# How Does the Tick Size Regime Affect the Competitiveness of Systematic Internalisers? ▴ Question

**Published:** 2025-08-01
**Categories:** Question

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## Concept

The architecture of modern financial markets is a system of interconnected, and often competing, execution venues. An investor’s order does not simply arrive at a single, monolithic “market”; it is routed through a complex logic system designed to seek optimal execution across a fragmented landscape. Within this ecosystem, the [Systematic Internaliser](https://prime.greeks.live/area/systematic-internaliser/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (SI) operates as a distinct and powerful node.

An SI is an investment firm that executes client orders on a bilateral basis, using its own capital. It functions as a private liquidity source, standing opposite its client’s trade, rather than as a neutral intermediary matching buyers and sellers.

The competitiveness of this model is fundamentally tied to the regulatory framework governing price increments, known as the [tick size regime](https://prime.greeks.live/area/tick-size-regime/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). Under the Markets in Financial Instruments Directive II (MiFID II), a harmonized tick size regime was established for trading venues to ensure orderly markets and prevent a “race to the bottom” where venues would compete by offering infinitesimally small price improvements, creating [order book](https://prime.greeks.live/area/order-book/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) noise and degrading the quality of price formation. Initially, SIs were not bound by these same tick size constraints. This exemption became the central pillar of their competitive strategy.

It allowed them to quote prices at increments smaller than those available on public exchanges, offering a marginal, yet often decisive, [price improvement](https://prime.greeks.live/area/price-improvement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to their clients. This capability to provide sub-tick pricing was a direct structural advantage, attracting significant [order flow](https://prime.greeks.live/area/order-flow/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) from sophisticated participants whose algorithms are programmed to seek out any available price enhancement.

The subsequent extension of the tick size regime to [Systematic Internalisers](https://prime.greeks.live/area/systematic-internalisers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) was a deliberate regulatory intervention designed to recalibrate the competitive dynamics between private and public liquidity venues. The core objective was to create a “[level playing field](https://prime.greeks.live/area/level-playing-field/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite),” ensuring that SIs and traditional exchanges competed on equivalent terms, at least concerning price increments for trades up to a certain size. This change strikes at the very heart of the SI value proposition, forcing a fundamental re-evaluation of their role and competitive posture within the market’s operating system. The central question becomes what an SI offers when its primary tool for attracting order flow ▴ superior pricing at the micro-level ▴ is neutralized.

> The extension of the tick size regime to Systematic Internalisers directly neutralizes their primary competitive tool of sub-tick price improvement, fundamentally altering the calculus for order routing decisions.

Understanding the impact requires seeing the market not as a single entity, but as a system of liquidity pools with different characteristics. [Lit markets](https://prime.greeks.live/area/lit-markets/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), like Nasdaq Stockholm or Euronext, offer pre-trade transparency through a central limit order book (CLOB), governed by price-time priority. SIs, conversely, offer bilateral, non-transparent pre-trade liquidity. The [tick size](https://prime.greeks.live/area/tick-size/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) regime acts as a pricing protocol that governs how these different pools can interact and compete.

When SIs could quote inside the public tick, they could effectively peel off uninformed or “impatient” order flow that valued marginal price improvement over the potential for size discovery on a lit book. Research on the [Swedish stock market](https://prime.greeks.live/question/how-do-single-stock-circuit-breakers-differ-from-market-wide-halts/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) after the regime was extended to SIs reveals that this regulatory change did not necessarily produce the intended outcome of improving the public market. Instead, it led to a deterioration in [market quality](https://prime.greeks.live/area/market-quality/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) on the lit exchange, with wider spreads and increased price impact. This suggests a more complex systemic interaction.

By removing the SI’s ability to filter certain types of flow through sub-tick pricing, those orders may have been rerouted to the [lit market](https://prime.greeks.live/area/lit-market/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), increasing the concentration of informed or aggressive trades and thus raising the risk for market makers, who in turn widened their spreads. The competitiveness of an SI is therefore a function of its ability to segment order flow, and the tick size regime is a primary regulator of that function.

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## Strategy

The strategic positioning of a Systematic Internaliser within the European equity market structure is a direct consequence of the regulatory environment. The tick size regime is a critical variable in this equation, and its evolution has forced a significant strategic pivot for SIs. Their operational strategy can be understood in two distinct phases ▴ pre- and post-extension of the harmonized tick size rules.

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## The Pre-Extension Strategy a Focus on Price Superiority

Before the tick size regime was applied to them, the competitive strategy of SIs was elegantly simple and highly effective. It was predicated on a single, powerful capability ▴ the provision of [sub-tick price improvement](https://prime.greeks.live/question/how-can-tick-size-reductions-affect-the-signal-to-noise-ratio-in-leakage-detection/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). This allowed them to operate as a superior execution venue for a specific, and valuable, segment of the market’s order flow.

- 
**Marginal Price Improvement** The core tactic was to quote prices at finer increments than those permitted on lit exchanges. For a stock with a tick size of €0.01 on a public venue, an SI could offer to buy at €10.005 when the best bid on the exchange was €10.00. For a Smart Order Router (SOR) managing a large institutional order, this fractional improvement, aggregated over millions of shares, represented a meaningful reduction in transaction costs. This strategy was particularly effective in attracting automated, price-sensitive flow.

- 
**Attracting Liquidity Consumers** The model was designed to appeal to “impatient” traders ▴ those who prioritize immediate execution over the potential for a better price by resting a passive order in the lit market’s queue. These participants are liquidity consumers. Research indicates that SIs became a preferred venue for this type of trader, who values the certainty of execution at a slightly improved price and wishes to avoid the complexities of order book queues and potential [information leakage](https://prime.greeks.live/area/information-leakage/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).

- 
**Free-Riding on Public Price Formation** A key element of this strategy involved leveraging the price discovery occurring on lit markets. SIs could use the best bid and offer on the public exchange as a reference point and simply quote a marginally better price without contributing to the underlying price formation process themselves. This allowed them to capture low-risk order flow while the broader market bore the cost and risk of price discovery.

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## How Does the Regulatory Shift Reshape SI Strategy?

The extension of the [MiFID II](https://prime.greeks.live/area/mifid-ii/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) tick size regime to SIs for trades up to [Large-in-Scale](https://prime.greeks.live/area/large-in-scale/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (LIS) effectively dismantled their primary competitive weapon. This regulatory change forced a strategic realignment, compelling SIs to compete on factors other than marginal price superiority. Their new strategy is one of adaptation, focusing on a different set of value propositions.

The table below outlines the strategic shift in the operational model of Systematic Internalisers following the regulatory change.

| Strategic Element | Pre-Regime SI Model | Post-Regime SI Model |
| --- | --- | --- |
| Primary Competitive Tool | Sub-tick price improvement. | Execution certainty, speed, and potential for size improvement. |
| Target Order Flow | Price-sensitive, automated flow; impatient liquidity consumers. | Clients prioritizing low market impact and execution quality for larger orders. |
| Value Proposition | Quantifiable cost savings through better pricing. | Qualitative benefits of bilateral trading; reduced information leakage. |
| Relationship to Lit Markets | Parasitic price referencing (“free-riding”). | Complementary liquidity source, especially for orders difficult to work on a CLOB. |
| Regulatory Posture | Leveraging a regulatory exemption for competitive advantage. | Operating within a leveled playing field, emphasizing non-price factors. |

> With their price advantage neutralized, Systematic Internalisers must now pivot their strategy to emphasize execution quality, discretion, and the structural benefits of bilateral trading.

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## The Post-Extension Strategy a Focus on Execution Quality

With the price advantage for smaller trades largely gone, SIs must now build their competitive strategy around other attributes. This represents a maturation of their business model, moving from a simple pricing game to a more sophisticated offering centered on the quality of execution.

- 
**Certainty of Execution** Unlike a lit market where an order may only be partially filled or may not be filled at all, an SI offers a firm quote. For a client, this provides certainty that their order will be executed in full at the quoted price, a valuable attribute when managing execution risk.

- 
**Reduced [Market Impact](https://prime.greeks.live/area/market-impact/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)** Executing large orders on a lit exchange can signal intent to the market, leading to adverse price movements. By transacting bilaterally with an SI, a client can execute a significant trade with minimal information leakage, thereby reducing their market impact costs. This is a critical service for institutional asset managers.

- 
**Handling Large-In-Scale (LIS) Orders** The tick size rules are often applied differently or not at all for trades designated as LIS. SIs can specialize in facilitating these large block trades, providing liquidity and price improvement that would be impossible to achieve on a lit order book. This positions them as a crucial venue for institutional-sized liquidity.

This strategic pivot changes the SI’s role in the market ecosystem. They function less as a simple price-beating machine and more as a specialized execution facility, offering a service that is complementary to, rather than purely competitive with, lit markets. Their competitiveness is now a function of their balance sheet, their risk management capabilities, and the sophistication of their client-facing technology.

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## Execution

The execution dynamics surrounding Systematic Internalisers are a direct function of the tick size protocol. Altering this protocol fundamentally rewires the decision-making logic of market participants and the technological systems they employ. Analyzing the execution process reveals the deep, mechanical impact of the regime change on market structure and competitiveness.

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## Operational Mechanics and Market Impact

The core of the SI execution process is the interaction between the client’s order, typically managed by a Smart Order Router (SOR), and the SI’s proprietary quoting engine. The tick size regime dictates the language of this interaction. Before the regime extension, an SI could offer a quote of €10.005 for a stock whose best bid on the lit market was €10.00 and whose tick size was €0.01. An SOR programmed for best execution would mechanically route the order to the SI to capture this price improvement.

Post-regime, the SI is obligated to quote at the same €10.00 increment. The SOR’s decision is no longer a simple price comparison. It must now weigh other factors ▴ the certainty of a full fill from the SI versus the potential for partial execution on the lit book, the risk of information leakage, and the speed of execution.

This shift has profound consequences for market quality metrics. Empirical analysis of the Swedish stock market following the June 2020 implementation of the SI tick size regime provides a clear data-driven narrative. The research found that market quality on the primary lit venue, Nasdaq Stockholm, deteriorated. This outcome points to a complex systemic rebalancing.

When SIs could no longer use sub-tick pricing to filter out certain order flows, those flows were rerouted. The data suggests that more informed or aggressive traders, who previously might have used SIs, began interacting directly with the lit order book. This increases the risk for passive liquidity providers (market makers), who must protect themselves from trading against participants with superior information. They do so by widening their bid-ask spreads. This dynamic is reflected in the quantitative data.

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## What Is the Quantifiable Impact on Market Quality?

The data from the post-implementation analysis on the Swedish market provides a granular view of the regime’s impact. The findings contradict the hypothesis that leveling the playing field would inherently improve the primary market. Instead, key indicators of execution cost and risk increased.

The following table summarizes the measured effects on market quality at Nasdaq Stockholm after the SI tick size regime was enforced.

| Market Quality Metric | Measured Change Post-Regime | Statistical Significance | Execution Implication |
| --- | --- | --- | --- |
| Quoted Spread | Increase of 0.791 bps | Significant at the 10% level | The baseline cost of a round-trip trade on the public market increased for all participants. |
| Effective Spread | Increase of 0.583 bps | Significant at the 10% level | The actual, realized cost of trading, even after accounting for any price improvement within the spread, went up. |
| Price Impact | Increase of 0.704 bps | Significant at the 5% level | This indicates a higher level of adverse selection. Trades on the lit market had a greater tendency to be followed by price movements in the same direction, signaling an increase in informed trading. |
| Market Share | Remained Unaffected | Not Significant | The regime did not cause a significant shift in trading volume from SIs to the lit market, suggesting SIs retained their flow for non-price reasons. |

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## Predictive Scenario Analysis a Tale of Two Trades

Consider an asset manager needing to buy 100,000 shares of a moderately liquid stock. The lit market quote is €25.05 / €25.06, with a €0.01 tick size. The depth at the best offer is 10,000 shares.

**Scenario 1 The Pre-Regime Execution** The asset manager’s EMS/SOR assesses the landscape. It sees the €25.06 offer on the lit book. Simultaneously, it queries its network of SIs. One SI responds with a firm quote to sell the full 100,000 shares at €25.058.

This price is inside the lit market’s tick. The SOR’s logic is clear ▴ it routes the entire order to the SI. The benefits are twofold ▴ a guaranteed execution for the full size, and a cost saving of €0.002 per share (€200 total) compared to the lit offer. The trade occurs with zero market impact, as no information is revealed on the public order book.

**Scenario 2 The Post-Regime Execution** The same order is entered. The lit market is still €25.05 / €25.06. The SOR queries the SIs. Because of the tick size regime, the best offer the SI can make is now €25.06, the same as the lit market.

The price advantage has vanished. The SOR’s decision matrix is now far more complex. It could send the order to the SI to guarantee the fill and minimize information leakage. Alternatively, it could start working the order on the lit market, perhaps placing a passive order at €25.05 or hitting the €25.06 offer for a small portion to test the market’s reaction.

The execution strategy becomes a trade-off between the certainty and discretion of the SI and the potential price discovery of the lit market. The SI’s competitiveness now hinges entirely on the client’s desire to avoid the risks of interacting with the public order book.

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## System Integration and Technological Architecture

The competition between SIs and lit markets is arbitrated by technology. The integration of SIs into the institutional trading workflow is managed through sophisticated OMS and EMS platforms. Communication relies on standardized protocols, primarily the Financial Information eXchange (FIX) protocol. Client orders are sent to SIs, and execution reports are returned, using FIX messages.

The key difference is the nature of the data stream. Lit markets provide a continuous public feed of pre-trade data (the order book). SIs provide private, bilateral pre-trade data (quotes) only in response to a specific inquiry. Both contribute to post-trade public data feeds for transparency purposes. For an SI to compete effectively in the post-regime world, its technology must be fast, reliable, and seamlessly integrated into the client’s execution systems, ensuring that its quotes for certainty and discretion are as accessible as the lit market’s quotes for price.

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## References

- Gresse, C. “Systematic internalizers and dark pools in the European Union ▴ A research survey.” _Journal of Financial Market Infrastructures_, vol. 6, no. 1, 2017, pp. 1-22.

- Larsson, A. & Ringdahl, E. “Does the tick size regime on systematic internalisers improve market quality? An Empirical Analysis on the Swedish Stock Market.” Master’s Thesis, Stockholm University, 2021.

- Euronext. “Extension of the Tick Size Regime to Systematic Internalisers (SIs).” Euronext Position Paper, 26 February 2019.

- Deutsche Bank. “MiFID II ▴ Systematic Internalisers ▴ Tick Sizes and Price Improvement ▴ Responses to ESMA Consultation.” Autobahn, 1 March 2018.

- European Securities and Markets Authority (ESMA). “MiFID II review report on the functioning of the tick size regime.” ESMA70-156-4753, 14 December 2020.

- Foucault, T. Kadan, O. & Kandel, E. “Liquidity cycles and the informational role of trading volume.” _The Journal of Finance_, vol. 68, no. 4, 2013, pp. 1557-1599.

- O’Hara, Maureen. _Market Microstructure Theory_. Blackwell Publishers, 1995.

- Busch, Danny, and Gábor Gulyás. “Systematic Internalisers under MiFID II ▴ A Race to the Top or to the Bottom?” _Capital Markets Law Journal_, vol. 15, no. 1, 2020, pp. 58-86.

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## Reflection

The application of the tick size regime to Systematic Internalisers was an act of architectural intervention, intended to rebalance the flow of liquidity between private and public channels. The resulting data, however, suggests that market quality is an emergent property of the entire system, not a simple variable that can be optimized by adjusting a single protocol. The evidence of wider spreads and increased [price impact](https://prime.greeks.live/area/price-impact/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) on lit venues post-reform compels a deeper consideration. It forces us to ask what “competitiveness” truly means within our own execution framework.

Is it the pursuit of the smallest possible price increment, or is it the strategic management of information and risk across a diverse set of venues, each with a distinct purpose? The neutralization of the SI’s pricing advantage does not render it obsolete; it clarifies its function as a tool for discretion and certainty. The ultimate question for any market participant is how to intelligently integrate these specialized tools into a cohesive execution strategy that recognizes the intricate, and often counterintuitive, behavior of the total market system.

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## 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">
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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/tick-size-regime/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A central dark nexus with intersecting data conduits and swirling translucent elements depicts a sophisticated RFQ protocol's intelligence layer. This visualizes dynamic market microstructure, precise price discovery, and high-fidelity execution for institutional digital asset derivatives, optimizing capital efficiency and mitigating counterparty risk](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-engine-visualizing-high-fidelity-execution-and-market-microstructure-dynamics.jpg)

## Tick Size Regime

Meaning ▴ A Tick Size Regime specifies the minimum allowable price increment for an asset's quotation and trading, directly influencing order book granularity and the fundamental mechanics of price discovery within a defined market segment. </a><a href="https://prime.greeks.live/area/order-book/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Intersecting opaque and luminous teal structures symbolize converging RFQ protocols for multi-leg spread execution. Surface droplets denote market microstructure granularity and slippage](https://options.greeks.live/wp-content/uploads/2025/07/rfq-protocols-for-digital-asset-derivatives-high-fidelity-execution.jpg)

## Order Book

Meaning ▴ An Order Book is a real-time electronic ledger detailing all outstanding buy and sell orders for a specific financial instrument, organized by price level and sorted by time priority within each level. </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">
![Abstract depiction of an advanced institutional trading system, featuring a prominent sensor for real-time price discovery and an intelligence layer. Visible circuitry signifies algorithmic trading capabilities, low-latency execution, and robust FIX protocol integration for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-prime-os-high-fidelity-rfq-protocols.jpg)

## 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/order-flow/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A metallic, modular trading interface with black and grey circular elements, signifying distinct market microstructure components and liquidity pools. A precise, blue-cored probe diagonally integrates, representing an advanced RFQ engine for granular price discovery and atomic settlement of multi-leg spread strategies in institutional digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-protocol-system-facilitating-high-fidelity-execution-price-discovery.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/systematic-internalisers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Smooth, glossy, multi-colored discs stack irregularly, topped by a dome. This embodies institutional digital asset derivatives market microstructure, with RFQ protocols facilitating aggregated inquiry for multi-leg spread execution](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-engine-for-prime-os-best-execution.jpg)

## 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/level-playing-field/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek, illuminated object, symbolizing an advanced RFQ protocol or Execution Management System, precisely intersects two broad surfaces representing liquidity pools within market microstructure. Its glowing line indicates high-fidelity execution and atomic settlement of digital asset derivatives, ensuring best execution and capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/principals-rfq-protocol-high-fidelity-execution-digital-asset-derivatives-market-microstructure-price-discovery-alpha-generation.jpg)

## Level Playing Field

Meaning ▴ A "Level Playing Field" signifies a market structure where all participants gain equitable access to information, identical execution capabilities, and equivalent transaction costs. </a><a href="https://prime.greeks.live/area/lit-markets/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Sleek, modular infrastructure for institutional digital asset derivatives trading. Its intersecting elements symbolize integrated RFQ protocols, facilitating high-fidelity execution and precise price discovery across complex multi-leg spreads](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-system-optimizing-high-fidelity-block-trade-liquidity-and-multi-leg-spread-precision.jpg)

## Lit Markets

Meaning ▴ Lit Markets are centralized exchanges or trading venues characterized by pre-trade transparency, where bids and offers are publicly displayed in an order book prior to execution. </a><a href="https://prime.greeks.live/area/tick-size/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Interlocking modular components symbolize a unified Prime RFQ for institutional digital asset derivatives. Different colored sections represent distinct liquidity pools and RFQ protocols, enabling multi-leg spread execution](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-prime-os-market-microstructure-rfq-protocols.jpg)

## Tick Size

Meaning ▴ Tick Size defines the minimum permissible price increment for a financial instrument on an exchange, establishing the smallest unit by which a security's price can change or an order can be placed. </a><a href="https://prime.greeks.live/question/how-do-single-stock-circuit-breakers-differ-from-market-wide-halts/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A transparent sphere on an inclined white plane represents a Digital Asset Derivative within an RFQ framework on a Prime RFQ. A teal liquidity pool and grey dark pool illustrate market microstructure for high-fidelity execution and price discovery, mitigating slippage and latency](https://options.greeks.live/wp-content/uploads/2025/07/principal-rfq-digital-asset-derivatives-execution-protocols-optimize-microstructure.jpg)

## Swedish Stock Market

Single-stock breakers manage localized volatility; market-wide halts address systemic, panic-driven risk. </a><a href="https://prime.greeks.live/area/market-quality/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![An abstract institutional-grade RFQ protocol market microstructure visualization. Distinct execution streams intersect on a capital efficiency pivot, symbolizing block trade price discovery within a Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-optimized-microstructure.jpg)

## Market Quality

Meaning ▴ Market Quality quantifies the operational efficacy and structural integrity of a trading venue, encompassing factors such as liquidity depth, bid-ask spread tightness, price discovery efficiency, and the resilience of execution against adverse selection. </a><a href="https://prime.greeks.live/area/lit-market/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A translucent teal layer overlays a textured, lighter gray curved surface, intersected by a dark, sleek diagonal bar. This visually represents the market microstructure for institutional digital asset derivatives, where RFQ protocols facilitate high-fidelity execution](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-derivatives-rfq-protocols-driving-optimal-execution.jpg)

## Lit Market

Meaning ▴ A lit market is a trading venue providing mandatory pre-trade transparency. </a><a href="https://prime.greeks.live/question/how-can-tick-size-reductions-affect-the-signal-to-noise-ratio-in-leakage-detection/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sophisticated proprietary system module featuring precision-engineered components, symbolizing an institutional-grade Prime RFQ for digital asset derivatives. Its intricate design represents market microstructure analysis, RFQ protocol integration, and high-fidelity execution capabilities, optimizing liquidity aggregation and price discovery for block trades within a multi-leg spread environment](https://options.greeks.live/wp-content/uploads/2025/07/institutional-grade-proprietary-architecture-driving-high-fidelity-digital-asset-derivatives-execution-via-rfq-protocols-and-optimized-market-microstructure-dynamics.jpg)

## Sub-Tick Price Improvement

A tick size reduction elevates the market's noise floor, compelling leakage detection systems to evolve from spotting anomalies to modeling systemic patterns. </a><a href="https://prime.greeks.live/area/information-leakage/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Sharp, transparent, teal structures and a golden line intersect a dark void. This symbolizes market microstructure for institutional digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-precision-execution-leveraging-granular-market-microstructure-intelligence.jpg)

## Information Leakage

Meaning ▴ Information leakage denotes the unintended or unauthorized disclosure of sensitive trading data, often concerning an institution's pending orders, strategic positions, or execution intentions, to external market participants. </a><a href="https://prime.greeks.live/area/large-in-scale/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract geometric planes delineate distinct institutional digital asset derivatives liquidity pools. Stark contrast signifies market microstructure shift via advanced RFQ protocols, ensuring high-fidelity execution](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-derivatives-execution-protocol-integrating-rfq-liquidity-and-advanced-market-microstructure.jpg)

## Large-In-Scale

Meaning ▴ Large-in-Scale designates an order quantity significantly exceeding typical displayed liquidity on lit exchanges, necessitating specialized execution protocols to mitigate market impact and price dislocation. </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 control panel, featuring concentric blue and white segments with two teal oval buttons. This embodies an institutional RFQ Protocol interface, facilitating High-Fidelity Execution for Private Quotation and Aggregated Inquiry](https://options.greeks.live/wp-content/uploads/2025/07/institutional-grade-rfq-protocol-interface-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/market-impact/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Dark, reflective planes intersect, outlined by a luminous bar with three apertures. This visualizes RFQ protocols for institutional liquidity aggregation and high-fidelity execution](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-dynamics.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/price-impact/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Polished opaque and translucent spheres intersect sharp metallic structures. This abstract composition represents advanced RFQ protocols for institutional digital asset derivatives, illustrating multi-leg spread execution, latent liquidity aggregation, and high-fidelity execution within principal-driven trading environments](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-derivatives-rfq-protocol-optimal-execution-orchestration.jpg)

## Price Impact

Meaning ▴ Price Impact refers to the measurable change in an asset's market price directly attributable to the execution of a trade order, particularly when the order size is significant relative to available market liquidity. </a>

**Tags:** [Systematic Internaliser](https://options.greeks.live/area/systematic-internaliser/), [Tick Size Regime](https://options.greeks.live/area/tick-size-regime/), [Adverse Selection](https://options.greeks.live/area/adverse-selection/), [Information Leakage](https://options.greeks.live/area/information-leakage/), [Tick Size](https://options.greeks.live/area/tick-size/), [Systematic Internalisers](https://options.greeks.live/area/systematic-internalisers/)	

## Discover More

- 
### [How Do Systematic Internalisers Fit into a Post-DVC Trading Landscape?](https://options.greeks.live/question/how-do-systematic-internalisers-fit-into-a-post-dvc-trading-landscape/)
![Intersecting concrete structures symbolize the robust Market Microstructure underpinning Institutional Grade Digital Asset Derivatives. Dynamic spheres represent Liquidity Pools and Implied Volatility. A sophisticated cylindrical Crypto Derivatives OS facilitates High-Fidelity Execution through RFQ protocols, enabling Block Trade and Multi-Leg Spread strategies, ensuring Capital Efficiency.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-framework-optimizing-rfq-execution-and-liquidity-for-principal-trading.jpg)

Systematic Internalisers provide essential, regulated bilateral liquidity in a post-DVC landscape, absorbing flow from capped dark pools.

- 
### [Could the Rise of Systematic Internalisers Lead to a Permanent Two-Tiered European Equity Market?](https://options.greeks.live/question/could-the-rise-of-systematic-internalisers-lead-to-a-permanent-two-tiered-european-equity-market/)
![Abstract spheres and a translucent flow visualize institutional digital asset derivatives market microstructure. It depicts robust RFQ protocol execution, high-fidelity data flow, and seamless liquidity aggregation. This imagery underscores capital efficiency and atomic settlement within a Prime RFQ framework.](https://options.greeks.live/wp-content/uploads/2025/07/precision-market-microstructure-for-institutional-digital-asset-derivatives-leveraging-rfq-protocols-and-atomic-settlement-across-prime-os.jpg)

The rise of Systematic Internalisers has cemented a permanent, two-tiered European equity market by design.

- 
### [How Does the SI Framework Impact Liquidity on Public Exchanges?](https://options.greeks.live/question/how-does-the-si-framework-impact-liquidity-on-public-exchanges/)
![A sophisticated system's core component, representing an Execution Management System, drives a precise, luminous RFQ protocol beam. This beam navigates between balanced spheres symbolizing counterparties and intricate market microstructure, facilitating institutional digital asset derivatives trading, optimizing price discovery, and ensuring high-fidelity execution within a prime brokerage framework.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-engine-10.jpg)

The SI framework bifurcates liquidity, offering reduced price impact at the potential cost of diminished public market depth.

- 
### [What Is the Systemic Impact on Lit Market Spreads When SIs Can No Longer Offer Sub-Tick Pricing?](https://options.greeks.live/question/what-is-the-systemic-impact-on-lit-market-spreads-when-sis-can-no-longer-offer-sub-tick-pricing/)
![A polished, two-toned surface, representing a Principal's proprietary liquidity pool for digital asset derivatives, underlies a teal, domed intelligence layer. This visualizes RFQ protocol dynamism, enabling high-fidelity execution and price discovery for Bitcoin options and Ethereum futures.](https://options.greeks.live/wp-content/uploads/2025/07/high-fidelity-digital-asset-derivatives-rfq-platform-intelligence-layer.jpg)

Eliminating SI sub-tick pricing recalibrates market architecture, shifting execution strategy from price to managing systemic risk.

- 
### [What Is the Quantitative Threshold at Which Dark Pool Trading Negatively Impacts Market Quality?](https://options.greeks.live/question/what-is-the-quantitative-threshold-at-which-dark-pool-trading-negatively-impacts-market-quality/)
![An intricate, transparent digital asset derivatives engine visualizes market microstructure and liquidity pool dynamics. Its precise components signify high-fidelity execution via FIX Protocol, facilitating RFQ protocols for block trade and multi-leg spread strategies within an institutional-grade Prime RFQ.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-digital-asset-derivatives-rfq-liquidity-ecosystem.jpg)

The threshold at which dark trading harms market quality is a dynamic 9-25% range, dictated by stock liquidity and trading protocol.

- 
### [How Did MiFID II’s Double Volume Caps Reshape European Liquidity Sourcing Strategies?](https://options.greeks.live/question/how-did-mifid-iis-double-volume-caps-reshape-european-liquidity-sourcing-strategies/)
![Abstract representation of a central RFQ hub facilitating high-fidelity execution of institutional digital asset derivatives. Two aggregated inquiries or block trades traverse the liquidity aggregation engine, signifying price discovery and atomic settlement within a prime brokerage framework.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-hub-core.jpg)

MiFID II's Double Volume Caps re-architected European trading by systematically diverting flow from dark pools to SIs and periodic auctions.

- 
### [How Does the SI Regime Impact Liquidity on Public Exchanges?](https://options.greeks.live/question/how-does-the-si-regime-impact-liquidity-on-public-exchanges/)
![A sleek, modular institutional grade system with glowing teal conduits represents advanced RFQ protocol pathways. This illustrates high-fidelity execution for digital asset derivatives, facilitating private quotation and efficient liquidity aggregation. The precise architecture suggests optimized market microstructure and atomic settlement for Bitcoin options and Ethereum futures.](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-ecosystem-powering-high-fidelity-rfq-execution-and-optimal-liquidity-discovery.jpg)

The SI regime re-architects market structure, diverting order flow to private channels and impacting public exchange liquidity.

- 
### [How Did the Systematic Internaliser Regime Change Equity Block Trading in Europe?](https://options.greeks.live/question/how-did-the-systematic-internaliser-regime-change-equity-block-trading-in-europe/)
![Abstract intersecting beams with glowing channels precisely balance dark spheres. This symbolizes institutional RFQ protocols for digital asset derivatives, enabling high-fidelity execution, optimal price discovery, and capital efficiency within complex market microstructure. It reflects a Principal's robust Prime RFQ, optimizing algorithmic trading strategies.](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-derivatives-rfq-best-execution-prime-os-infrastructure.jpg)

The Systematic Internaliser regime re-architected European block trading by formalizing principal liquidity channels, demanding a strategic shift toward data-driven, technologically intensive execution frameworks.

- 
### [How Has the DVC Influenced the Growth of Systematic Internalisers?](https://options.greeks.live/question/how-has-the-dvc-influenced-the-growth-of-systematic-internalisers/)
![A sophisticated metallic mechanism with a central pivoting component and parallel structural elements, indicative of a precision engineered RFQ engine. Polished surfaces and visible fasteners suggest robust algorithmic trading infrastructure for high-fidelity execution and latency optimization. Circular depressions imply aggregated inquiry points, facilitating price discovery for institutional digital asset derivatives within a Prime RFQ.](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineered-mechanism-for-institutional-digital-asset-derivatives-rfq-and-high-fidelity-execution.jpg)

The DVC mechanism catalyzed SI growth by constraining dark pool volumes, compelling a systemic shift of order flow to bilateral, off-exchange liquidity providers.

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            "acceptedAnswer": {
                "@type": "Answer",
                "text": "The extension of the MiFID II tick size regime to SIs for trades up to Large-in-Scale (LIS) effectively dismantled their primary competitive weapon. This regulatory change forced a strategic realignment, compelling SIs to compete on factors other than marginal price superiority. Their new strategy is one of adaptation, focusing on a different set of value propositions."
            }
        },
        {
            "@type": "Question",
            "name": "What Is The Quantifiable Impact On Market Quality?",
            "acceptedAnswer": {
                "@type": "Answer",
                "text": "The data from the post-implementation analysis on the Swedish market provides a granular view of the regime's impact. The findings contradict the hypothesis that leveling the playing field would inherently improve the primary market. Instead, key indicators of execution cost and risk increased."
            }
        }
    ]
}
```


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**Original URL:** https://options.greeks.live/question/how-does-the-tick-size-regime-affect-the-competitiveness-of-systematic-internalisers/
