location for latency optimization within a Principal's operational framework, ensuring high-fidelity execution and best execution.](https://options.greeks.live/wp-content/uploads/2025/07/precision-execution-infrastructure-for-institutional-digital-asset-derivatives-request-for-quote-protocol-optimization.jpg)

The SI regime transforms buy-side best execution from a policy into a data-driven, multi-factor optimization of venue selection and cost analysis.

- 
### [What Are the Primary Trade-Offs in Selecting More Counterparties for an Rfq?](https://options.greeks.live/question/what-are-the-primary-trade-offs-in-selecting-more-counterparties-for-an-rfq/)
![Two off-white elliptical components separated by a dark, central mechanism. This embodies an RFQ protocol for institutional digital asset derivatives, enabling price discovery for block trades, ensuring high-fidelity execution and capital efficiency within a Prime RFQ for dark liquidity.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-engine-4.jpg)

Expanding RFQ counterparties is a direct trade-off between price competition and information leakage risk.

- 
### [How Do Anonymous RFQs Help Institutional Traders Meet Best Execution Requirements under MiFID II?](https://options.greeks.live/question/how-do-anonymous-rfqs-help-institutional-traders-meet-best-execution-requirements-under-mifid-ii/)
![Illuminated conduits passing through a central, teal-hued processing unit abstractly depict an Institutional-Grade RFQ Protocol. This signifies High-Fidelity Execution of Digital Asset Derivatives, enabling Optimal Price Discovery and Aggregated Liquidity for Multi-Leg Spreads. It reflects a Prime RFQ framework mitigating Slippage and Counterparty Risk for institutional trading.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-high-fidelity-best-execution.jpg)

Anonymous RFQs provide a discreet, auditable protocol to source liquidity, minimizing market impact and generating the evidence needed to prove best execution.

- 
### [How Do Systematic Internalisers Provide an Alternative Liquidity Source under the Dvc?](https://options.greeks.live/question/how-do-systematic-internalisers-provide-an-alternative-liquidity-source-under-the-dvc/)
![A modular system with beige and mint green components connected by a central blue cross-shaped element, illustrating an institutional-grade RFQ execution engine. This sophisticated architecture facilitates high-fidelity execution, enabling efficient price discovery for multi-leg spreads and optimizing capital efficiency within a Prime RFQ framework for digital asset derivatives.](https://options.greeks.live/wp-content/uploads/2025/07/principal-prime-os-rfq-engine-for-digital-asset-derivatives.jpg)

Systematic Internalisers provide a bilateral, principal-based liquidity channel exempt from the volume caps applied to multilateral dark venues.

- 
### [How Do Systematic Internalisers Function within the MiFID II Best Execution Framework?](https://options.greeks.live/question/how-do-systematic-internalisers-function-within-the-mifid-ii-best-execution-framework/)
![A sophisticated mechanical core, split by contrasting illumination, represents an Institutional Digital Asset Derivatives RFQ engine. Its precise concentric mechanisms symbolize High-Fidelity Execution, Market Microstructure optimization, and Algorithmic Trading within a Prime RFQ, enabling optimal Price Discovery and Liquidity Aggregation.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-engine-for-institutional-digital-asset-derivatives-precision-execution.jpg)

An SI is a firm using its own capital to execute client orders bilaterally under a strict MiFID II transparency framework.

- 
### [How Does the Systematic Internaliser Regime Change RFQ Dynamics?](https://options.greeks.live/question/how-does-the-systematic-internaliser-regime-change-rfq-dynamics/)
![Abstract RFQ engine, transparent blades symbolize multi-leg spread execution and high-fidelity price discovery. The central hub aggregates deep liquidity pools. Red glows indicate real-time market microstructure dynamics and optimal capital efficiency for institutional digital asset derivatives block trades.](https://options.greeks.live/wp-content/uploads/2025/07/principal-rfq-engine-for-crypto-derivatives-high-fidelity-block-trade.jpg)

The Systematic Internaliser regime transforms RFQ dynamics by injecting mandated, transparent principal liquidity into the price discovery process.

- 
### [How Does MiFID II’s Transparency Regime Impact Best Execution for Fixed Income Instruments?](https://options.greeks.live/question/how-does-mifid-iis-transparency-regime-impact-best-execution-for-fixed-income-instruments/)
![Abstract visual representing an advanced RFQ system for institutional digital asset derivatives. It depicts a central principal platform orchestrating algorithmic execution across diverse liquidity pools, facilitating precise market microstructure interactions for best execution and potential atomic settlement. The interconnectedness highlights optimized order flow.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-platform-institutional-digital-asset-derivatives-ecosystem.jpg)

MiFID II's transparency regime recasts fixed income best execution as a data-driven, auditable process, creating advantage through superior analytics.

- 
### [What Are the Primary Challenges in Integrating a Best Execution Policy into an Automated RFQ Workflow?](https://options.greeks.live/question/what-are-the-primary-challenges-in-integrating-a-best-execution-policy-into-an-automated-rfq-workflow/)
![A modular component, resembling an RFQ gateway, with multiple connection points, intersects a high-fidelity execution pathway. This pathway extends towards a deep, optimized liquidity pool, illustrating robust market microstructure for institutional digital asset derivatives trading and atomic settlement.](https://options.greeks.live/wp-content/uploads/2025/07/rfq-protocol-layer-connecting-institutional-digital-asset-liquidity-pools.jpg)

Integrating a best execution policy into an RFQ workflow is a systems challenge of encoding a principles-based duty into a transactional protocol.

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        "Transaction Cost Analysis"
    ]
}
```

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```json
{
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            "@type": "Question",
            "name": "How Does SI Liquidity Interact With The Broader Market?",
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                "text": "The interaction between SI liquidity and the wider market is a complex dynamic. While SIs can reduce the impact of a single large trade, the aggregate effect of SI growth is a topic of regulatory debate. A concern is that diverting significant order flow away from lit markets could reduce public price discovery and overall market transparency. For an asset manager, the strategic implication is the need to partner with brokers who can demonstrate a holistic approach to liquidity sourcing. A superior broker will use a Smart Order Router (SOR) that intelligently accesses SI liquidity as one of several available pools, balancing the benefits of impact mitigation with the need to interact with public markets for optimal price discovery across the entire order lifecycle."
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            }
        }
    ]
}
```


---

**Original URL:** https://options.greeks.live/question/how-does-si-growth-affect-an-asset-managers-broker-selection-criteria/
