# How Does the Use of a Systematic Internaliser Affect a Firm's Best Execution and Reporting Duties? ▴ Question

**Published:** 2025-08-07
**Categories:** Question

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## Concept

The decision to internalize order flow through a [Systematic Internaliser](https://prime.greeks.live/area/systematic-internaliser/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (SI) fundamentally re-calibrates a firm’s operational calculus regarding its duties of best execution and [transaction reporting](https://prime.greeks.live/area/transaction-reporting/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). An SI is an investment firm that, on an organized, frequent, systematic, and substantial basis, deals on its own account when executing client orders outside a regulated market (RM), multilateral trading facility (MTF), or organized trading facility (OTF). This structure, codified under the Markets in Financial Instruments Directive II (MiFID II), is not merely another venue choice; it represents a distinct counterparty relationship. The SI executes client orders against its own proprietary capital, creating a bilateral trading environment that operates parallel to traditional lit or anonymous central limit order books.

The core of the SI regime is designed to bring transparency and order to the vast over-the-counter (OTC) market space. By formalizing the role of major liquidity providers who internalize significant order flow, regulators sought to ensure that such activity does not undermine the price discovery process occurring on public exchanges. Consequently, SIs themselves have stringent obligations, most notably the requirement to provide firm, public quotes for liquid instruments up to a standard market size. This pre-trade transparency is a foundational pillar, ensuring that the prices offered by an SI are tethered to prevailing market conditions.

For a firm choosing to route an order to an SI, this dynamic creates a unique set of considerations. The firm is no longer interacting with a neutral market platform but is engaging directly with a sophisticated counterparty whose primary business is [principal trading](https://prime.greeks.live/area/principal-trading/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). This shift has profound implications for how a firm defines, achieves, and evidences its adherence to regulatory mandates.

![A sleek metallic device with a central translucent sphere and dual sharp probes. This symbolizes an institutional-grade intelligence layer, driving high-fidelity execution for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-platform-precision.jpg)

## The SI’s Dual Identity in Market Structure

A Systematic Internaliser occupies a unique position within the European market structure, acting as both a private liquidity source and a regulated entity with public transparency duties. Unlike an exchange, which facilitates trading between third parties, an SI is the direct counterparty to every trade. This principal-based model allows for potential benefits such as sourcing liquidity for large orders with minimal [market impact](https://prime.greeks.live/question/how-do-dark-pool-executions-complicate-the-calibration-of-market-impact-models-based-on-lit-market-data/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) or achieving [price improvement](https://prime.greeks.live/area/price-improvement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) relative to the public quotes on lit venues.

However, it also introduces a different risk profile. The [execution quality](https://prime.greeks.live/area/execution-quality/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is contingent on the SI’s individual pricing engine and risk management appetite, rather than the aggregated liquidity of a central order book.

Firms that meet the specific quantitative thresholds for a particular financial instrument, calculated based on the frequency and volume of their principal trading activity, are obligated to register as an SI for that instrument. This is not an elective status for high-volume dealers. The thresholds are designed to capture firms whose internalization activity is significant enough to have a potential impact on the broader market. Once classified, the SI must adhere to a set of rules governing its quoting behavior and post-trade reporting, ensuring a baseline of transparency that integrates its bilateral activity into the wider market view mandated by MiFIR.

> Engaging with a Systematic Internaliser transforms the execution process from participation in a public auction to a direct negotiation with a dedicated liquidity provider, fundamentally altering the mechanics of demonstrating best execution and allocating reporting responsibilities.

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## Foundational Pillars Best Execution and Reporting

The concept of [best execution](https://prime.greeks.live/area/best-execution/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), as defined by MiFID II, requires firms to take “all sufficient steps” to obtain the best possible result for their clients. This is a multi-faceted obligation, considering not just price, but also costs, speed, likelihood of execution and settlement, size, nature of the order, and any other relevant consideration. When a firm includes SIs in its [execution policy](https://prime.greeks.live/area/execution-policy/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), it must be able to demonstrate how trading in this bilateral environment aligns with this overarching duty.

This involves a more complex analysis than simply comparing the [execution price](https://prime.greeks.live/area/execution-price/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to the European Best Bid and Offer (EBBO). The firm must assess the quality of the liquidity offered by the SI, the potential for price improvement, and the risks of information leakage associated with signaling trading intent to a major dealing desk.

Simultaneously, [MiFID II](https://prime.greeks.live/area/mifid-ii/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) and the accompanying Markets in Financial Instruments Regulation (MiFIR) established a comprehensive transaction reporting regime to provide regulators with the data needed for market surveillance. Every transaction in a reportable financial instrument must be detailed to a competent authority. When a trade is executed with an SI, the reporting logic becomes more nuanced.

The responsibility for reporting the transaction can shift depending on the nature of the firm and the counterparty. This creates a critical operational challenge ▴ firms must have systems and processes in place to correctly identify the reporting party for each trade to avoid under-reporting or duplicative reporting, ensuring the integrity of the data provided to regulators.

![A sophisticated digital asset derivatives trading mechanism features a central processing hub with luminous blue accents, symbolizing an intelligence layer driving high fidelity execution. Transparent circular elements represent dynamic liquidity pools and a complex volatility surface, revealing market microstructure and atomic settlement via an advanced RFQ protocol](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-high-fidelity-execution-framework-optimizing-market-microstructure-price-discovery-intelligence-layer.jpg)

![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)

## Strategy

Integrating [Systematic Internalisers](https://prime.greeks.live/area/systematic-internalisers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) into a firm’s execution and reporting strategy requires a deliberate architectural design. It is a strategic decision to leverage a different form of liquidity, one that necessitates a recalibration of both execution policies and compliance workflows. The primary strategic benefit of an SI is access to a deep, private pool of liquidity, which can be particularly valuable for orders that might otherwise cause significant market impact on a lit exchange. A firm’s [Smart Order Router](https://prime.greeks.live/area/smart-order-router/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (SOR) must be sophisticated enough to treat an SI not as a simple passive venue, but as an interactive counterparty, querying it for quotes and intelligently weighing the response against the state of public order books.

![Sleek, speckled metallic fin extends from a layered base towards a light teal sphere. This depicts Prime RFQ facilitating digital asset derivatives trading](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-digital-asset-derivatives-rfq-high-fidelity-execution-intelligence.jpg)

## Crafting a Best Execution Policy with SIs

A firm’s best execution policy is the foundational document that governs its approach to order handling. When SIs are included as a class of execution venue, the policy must articulate the specific circumstances under which they will be used and how their performance will be measured. The strategy moves beyond a simple price comparison to a holistic assessment of execution quality.

The relative importance of the best execution factors must be carefully weighed.

- **Price and Costs** ▴ For many orders, the primary consideration is achieving a better price than the prevailing EBBO. SIs often provide price improvement, executing a trade at a price inside the public bid-ask spread. The strategic consideration is how to systematically capture and quantify this improvement. Costs are typically embedded in the spread, which can be an advantage over the explicit fees charged by exchanges.

– **Likelihood of Execution** ▴ For large or illiquid orders, the certainty of execution is paramount. An SI can provide a firm quote for the full size of an order, eliminating the risk of partial fills or the need to “work” an order on a lit market over time, which can leak information. – **Speed and Market Impact** ▴ Executing a large block trade instantly with an SI minimizes the risk of adverse price movements while the order is being filled.

This immediacy is a key strategic advantage, reducing the “slippage” that can occur between the decision to trade and the final execution price. 

The firm’s strategy must also account for the potential conflicts of interest inherent in the SI model. The SI is trading for its own account, and its objectives are not always perfectly aligned with the client’s. Therefore, the execution policy must mandate a rigorous and objective post-trade analysis framework, such as [Transaction Cost Analysis](https://prime.greeks.live/area/transaction-cost-analysis/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (TCA), to continuously verify that the SI is providing high-quality outcomes.

![A sophisticated teal and black device with gold accents symbolizes a Principal's operational framework for institutional digital asset derivatives. It represents a high-fidelity execution engine, integrating RFQ protocols for atomic settlement](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-protocol-core-engine-for-best-execution.jpg)

## Comparative Venue Analysis

A sophisticated execution strategy involves a dynamic assessment of which venue type is most appropriate for a given order. The table below provides a strategic comparison.

| Execution Factor | Regulated Market (RM) / MTF | Systematic Internaliser (SI) | Strategic Implication |
| --- | --- | --- | --- |
| Price Discovery | High. Central limit order book provides transparent, multilateral price formation. | Low. Prices are based on the SI’s proprietary models, though benchmarked against the market. | Firms use RMs/MTFs for price discovery but may use SIs for price improvement on discovered levels. |
| Market Impact | High for large orders. The order is visible and consumes available liquidity. | Low to negligible. The trade is bilateral and not displayed pre-trade, absorbing the impact. | SIs are strategically preferred for block trades or trades in less liquid instruments to minimize signaling risk. |
| Execution Certainty | Dependent on available liquidity at multiple price levels. Partial fills are possible. | High. The SI provides a firm quote for a specific size, guaranteeing execution at that price. | For orders where certainty of execution is the primary goal, an SI provides a more reliable outcome. |
| Explicit Costs | Transparent fees (exchange fees, clearing fees). | No explicit fees; costs are embedded within the bid-ask spread. | The “all-in” price from an SI can be simpler to analyze, but requires careful comparison to the total cost on a lit venue. |

![A sophisticated metallic apparatus with a prominent circular base and extending precision probes. This represents a high-fidelity execution engine for institutional digital asset derivatives, facilitating RFQ protocol automation, liquidity aggregation, and atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/precision-engine-for-institutional-digital-asset-derivatives-rfq-protocol.jpg)

## Architecting the Reporting Workflow

The strategy for transaction reporting in an SI context is one of precise logic and clear allocation of responsibility. MiFIR rules establish a hierarchy to determine which counterparty has the obligation to report a transaction to a competent authority via an [Approved Publication Arrangement](https://prime.greeks.live/area/approved-publication-arrangement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (APA). A firm’s reporting system cannot be monolithic; it must be able to analyze the counterparties to each trade and apply the correct logic.

The general principle is that the SI, as the more sophisticated and market-facing entity, often bears the reporting responsibility. When an [investment firm](https://prime.greeks.live/area/investment-firm/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) that is not an SI trades with an SI, the SI is responsible for the post-trade transparency report. This simplifies the operational burden on the investment firm. However, this is not a universal rule.

For instance, if both counterparties are SIs, the selling party reports the transaction. A firm’s reporting strategy must therefore involve:

- **Counterparty Classification** ▴ Maintaining an accurate and up-to-date internal database of the SI status of all trading counterparties for each relevant asset class. This is a significant data management challenge.

- **Logical Rule Engine** ▴ Implementing a reporting engine that can automatically apply the MiFIR reporting hierarchy to each trade based on the classification of both parties to the transaction.

- **Reconciliation and Oversight** ▴ Establishing a process to reconcile its own trading records with the reports published by its SI counterparties. This is critical for ensuring that all trades are reported correctly and for identifying any discrepancies that could lead to regulatory scrutiny.

> A robust strategy treats the SI as a specialized tool, leveraging its unique liquidity characteristics for specific order types while implementing a rigorous, data-driven framework to validate execution quality and ensure flawless reporting.

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## Execution

The operational execution of trading with and reporting for Systematic Internalisers demands a high degree of precision and systemic integrity. It is in the granular details of post-trade analysis and the automated logic of reporting systems that a firm truly meets its regulatory obligations. This requires robust technological infrastructure, clear procedural guidelines, and a quantitative approach to performance measurement.

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## Quantitative Validation of Best Execution

Demonstrating best execution for trades conducted with an SI is an evidence-based process. A firm must be able to prove to clients and regulators that its choice to use an SI resulted in a favorable outcome consistent with its execution policy. This is achieved through rigorous, quantitative Transaction Cost Analysis (TCA). The core of this analysis involves comparing the execution details against relevant market benchmarks at the moment of the trade.

The following procedural steps outline the execution analysis for an SI trade:

- **Data Capture** ▴ At the time of order routing, the system must capture a snapshot of the prevailing market conditions, including the European Best Bid and Offer (EBBO), the depth of the order book on primary exchanges, and the time the quote was requested from the SI.

- **Execution Record** ▴ The execution record from the SI must be captured, including the exact execution price, timestamp, and any associated fees (which are typically zero, as costs are in the spread).

- **Benchmark Comparison** ▴ The execution price is compared against the captured benchmarks. The most critical metric is “Price Improvement,” which quantifies how much better the execution price was compared to the EBBO. For a buy order, this would be (EBBO Ask – Execution Price), and for a sell order, (Execution Price – EBBO Bid).

- **Performance Reporting** ▴ The results are compiled into regular execution quality reports (historically known as [RTS 27](https://prime.greeks.live/area/rts-27/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) reports for venues and [RTS 28](https://prime.greeks.live/area/rts-28/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) for firms summarizing their top venues). These reports provide quantitative evidence of the quality of execution achieved.

![A precision mechanism with a central circular core and a linear element extending to a sharp tip, encased in translucent material. This symbolizes an institutional RFQ protocol's market microstructure, enabling high-fidelity execution and price discovery for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineered-institutional-digital-asset-derivatives-rfq-execution-engine-microstructure-facilitating-optimal-price-discovery-and-best-execution.jpg)

## Execution Quality Analysis Example

The following table illustrates a sample TCA report for a series of trades, demonstrating how execution quality is measured for an SI venue. This data is what a firm would use internally to validate its choice of SI and externally to report on execution quality.

| Trade ID | Instrument | Direction | Quantity | Timestamp (UTC) | EBBO at Execution | Execution Price | Price Improvement (bps) | Venue |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| T-1A2B3C | VOD.L | Buy | 100,000 | 2025-08-07 10:38:15.123 | 101.50 / 101.52 | 101.51 | 1.00 | SI-XYZ |
| T-4D5E6F | AZN.L | Sell | 50,000 | 2025-08-07 10:39:02.456 | 8450.00 / 8452.00 | 8450.50 | 0.50 | SI-XYZ |
| T-7G8H9I | BARC.L | Buy | 250,000 | 2025-08-07 10:41:31.789 | 142.20 / 142.24 | 142.21 | 1.50 | SI-ABC |
| T-1J2K3L | VOD.L | Sell | 150,000 | 2025-08-07 10:42:15.321 | 101.48 / 101.50 | 101.495 | 1.50 | SI-XYZ |

![An exposed institutional digital asset derivatives engine reveals its market microstructure. The polished disc represents a liquidity pool for price discovery](https://options.greeks.live/wp-content/uploads/2025/07/high-fidelity-digital-asset-derivatives-rfq-execution-system.jpg)

## The Operational Mechanics of Transaction Reporting

The execution of transaction reporting duties requires a system capable of discerning the correct reporting party for every trade. The MiFIR framework establishes a clear, yet complex, hierarchy. The firm’s operational setup must automate this logic to ensure compliance.

The core principle revolves around which counterparty is in a better position to submit the report. When an investment firm trades with an SI, the SI almost always assumes the reporting obligation. The firm’s role shifts from active reporting to one of oversight and reconciliation.

- **Automated Identification** ▴ The firm’s trade capture system must identify the Legal Entity Identifier (LEI) of the counterparty and check it against a regularly updated list of registered SIs.

- **Suppression Logic** ▴ If the counterparty is identified as an SI for the traded instrument, the firm’s own transaction reporting workflow for that trade must be suppressed to prevent duplicate reporting.

- **Data Provision** ▴ While the SI reports the trade, the firm is still obligated to provide the SI with all necessary information to complete the report accurately, such as the LEI of the end client.

- **Reconciliation** ▴ The firm should have a process to ingest the transaction reports published by the APA on behalf of the SI and reconcile them against its own internal trade blotter. This ensures that what the SI reported accurately reflects the executed trade.

> Successful execution hinges on transforming regulatory requirements into automated, data-centric workflows, where best execution is quantitatively proven and reporting responsibilities are logically assigned without error.

![A sleek blue and white mechanism with a focused lens symbolizes Pre-Trade Analytics for Digital Asset Derivatives. A glowing turquoise sphere represents a Block Trade within a Liquidity Pool, demonstrating High-Fidelity Execution via RFQ protocol for Price Discovery in Dark Pool Market Microstructure](https://options.greeks.live/wp-content/uploads/2025/07/advanced-institutional-digital-asset-derivatives-rfq-execution-system-for-optimal-price-discovery-and-high-fidelity-execution.jpg)

## References

- European Securities and Markets Authority. “MiFID II and MiFIR ▴ ESMA on Market Structure and Trade Reporting.” Grand Blog, 21 Oct. 2024.

- VP Bank. “Mifid II ▴ Information and Principles.” 2018.

- Deutsche Börse AG. “Reply form for the Consultation Paper on MiFID II / MiFIR.” 19 Dec. 2014.

- European Commission. “Q&As published by the Commission on MiFID Directive 2004/39/EC.” 22 Feb. 2007.

- Schoenherr. “EU Level Covid-19 support measures in banking and capital markets.” 13 Jul. 2020.

- Standard Chartered Bank. “BestEx Reports.” 2023.

- International Capital Market Association. “MiFID II/MiFIR ▴ Transparency & Best Execution requirements in respect of bonds Q1 2016.” 2016.

- Association for Financial Markets in Europe. “Guide for drafting/review of Execution Policy under MiFID II.” 2017.

- SMBC Group. “MiFID II – Best Execution Report (RTS 28).” 2 Apr. 2023.

- Financial Conduct Authority. “MAR 6.3A Quality of execution.” FCA Handbook, 3 Jan. 2018.

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## Reflection

![Clear sphere, precise metallic probe, reflective platform, blue internal light. This symbolizes RFQ protocol for high-fidelity execution of digital asset derivatives, optimizing price discovery within market microstructure, leveraging dark liquidity for atomic settlement and capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-precision-execution-1.jpg)

## Calibrating the Operational Framework

The integration of Systematic Internalisers into a firm’s operational fabric is a test of its systemic maturity. The knowledge gained regarding best execution and reporting duties is the foundational layer. The critical step is to turn this understanding into an adaptive, resilient, and verifiable operational reality. This prompts an internal audit of a firm’s capabilities.

How is your execution policy calibrated to not just permit, but to optimize the use of SI liquidity? Does your TCA framework possess the granularity to distinguish true price improvement from baseline market movement? Is your reporting logic hard-coded, or is it a dynamic engine capable of adapting to the evolving registration status of your counterparties?

Viewing these challenges through a systems-architecture lens reveals their interconnectedness. A deficiency in counterparty data management directly impairs the accuracy of the reporting engine. A superficial TCA model undermines the strategic choices made by the execution policy.

The ultimate objective is to construct a coherent system where execution strategy, quantitative analysis, and reporting workflow function as integrated components of a single, efficient machine. This operational synthesis is the platform from which a true competitive and regulatory edge is built.

![A sophisticated, illuminated device representing an Institutional Grade Prime RFQ for Digital Asset Derivatives. Its glowing interface indicates active RFQ protocol execution, displaying high-fidelity execution status and price discovery for block trades](https://options.greeks.live/wp-content/uploads/2025/07/principal-rfq-engine-for-digital-asset-derivatives-best-execution-1.jpg)

## Glossary

<a href="https://prime.greeks.live/area/systematic-internaliser/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A high-fidelity institutional digital asset derivatives execution platform. A central conical hub signifies precise price discovery and aggregated inquiry for RFQ protocols](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-protocol-high-fidelity-digital-asset-derivatives-execution-1.jpg)

## Systematic Internaliser

Meaning ▴ A Systematic Internaliser (SI) is a financial institution executing client orders against its own capital on an organized, frequent, systematic basis off-exchange. </a><a href="https://prime.greeks.live/area/transaction-reporting/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek metallic teal execution engine, representing a Crypto Derivatives OS, interfaces with a luminous pre-trade analytics display. This abstract view depicts institutional RFQ protocols enabling high-fidelity execution for multi-leg spreads, optimizing market microstructure and atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/advanced-institutional-digital-asset-derivatives-rfq-protocol-engine-for-high-fidelity-execution-and-market-microstructure-analysis.jpg)

## Transaction Reporting

Meaning ▴ Transaction Reporting defines the formal process of submitting granular trade data, encompassing execution specifics and counterparty information, to designated regulatory authorities or internal oversight frameworks. </a><a href="https://prime.greeks.live/area/principal-trading/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precise mechanical instrument with intersecting transparent and opaque hands, representing the intricate market microstructure of institutional digital asset derivatives. This visual metaphor highlights dynamic price discovery and bid-ask spread dynamics within RFQ protocols, emphasizing high-fidelity execution and latent liquidity through a robust Prime RFQ for atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineering-driving-institutional-digital-asset-derivatives-execution-across-advanced-rfq-protocols-and-prime-brokerage-frameworks.jpg)

## Principal Trading

Meaning ▴ Principal Trading defines the operational paradigm where a financial entity engages in market transactions utilizing its own capital and balance sheet, rather than executing orders on behalf of clients. </a><a href="https://prime.greeks.live/area/price-improvement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek, spherical white and blue module featuring a central black aperture and teal lens, representing the core Intelligence Layer for Institutional Trading in Digital Asset Derivatives. It visualizes High-Fidelity Execution within an RFQ protocol, enabling precise Price Discovery and optimizing the Principal's Operational Framework for Crypto Derivatives OS](https://options.greeks.live/wp-content/uploads/2025/07/precision-lens-for-institutional-digital-asset-derivatives-rfq-execution.jpg)

## Price Improvement

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

## Market Impact

Dark pool executions complicate impact model calibration by introducing a censored data problem, skewing lit market data and obscuring true liquidity. </a><a href="https://prime.greeks.live/area/execution-quality/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Precision system for institutional digital asset derivatives. Translucent elements denote multi-leg spread structures and RFQ protocols](https://options.greeks.live/wp-content/uploads/2025/07/precision-execution-infrastructure-for-institutional-digital-asset-derivatives-request-for-quote-protocol-optimization.jpg)

## 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/execution-policy/?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)

## Execution Policy

Meaning ▴ An Execution Policy defines a structured set of rules and computational logic governing the handling and execution of financial orders within a trading system. </a><a href="https://prime.greeks.live/area/best-execution/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A transparent glass bar, representing high-fidelity execution and precise RFQ protocols, extends over a white sphere symbolizing a deep liquidity pool for institutional digital asset derivatives. A small glass bead signifies atomic settlement within the granular market microstructure, supported by robust Prime RFQ infrastructure ensuring optimal price discovery and minimal slippage](https://options.greeks.live/wp-content/uploads/2025/07/institutional-grade-digital-asset-derivatives-rfq-execution-prime-os-intelligence-layer-facilitating-optimal-price-discovery-and-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/execution-price/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A beige, triangular device with a dark, reflective display and dual front apertures. This specialized hardware facilitates institutional RFQ protocols for digital asset derivatives, enabling high-fidelity execution, market microstructure analysis, optimal price discovery, capital efficiency, block trades, and portfolio margin](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-terminal-for-high-fidelity-execution-and-precise-market-microstructure-analysis.jpg)

## Execution Price

Meaning ▴ The Execution Price represents the definitive, realized price at which a specific order or trade leg is completed within a financial market system. </a><a href="https://prime.greeks.live/area/mifid-ii/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A dark blue, precision-engineered blade-like instrument, representing a digital asset derivative or multi-leg spread, rests on a light foundational block, symbolizing a private quotation or block trade. This structure intersects robust teal market infrastructure rails, indicating RFQ protocol execution within a Prime RFQ for high-fidelity execution and liquidity aggregation in institutional trading](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-framework-multi-leg-spreads-best-execution-capital-efficiency.jpg)

## Mifid Ii

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/systematic-internalisers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A central luminous, teal-ringed aperture anchors this abstract, symmetrical composition, symbolizing an Institutional Grade Prime RFQ Intelligence Layer for Digital Asset Derivatives. Overlapping transparent planes signify intricate Market Microstructure and Liquidity Aggregation, facilitating High-Fidelity Execution via Automated RFQ protocols for optimal Price Discovery](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-prime-os-intelligence-layer.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/smart-order-router/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sophisticated mechanism features a segmented disc, indicating dynamic market microstructure and liquidity pool partitioning. This system visually represents an RFQ protocol's price discovery process, crucial for high-fidelity execution of institutional digital asset derivatives and managing counterparty risk within a Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/advanced-digital-asset-derivatives-rfq-liquidity-aggregation-system.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/transaction-cost-analysis/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Two distinct ovular components, beige and teal, slightly separated, reveal intricate internal gears. This visualizes an Institutional Digital Asset Derivatives engine, emphasizing automated RFQ execution, complex market microstructure, and high-fidelity execution within a Principal's Prime RFQ for optimal price discovery and block trade capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-automated-rfq-execution-microstructure-revealing-principal-prime-os-intelligence-layer-for-high-fidelity-execution-and-capital-efficiency.jpg)

## Transaction Cost Analysis

Meaning ▴ Transaction Cost Analysis (TCA) is the quantitative methodology for assessing the explicit and implicit costs incurred during the execution of financial trades. </a><a href="https://prime.greeks.live/area/approved-publication-arrangement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Institutional-grade infrastructure supports a translucent circular interface, displaying real-time market microstructure for digital asset derivatives price discovery. Geometric forms symbolize precise RFQ protocol execution, enabling high-fidelity multi-leg spread trading, optimizing capital efficiency and mitigating systemic risk](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-request-for-quote-protocol-high-fidelity-execution-market-microstructure-intelligence-layer.jpg)

## Approved Publication Arrangement

Meaning ▴ An Approved Publication Arrangement (APA) is a regulated entity authorized to publicly disseminate post-trade transparency data for financial instruments, as mandated by regulations such as MiFID II and MiFIR. </a><a href="https://prime.greeks.live/area/investment-firm/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Central polished disc, with contrasting segments, represents Institutional Digital Asset Derivatives Prime RFQ core. A textured rod signifies RFQ Protocol High-Fidelity Execution and Low Latency Market Microstructure data flow to the Quantitative Analysis Engine for Price Discovery](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-core-system-high-fidelity.jpg)

## Investment Firm

Meaning ▴ An Investment Firm constitutes a regulated financial entity primarily engaged in the management, trading, and intermediation of financial instruments on behalf of institutional clients or for its own proprietary account. </a><a href="https://prime.greeks.live/area/rts-27/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Translucent, overlapping geometric shapes symbolize dynamic liquidity aggregation within an institutional grade RFQ protocol. Central elements represent the execution management system's focal point for precise price discovery and atomic settlement of multi-leg spread digital asset derivatives, revealing complex market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-driving-optimal-liquidity-aggregation-for-precise-price-discovery-and-atomic-settlement.jpg)

## Rts 27

Meaning ▴ RTS 27 mandates that investment firms and market operators publish detailed data on the quality of execution of transactions on their venues. </a><a href="https://prime.greeks.live/area/rts-28/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sharp metallic element pierces a central teal ring, symbolizing high-fidelity execution via an RFQ protocol gateway for institutional digital asset derivatives. This depicts precise price discovery and smart order routing within market microstructure, optimizing dark liquidity for block trades and capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-protocol-optimizing-liquidity-discovery-and-smart-order-routing.jpg)

## Rts 28

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

**Tags:** [Transaction Cost Analysis](https://options.greeks.live/area/transaction-cost-analysis/), [MiFID II](https://options.greeks.live/area/mifid-ii/), [Transaction Reporting](https://options.greeks.live/area/transaction-reporting/), [Execution Quality](https://options.greeks.live/area/execution-quality/), [Approved Publication Arrangement](https://options.greeks.live/area/approved-publication-arrangement/), [Best Execution](https://options.greeks.live/area/best-execution/)	

## Discover More

- 
### [How Do Regulatory Frameworks Influence Quote Adherence Requirements?](https://options.greeks.live/question/how-do-regulatory-frameworks-influence-quote-adherence-requirements/)
![A precise mechanical instrument with intersecting transparent and opaque hands, representing the intricate market microstructure of institutional digital asset derivatives. This visual metaphor highlights dynamic price discovery and bid-ask spread dynamics within RFQ protocols, emphasizing high-fidelity execution and latent liquidity through a robust Prime RFQ for atomic settlement.](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineering-driving-institutional-digital-asset-derivatives-execution-across-advanced-rfq-protocols-and-prime-brokerage-frameworks.jpg)

Regulatory frameworks codify market integrity, mandating data-driven proof of quote adherence to ensure fair and transparent execution.

- 
### [How Does the Rise of Systematic Internalisers Change the Strategic Considerations for Best Execution in Europe?](https://options.greeks.live/question/how-does-the-rise-of-systematic-internalisers-change-the-strategic-considerations-for-best-execution-in-europe/)
![A central Prime RFQ core powers institutional digital asset derivatives. Translucent conduits signify high-fidelity execution and smart order routing for RFQ block trades. Peripheral modules symbolize aggregated liquidity pools, enabling precise price discovery, mitigating counterparty risk, and optimizing portfolio margin.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-liquidity-aggregation-engine.jpg)

The rise of Systematic Internalisers reframes European best execution from a public market quest to a sophisticated process of sourcing private, principal liquidity with demonstrable price improvement.

- 
### [How Do Regulatory Frameworks like MiFID II Influence Algorithmic Choices and Venue Selection?](https://options.greeks.live/question/how-do-regulatory-frameworks-like-mifid-ii-influence-algorithmic-choices-and-venue-selection/)
![A luminous, multi-faceted geometric structure, resembling interlocking star-like elements, glows from a circular base. This represents a Prime RFQ for Institutional Digital Asset Derivatives, symbolizing high-fidelity execution of block trades via RFQ protocols, optimizing market microstructure for price discovery and capital efficiency.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-system.jpg)

MiFID II re-architects market structure, forcing algorithms and venue choices to prioritize provable best execution and transparency.

- 
### [What Are the Key Differences between US and EU Best Execution Regimes?](https://options.greeks.live/question/what-are-the-key-differences-between-us-and-eu-best-execution-regimes/)
![Precision-engineered multi-vane system with opaque, reflective, and translucent teal blades. This visualizes Institutional Grade Digital Asset Derivatives Market Microstructure, driving High-Fidelity Execution via RFQ protocols, optimizing Liquidity Pool aggregation, and Multi-Leg Spread management on a Prime RFQ.](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineered-multi-vane-system-illustrating-institutional-digital-asset-derivatives-rfq-protocols-market-microstructure-optimized-liquidity-aggregation-prime-os-high-fidelity-execution.jpg)

US best execution is a principles-based duty of diligence; the EU regime is a prescriptive mandate for data transparency.

- 
### [How Should a Buy-Side Firm’s Best Execution Policy Document the Use of Systematic Internalisers?](https://options.greeks.live/question/how-should-a-buy-side-firms-best-execution-policy-document-the-use-of-systematic-internalisers/)
![A teal and white sphere precariously balanced on a light grey bar, itself resting on an angular base, depicts market microstructure at a critical price discovery point. This visualizes high-fidelity execution of digital asset derivatives via RFQ protocols, emphasizing capital efficiency and risk aggregation within a Principal trading desk's operational framework.](https://options.greeks.live/wp-content/uploads/2025/07/precision-institutional-digital-asset-derivatives-rfq-execution-strategy.jpg)

A firm's policy must architect a data-driven system proving SI use delivers superior, auditable execution outcomes.

- 
### [What Are the Key Challenges in Implementing a MiFID II Compliant SOR System?](https://options.greeks.live/question/what-are-the-key-challenges-in-implementing-a-mifid-ii-compliant-sor-system/)
![A sophisticated mechanism depicting the high-fidelity execution of institutional digital asset derivatives. It visualizes RFQ protocol efficiency, real-time liquidity aggregation, and atomic settlement within a prime brokerage framework, optimizing market microstructure for multi-leg spreads.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-rfq-protocol-execution-liquidity-aggregation-system.jpg)

A MiFID II SOR is a complex system requiring a fusion of low-latency tech, vast data analysis, and rigorous governance to prove best execution.

- 
### [How Does MiFID II Influence the Choice between RFQ and SI Venues?](https://options.greeks.live/question/how-does-mifid-ii-influence-the-choice-between-rfq-and-si-venues/)
![Abstract structure combines opaque curved components with translucent blue blades, a Prime RFQ for institutional digital asset derivatives. It represents market microstructure optimization, high-fidelity execution of multi-leg spreads via RFQ protocols, ensuring best execution and capital efficiency across liquidity pools.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-optimizing-market-microstructure-for-high-fidelity-execution-best-execution-price-discovery-across-liquidity-pools-and-prime-os.jpg)

MiFID II mandates a data-driven choice between SI immediacy and RFQ price discovery to prove best execution.

- 
### [How Does MiFID II Differ from Regulation NMS on Best Execution?](https://options.greeks.live/question/how-does-mifid-ii-differ-from-regulation-nms-on-best-execution/)
![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 mandates a comprehensive, multi-asset process for best execution, while Reg NMS focuses on price protection for U.S. equities.

- 
### [How Does MiFID II Define Best Execution for Smart Order Routers?](https://options.greeks.live/question/how-does-mifid-ii-define-best-execution-for-smart-order-routers/)
![A sleek, metallic, X-shaped object with a central circular core floats above mountains at dusk. It signifies an institutional-grade Prime RFQ for digital asset derivatives, enabling high-fidelity execution via RFQ protocols, optimizing price discovery and capital efficiency across dark pools for best execution.](https://options.greeks.live/wp-content/uploads/2025/07/advanced-principal-rfq-protocol-architecture-for-institutional-digital-asset-derivatives-optimal-price-discovery-and-execution.jpg)

MiFID II requires SORs to systematically process multiple execution factors to demonstrably achieve the best possible client result.

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        "query-input": "required name=search_term_string"
    }
}
```


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**Original URL:** https://options.greeks.live/question/how-does-the-use-of-a-systematic-internaliser-affect-a-firms-best-execution-and-reporting-duties/
