# In What Circumstances Can a Firm Justify Using Internal Data over Third-Party Quotes in a Close-Out? ▴ Question

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

---

![A sleek conduit, embodying an RFQ protocol and smart order routing, connects two distinct, semi-spherical liquidity pools. Its transparent core signifies an intelligence layer for algorithmic trading and high-fidelity execution of digital asset derivatives, ensuring atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-execution-engine-bridging-diverse-liquidity-pools-via-high-fidelity-rfq-protocol-orchestration.jpg)

![Sleek, modular system component in beige and dark blue, featuring precise ports and a vibrant teal indicator. This embodies Prime RFQ architecture enabling high-fidelity execution of digital asset derivatives through bilateral RFQ protocols, ensuring low-latency interconnects, private quotation, institutional-grade liquidity, and atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-system-interface-for-digital-asset-derivatives-execution.jpg)

## Concept

The decision to utilize [proprietary data](https://prime.greeks.live/area/proprietary-data/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) models over external quotations in a portfolio close-out is a function of analytical sovereignty. It represents a firm’s calculated assertion that its internal, dynamic understanding of an asset’s value, particularly under stressed or idiosyncratic conditions, provides a more accurate representation of executable reality than a polled, external consensus. This choice is predicated on the foundational belief that deep, proprietary data, curated over countless cycles of risk-taking and market-making, offers a structural advantage in moments of market dislocation or for assets characterized by inherent informational asymmetry.

A close-out is the terminal phase of a defaulted counterparty relationship. It is a forced liquidation, a final accounting driven by the imperative to neutralize risk and crystallize financial standing. In this context, valuation is the central mechanism. The objective is to arrive at a price that is fair, [commercially reasonable](https://prime.greeks.live/area/commercially-reasonable/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), and defensible against subsequent legal or regulatory scrutiny.

The conventional path involves soliciting quotes from third-party dealers, a process designed to establish an objective market consensus. This method, rooted in the principle of observable market prices, serves as a bulwark against disputes, providing a clear, auditable trail of price discovery.

> A firm’s reliance on its own data asserts that its internal view of risk and value is more precise than external market signals during critical liquidation events.

The justification for deviating from this established protocol arises when the very structure of the asset or the state of the market renders [third-party quotes](https://prime.greeks.live/area/third-party-quotes/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) unreliable or even misleading. For highly illiquid, complex, or bespoke derivatives, a true market price may not be readily observable. The universe of potential buyers is small, and their pricing indications may be opportunistic or reflective of their own balance sheet constraints rather than the intrinsic value of the instrument. In such scenarios, [external quotes](https://prime.greeks.live/question/what-are-the-primary-security-differences-between-an-esb-and-an-api-gateway-for-external-connections/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) become less a reflection of fair value and more a measure of transient market appetite, heavily skewed by the exigencies of the moment.

Here, the firm’s [internal data](https://prime.greeks.live/area/internal-data/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) transforms into a strategic asset. This data is a composite of historical transaction prices, proprietary volatility surfaces, correlation matrices, and model-derived analytics. It is the codified experience of the firm’s trading desk, a granular record of how similar instruments have behaved across a spectrum of market conditions.

When external liquidity evaporates and quoted bid-ask spreads widen to punitive levels, this internal data provides a stable, model-driven anchor for valuation. It allows the firm to calculate a close-out amount based on a more fundamental, through-the-cycle assessment of the asset’s worth, insulated from the panic or opportunism that can grip external market makers during a default event.

![An abstract composition of interlocking, precisely engineered metallic plates represents a sophisticated institutional trading infrastructure. Visible perforations within a central block symbolize optimized data conduits for high-fidelity execution and capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-multi-leg-execution-layer.jpg)

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

## Strategy

The strategic decision to employ internal data in a close-out is an exercise in calibrated [risk management](https://prime.greeks.live/area/risk-management/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), weighing the defensibility of [internal models](https://prime.greeks.live/area/internal-models/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) against the potential fallibility of external markets. This choice is governed by a framework that assesses asset characteristics, market conditions, and the robustness of the firm’s own valuation architecture. The strategy is built upon identifying specific, pre-defined triggers where the integrity of third-party quotes is compromised, thereby making a turn to internal, model-based valuation not just preferable, but necessary for achieving a commercially reasonable outcome.

![A metallic disc intersected by a dark bar, over a teal circuit board. This visualizes Institutional Liquidity Pool access via RFQ Protocol, enabling Block Trade Execution of Digital Asset Options with High-Fidelity Execution](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-principal-operational-framework-market-microstructure-high-fidelity-execution.jpg)

## When Are External Quotes Unreliable?

A core component of this strategy is the systematic identification of market and asset conditions that degrade the quality of third-party quotes. A firm must develop a clear taxonomy of situations where the informational content of external prices is likely to be low. This allows the institution to move from a reactive to a proactive stance, justifying the use of internal data based on a pre-agreed and documented policy.

- 
**Asset Complexity and Illiquidity** For instruments like long-dated, multi-underlying exotic derivatives or structured credit products tailored to a specific client’s needs, a broad and liquid market rarely exists. The number of dealers capable of pricing, let alone warehousing, such risk is exceptionally small. In a close-out, the few quotes obtained are likely to be heavily discounted for model risk, hedging costs, and balance sheet impact, bearing little resemblance to a theoretical fair value.

- 
**Systemic Market Stress** During a market-wide crisis, such as a major credit event or a sovereign default, interdealer liquidity contracts violently. Bid-ask spreads on even relatively standard instruments can widen to levels that make execution prohibitive. Third-party dealers, focused on de-risking their own books, will provide quotes that are defensive and designed to discourage winning the asset. These prices reflect a temporary, acute aversion to risk rather than a sustainable valuation.

- 
**Idiosyncratic Default Events** The default of a major counterparty can itself contaminate the pricing process. Other dealers may have correlated exposures to the defaulting entity, causing them to price all related assets with extreme prejudice. The close-out of a large, concentrated position can temporarily overwhelm the market’s absorptive capacity, leading to price quotes that reflect a short-term supply-demand imbalance. In this environment, internal models can provide a more stable measure of value, filtering out the noise of the immediate default event.

![A transparent sphere, representing a granular digital asset derivative or RFQ quote, precisely balances on a proprietary execution rail. This symbolizes high-fidelity execution within complex market microstructure, driven by rapid price discovery from an institutional-grade trading engine, optimizing capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-precision-1.jpg)

## Building a Defensible Internal Valuation Framework

A firm cannot simply decide to use its own numbers without a rigorous, auditable, and consistent framework. The strategy must be underpinned by an infrastructure that can withstand scrutiny from auditors, regulators, and potentially, the courts. This involves several key pillars.

The table below outlines a comparative framework for deciding between third-party quotes and internal data, based on key operational and risk factors.

| Factor | Preference for Third-Party Quotes | Justification for Internal Data Usage |
| --- | --- | --- |
| Asset Type | Standardized, exchange-traded, or liquid OTC instruments (e.g. major currency swaps, government bonds). | Bespoke, complex, or highly structured derivatives; illiquid assets with no active market. |
| Market Conditions | Normal, stable market with high liquidity and tight bid-ask spreads. | High volatility, systemic stress, or market dislocation where liquidity has evaporated. |
| Quote Availability | Multiple, independent, and executable quotes are readily available from a diverse panel of dealers. | Few or no quotes available; existing quotes are indicative, non-firm, or at punitive widths. |
| Model Robustness | Internal models are not back-tested or validated for the specific asset class. | Internal models are well-established, independently validated, and used consistently for risk and P&L. |
| Documentation | The close-out methodology specified in the governing agreement (e.g. ISDA Master Agreement) defaults to market quotation. | The governing agreement allows for calculation based on “Loss” or another method permitting internal model use if market quotes are unavailable or unreliable. |

This framework provides a structured decision-making process. It moves the choice away from a subjective judgment call made under duress and toward a policy-driven determination. The ultimate goal is to create a valuation process that is not only economically sound but also legally and regulatorily robust.

![A reflective metallic disc, symbolizing a Centralized Liquidity Pool or Volatility Surface, is bisected by a precise rod, representing an RFQ Inquiry for High-Fidelity Execution. Translucent blue elements denote Dark Pool access and Private Quotation Networks, detailing Institutional Digital Asset Derivatives Market Microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-high-fidelity-execution.jpg)

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

## Execution

The execution of a close-out using internal data is a high-stakes procedural exercise. It demands a seamless integration of legal interpretation, quantitative modeling, and operational precision. The process must be meticulously documented and executed with the assumption that it will be challenged, requiring a complete and transparent audit trail. The firm’s ability to defend its valuation hinges on the rigor of this execution.

![Precisely engineered metallic components, including a central pivot, symbolize the market microstructure of an institutional digital asset derivatives platform. This mechanism embodies RFQ protocols facilitating high-fidelity execution, atomic settlement, and optimal price discovery for crypto options](https://options.greeks.live/wp-content/uploads/2025/07/high-fidelity-digital-asset-derivatives-rfq-market-microstructure-1.jpg)

## The Operational Playbook for Internal Valuation

A firm must establish a clear, sequential process for invoking [internal data valuation](https://prime.greeks.live/area/internal-data-valuation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). This playbook ensures consistency and defensibility, removing ambiguity from a time-sensitive and contentious procedure.

- 
**Trigger Event Confirmation** The first step is the formal declaration of an Event of Default under the terms of the governing agreement, such as an [ISDA Master Agreement](https://prime.greeks.live/area/isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). The legal and [credit risk](https://prime.greeks.live/area/credit-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) teams must confirm the trigger and issue an internal directive to the valuation and trading teams to commence the close-out process.

- 
**Market Sounding and Quote Integrity Test** Even when internal data is anticipated, the firm must make a good-faith effort to obtain external quotes. This is a critical step for defensibility. The firm should solicit quotes from an approved list of dealers. The responses, or lack thereof, are documented. Each received quote is then assessed against a set of integrity criteria ▴ Is it firm or indicative? What is the bid-ask spread? How does it compare to recent transaction data? This process creates the evidentiary basis for deeming external quotes unreliable.

- 
**Invocation of [Internal Model](https://prime.greeks.live/area/internal-model/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) Protocol** Once the market sounding is complete and the results justify moving away from external quotes, the Head of Trading or a designated senior manager formally invokes the internal model protocol. This decision, along with the supporting evidence from the quote integrity test, is logged in a permanent record.

- 
**Model Selection and Data Input** The appropriate, pre-approved valuation model for the specific asset class is selected. The model inputs (e.g. volatility, correlation, interest rate curves) must be sourced from the firm’s official, end-of-day data repositories. The use of ad-hoc or unverified data is strictly prohibited. The data snapshot used for the calculation must be time-stamped to the moment of the close-out calculation.

- 
**Independent Calculation and Verification** The valuation is performed by the primary risk or trading desk. Concurrently, a separate, independent team ▴ such as a model validation group or a middle office function ▴ re-calculates the valuation using the same model and data inputs. This four-eyes verification process is essential for identifying errors and demonstrating procedural integrity. Any material discrepancy between the two calculations must be reconciled and explained before the final value is adopted.

- 
**Finalization and Notification** The verified close-out amount is formally recorded and communicated to the defaulted counterparty in accordance with the notice provisions of the governing agreement. The notification should include a statement of the amount, the date of calculation, and a summary of the accounts being closed out. A detailed breakdown of the valuation methodology is typically reserved for subsequent discussions or disputes.

![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)

## Quantitative Modeling and Data Analysis

The credibility of the entire process rests on the quality of the quantitative models and the data that feeds them. A firm must be able to demonstrate that its models are not just theoretical constructs but are actively used, tested, and validated in the normal course of business.

The following table provides a simplified example of the data inputs and model outputs for valuing a complex interest rate derivative during a close-out, contrasting it with unreliable market quotes.

| Valuation Component | Unreliable Third-Party Quote Data | Internal Model Data Input | Internal Model Output |
| --- | --- | --- | --- |
| 5-Year Swap Rate | Bid ▴ 2.80% / Ask ▴ 3.20% (40 bps spread) | Internal Curve ▴ 2.95% (mid-market) | Model uses 2.95% as primary rate input. |
| 10-Year Volatility | Indicative Quote ▴ 95% (no firm bid) | Validated Volatility Surface ▴ 78% | Model uses 78% for option component pricing. |
| Correlation (USD/EUR) | “Too wide to quote” | Historical Correlation Matrix ▴ 0.65 | Model uses 0.65 for quanto adjustment. |
| Final Valuation | -$15.0 Million (dealer’s indicative offer) | N/A | -$10.2 Million (calculated loss) |

This data demonstrates a situation where the external market is showing clear signs of distress (a 40-basis-point spread on a swap rate is exceptionally wide). The internal model, relying on validated, consistently applied data, produces a valuation that is significantly different. The ability to produce this level of detail, showing how each component of the valuation was derived from a trusted internal source, is the cornerstone of a defensible execution.

![Precision-engineered modular components display a central control, data input panel, and numerical values on cylindrical elements. This signifies an institutional Prime RFQ for digital asset derivatives, enabling RFQ protocol aggregation, high-fidelity execution, algorithmic price discovery, and volatility surface calibration for portfolio margin](https://options.greeks.live/wp-content/uploads/2025/07/firm-fx-options-rfq-trade-system-key-microstructure-data-flow-core-engine.jpg)

## What Is the Legal Basis for Using Internal Data?

The justification for using internal data is often embedded within the contractual language of standard financial agreements. The ISDA Master Agreement, a cornerstone of the OTC derivatives market, provides for different methods of calculating close-out amounts. While the “Market Quotation” method relies on third-party dealer quotes, the “Loss” method allows a party to determine its total losses and costs resulting from the termination in a commercially reasonable manner.

When market quotes are unavailable or demonstrably unreasonable, a firm can argue that using its own consistently applied and validated internal models is the most commercially reasonable way to determine its true economic loss. The key is the ability to prove that the internal calculation was performed in good faith and reflects a value that could have been realized over time, absent the fire-sale conditions of a default.

![An Institutional Grade RFQ Engine core for Digital Asset Derivatives. This Prime RFQ Intelligence Layer ensures High-Fidelity Execution, driving Optimal Price Discovery and Atomic Settlement for Aggregated Inquiries](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-engine-core-high-fidelity.jpg)

## References

- Hull, J. C. (2022). Options, Futures, and Other Derivatives. Pearson.

- O’Hara, M. (1995). Market Microstructure Theory. Blackwell Publishers.

- Gregory, J. (2015). The xVA Challenge ▴ Counterparty Credit Risk, Funding, Collateral, and Capital. Wiley.

- ISDA. (2002). ISDA Master Agreement. International Swaps and Derivatives Association.

- Duffie, D. & Singleton, K. J. (2003). Credit Risk ▴ Pricing, Measurement, and Management. Princeton University Press.

![A sophisticated institutional-grade system's internal mechanics. A central metallic wheel, symbolizing an algorithmic trading engine, sits above glossy surfaces with luminous data pathways and execution triggers](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-engine-core.jpg)

## Reflection

![Internal components of a Prime RFQ execution engine, with modular beige units, precise metallic mechanisms, and complex data wiring. This infrastructure supports high-fidelity execution for institutional digital asset derivatives, facilitating advanced RFQ protocols, optimal liquidity aggregation, multi-leg spread trading, and efficient price discovery](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-core-rfq-engine-for-institutional-digital-asset-options.jpg)

## Is Your Valuation Process an Asset or a Liability?

The decision to rely on internal data during a close-out moves a firm’s valuation framework from a passive accounting function to an active component of its risk management architecture. It forces a critical self-examination. Does your firm possess a body of proprietary data deep enough to be considered a strategic asset?

Are your models sufficiently robust and independently validated to withstand the intense scrutiny of a legal challenge? The integrity of a close-out is a reflection of the integrity of the firm’s entire risk infrastructure.

Viewing valuation through this lens transforms the conversation. It becomes a continuous process of curating data, refining models, and stress-testing procedures, ensuring that when a counterparty defaults, the firm can act with precision and authority. The ultimate strength of a financial institution is revealed not in calm markets, but in its capacity to manage failure. A defensible, data-driven close-out process is a clear demonstration of that capacity.

![A sleek, multi-faceted plane represents a Principal's operational framework and Execution Management System. A central glossy black sphere signifies a block trade digital asset derivative, executed with atomic settlement via an RFQ protocol's private quotation](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-derivatives-rfq-principal-os-high-fidelity-execution.jpg)

## Glossary

<a href="https://prime.greeks.live/area/proprietary-data/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Modular institutional-grade execution system components reveal luminous green data pathways, symbolizing high-fidelity cross-asset connectivity. This depicts intricate market microstructure facilitating RFQ protocol integration for atomic settlement of digital asset derivatives within a Principal's operational framework, underpinned by a Prime RFQ intelligence layer](https://options.greeks.live/wp-content/uploads/2025/07/modular-high-fidelity-execution-architecture-for-institutional-digital-asset-derivatives-rfq-protocol-integration-and-principals-operational-framework-optimization.jpg)

## Proprietary Data

Meaning ▴ Proprietary Data refers to unique, privately owned information collected, generated, or processed by an organization for its exclusive use and competitive advantage. </a><a href="https://prime.greeks.live/area/commercially-reasonable/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A robust circular Prime RFQ component with horizontal data channels, radiating a turquoise glow signifying price discovery. This institutional-grade RFQ system facilitates high-fidelity execution for digital asset derivatives, optimizing market microstructure and capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-rfq-engine-for-digital-asset-derivatives-execution.jpg)

## Commercially Reasonable

Meaning ▴ "Commercially Reasonable" is a legal and business standard requiring parties to a contract to act in a practical, prudent, and sensible manner, consistent with prevailing industry practices and good faith. </a><a href="https://prime.greeks.live/area/third-party-quotes/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precision-engineered blue mechanism, symbolizing a high-fidelity execution engine, emerges from a rounded, light-colored liquidity pool component, encased within a sleek teal institutional-grade shell. This represents a Principal's operational framework for digital asset derivatives, demonstrating algorithmic trading logic and smart order routing for block trades via RFQ protocols, ensuring atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/institutional-crypto-derivatives-os-core-algorithmic-execution-engine.jpg)

## Third-Party Quotes

Meaning ▴ Third-party quotes are price indications for financial instruments provided by entities that are not directly involved in the primary trading interaction between a buyer and a seller. </a><a href="https://prime.greeks.live/question/what-are-the-primary-security-differences-between-an-esb-and-an-api-gateway-for-external-connections/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Detailed metallic disc, a Prime RFQ core, displays etched market microstructure. Its central teal dome, an intelligence layer, facilitates price discovery](https://options.greeks.live/wp-content/uploads/2025/07/principal-operating-system-intelligence-layer-powering-digital-asset-derivatives-rfq-protocols-for-optimal-execution.jpg)

## External Quotes

An API Gateway provides perimeter defense for external threats; an ESB ensures process integrity among trusted internal systems. </a><a href="https://prime.greeks.live/area/internal-data/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![An institutional-grade platform's RFQ protocol interface, with a price discovery engine and precision guides, enables high-fidelity execution for digital asset derivatives. Integrated controls optimize market microstructure and liquidity aggregation within a Principal's operational framework](https://options.greeks.live/wp-content/uploads/2025/07/proprietary-institutional-digital-asset-derivatives-rfq-protocol-engine-facilitating-high-fidelity-execution-and-granular-market-microstructure-analysis-for-prime-os.jpg)

## Internal Data

Meaning ▴ Internal Data refers to proprietary information generated and collected within an organization's operational systems, distinct from external market or public data. </a><a href="https://prime.greeks.live/area/internal-models/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Internal hard drive mechanics, with a read/write head poised over a data platter, symbolize the precise, low-latency execution and high-fidelity data access vital for institutional digital asset derivatives. This embodies a Principal OS architecture supporting robust RFQ protocols, enabling atomic settlement and optimized liquidity aggregation within complex market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-precision-execution-system-microstructure.jpg)

## Internal Models

Meaning ▴ Within the sophisticated systems architecture of institutional crypto trading and comprehensive risk management, Internal Models are proprietary computational frameworks developed and rigorously maintained by financial firms. </a><a href="https://prime.greeks.live/area/risk-management/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A reflective, metallic platter with a central spindle and an integrated circuit board edge against a dark backdrop. This imagery evokes the core low-latency infrastructure for institutional digital asset derivatives, illustrating high-fidelity execution and market microstructure dynamics](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-rfq-execution-infrastructure-precision.jpg)

## Risk Management

Meaning ▴ Risk Management, within the cryptocurrency trading domain, encompasses the comprehensive process of identifying, assessing, monitoring, and mitigating the multifaceted financial, operational, and technological exposures inherent in digital asset markets. </a><a href="https://prime.greeks.live/area/internal-data-valuation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek, futuristic institutional grade platform with a translucent teal dome signifies a secure environment for private quotation and high-fidelity execution. A dark, reflective sphere represents an intelligence layer for algorithmic trading and price discovery within market microstructure, ensuring capital efficiency for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/precision-rfq-execution-for-institutional-digital-asset-derivatives-1.jpg)

## Internal Data Valuation

Meaning ▴ Internal data valuation refers to the systematic process of assessing the worth and utility of proprietary data assets within an organization, particularly for entities operating in the crypto financial domain. </a><a href="https://prime.greeks.live/area/isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A reflective sphere, bisected by a sharp metallic ring, encapsulates a dynamic cosmic pattern. This abstract representation symbolizes a Prime RFQ liquidity pool for institutional digital asset derivatives, enabling RFQ protocol price discovery and high-fidelity execution](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-institutional-digital-asset-derivatives-rfq-execution-1.jpg)

## Isda Master Agreement

Meaning ▴ The ISDA Master Agreement, while originating in traditional finance, serves as a crucial foundational legal framework for institutional participants engaging in over-the-counter (OTC) crypto derivatives trading and complex RFQ crypto transactions. </a><a href="https://prime.greeks.live/area/credit-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A focused view of a robust, beige cylindrical component with a dark blue internal aperture, symbolizing a high-fidelity execution channel. This element represents the core of an RFQ protocol system, enabling bespoke liquidity for Bitcoin Options and Ethereum Futures, minimizing slippage and information leakage](https://options.greeks.live/wp-content/uploads/2025/07/institutional-grade-digital-asset-derivatives-rfq-engine-core-precision-component.jpg)

## Credit Risk

Meaning ▴ Credit Risk, within the expansive landscape of crypto investing and related financial services, refers to the potential for financial loss stemming from a borrower or counterparty's inability or unwillingness to meet their contractual obligations. </a><a href="https://prime.greeks.live/area/internal-model/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A gold-hued precision instrument with a dark, sharp interface engages a complex circuit board, symbolizing high-fidelity execution within institutional market microstructure. This visual metaphor represents a sophisticated RFQ protocol facilitating private quotation and atomic settlement for digital asset derivatives, optimizing capital efficiency and mitigating counterparty risk](https://options.greeks.live/wp-content/uploads/2025/08/institutional-grade-precision-execution-engine-optimizing-digital-asset-derivatives-rfq-protocols-within-market-microstructure.jpg)

## Internal Model

Meaning ▴ An Internal Model defines a proprietary quantitative framework developed and utilized by financial institutions, including those active in crypto investing, to assess and manage various forms of risk, such as market, credit, and operational risk. </a>

**Tags:** [Third-Party Quotes](https://options.greeks.live/area/third-party-quotes/), [Proprietary Data](https://options.greeks.live/area/proprietary-data/), [Risk Management](https://options.greeks.live/area/risk-management/), [Credit Risk](https://options.greeks.live/area/credit-risk/), [Internal Models](https://options.greeks.live/area/internal-models/), [Internal Model](https://options.greeks.live/area/internal-model/)	

## Discover More

- 
### [How Does the 2002 ISDA Agreement Alter Counterparty Risk Dynamics?](https://options.greeks.live/question/how-does-the-2002-isda-agreement-alter-counterparty-risk-dynamics/)
![A complex interplay of translucent teal and beige planes, signifying multi-asset RFQ protocol pathways and structured digital asset derivatives. Two spherical nodes represent atomic settlement points or critical price discovery mechanisms within a Prime RFQ. Water droplets indicate granular market microstructure data, enhancing high-fidelity execution and mitigating counterparty risk for institutional participants.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-for-optimal-liquidity-aggregation-and-high-fidelity-execution.jpg)

The 2002 ISDA Agreement enhances counterparty risk management by codifying a robust, enforceable protocol for netting exposures upon default.

- 
### [What Are the Primary Drivers for a Firm to Adopt the 2002 ISDA?](https://options.greeks.live/question/what-are-the-primary-drivers-for-a-firm-to-adopt-the-2002-isda/)
![Abstract geometric representation of an institutional RFQ protocol for digital asset derivatives. Two distinct segments symbolize cross-market liquidity pools and order book dynamics. A central, illuminated conduit signifies high-fidelity execution, price discovery, and algorithmic trading within a Principal's operational framework, optimizing block trade settlement and capital efficiency.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-protocol-2.jpg)

The 2002 ISDA Agreement is a critical market protocol adopted to enhance counterparty risk mitigation through superior netting and collateral provisions.

- 
### [What Are the Key Differences in the Legal and Operational Frameworks of Bilateral and Centrally Cleared Trades?](https://options.greeks.live/question/what-are-the-key-differences-in-the-legal-and-operational-frameworks-of-bilateral-and-centrally-cleared-trades/)
![A luminous blue Bitcoin coin rests precisely within a sleek, multi-layered platform. This embodies high-fidelity execution of digital asset derivatives via an RFQ protocol, highlighting price discovery and atomic settlement. The structured environment signifies institutional-grade liquidity aggregation and portfolio margin.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-precision-3.jpg)

Bilateral trades are private risk contracts; central clearing transforms them into standardized, system-managed exposures.

- 
### [What Legal and Regulatory Challenges Arise When Implementing Third Party Netting across Multiple Countries?](https://options.greeks.live/question/what-legal-and-regulatory-challenges-arise-when-implementing-third-party-netting-across-multiple-countries/)
![A modular component, resembling an RFQ gateway, with multiple connection points, intersects a high-fidelity execution pathway. This pathway extends towards a deep, optimized liquidity pool, illustrating robust market microstructure for institutional digital asset derivatives trading and atomic settlement.](https://options.greeks.live/wp-content/uploads/2025/07/rfq-protocol-layer-connecting-institutional-digital-asset-liquidity-pools.jpg)

Implementing third-party netting across borders requires a systemic validation of legal enforceability in each counterparty's jurisdiction.

- 
### [How Does the 2002 ISDA Standard Affect the Likelihood of Legal Disputes?](https://options.greeks.live/question/how-does-the-2002-isda-standard-affect-the-likelihood-of-legal-disputes/)
![A central metallic lens with glowing green concentric circles, flanked by curved grey shapes, embodies an institutional-grade digital asset derivatives platform. It signifies high-fidelity execution via RFQ protocols, price discovery, and algorithmic trading within market microstructure, central to a principal's operational framework.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-system-view.jpg)

The 2002 ISDA Agreement reduces legal disputes by systemizing counterparty obligations within a single, enforceable framework.

- 
### [How Do Institutions Manage Counterparty Risk in Bilateral Quote-Driven Trading?](https://options.greeks.live/question/how-do-institutions-manage-counterparty-risk-in-bilateral-quote-driven-trading/)
![A precise system balances components: an Intelligence Layer sphere on a Multi-Leg Spread bar, pivoted by a Private Quotation sphere atop a Prime RFQ dome. A Digital Asset Derivative sphere floats, embodying Implied Volatility and Dark Liquidity within Market Microstructure.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-high-fidelity-execution-7.jpg)

Institutions architect robust frameworks using legal agreements, dynamic collateral, and quantitative adjustments to manage bilateral counterparty risk.

- 
### [How Do Modern Bank Resolution Regimes Conflict with Contractual Close out Rights in a Crisis?](https://options.greeks.live/question/how-do-modern-bank-resolution-regimes-conflict-with-contractual-close-out-rights-in-a-crisis/)
![An abstract, angular sculpture with reflective blades from a polished central hub atop a dark base. This embodies institutional digital asset derivatives trading, illustrating market microstructure, multi-leg spread execution, and high-fidelity execution. It represents price discovery via RFQ protocols, enabling atomic settlement through an advanced Prime RFQ.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-price-discovery-system.jpg)

Bank resolution regimes suspend contractual close-out rights to ensure systemic stability, creating a conflict with counterparty risk management.

- 
### [Why Was the Close-Out Amount a Significant Change in the 2002 ISDA?](https://options.greeks.live/question/why-was-the-close-out-amount-a-significant-change-in-the-2002-isda/)
![A macro view reveals the intricate mechanical core of an institutional-grade system, symbolizing the market microstructure of digital asset derivatives trading. Interlocking components and a precision gear suggest high-fidelity execution and algorithmic trading within an RFQ protocol framework, enabling price discovery and liquidity aggregation for multi-leg spreads on a Prime RFQ.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-system-precision-engine.jpg)

The 2002 ISDA's Close-Out Amount replaced a flawed, rigid valuation system with a flexible, commercially reasonable standard.

- 
### [What Are the Primary Legal and Operational Risks of Not Migrating from the 1992 Isda Framework?](https://options.greeks.live/question/what-are-the-primary-legal-and-operational-risks-of-not-migrating-from-the-1992-isda-framework/)
![Geometric planes, light and dark, interlock around a central hexagonal core. This abstract visualization depicts an institutional-grade RFQ protocol engine, optimizing market microstructure for price discovery and high-fidelity execution of digital asset derivatives including Bitcoin options and multi-leg spreads within a Prime RFQ framework, ensuring atomic settlement.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-engine-architecture.jpg)

Failure to migrate from the 1992 ISDA framework embeds legacy legal and operational vulnerabilities into an institution's risk architecture.

---

## Raw Schema Data

```json
{
    "@context": "https://schema.org",
    "@type": "BreadcrumbList",
    "itemListElement": [
        {
            "@type": "ListItem",
            "position": 1,
            "name": "Home",
            "item": "https://options.greeks.live"
        },
        {
            "@type": "ListItem",
            "position": 2,
            "name": "Question",
            "item": "https://options.greeks.live/question/"
        },
        {
            "@type": "ListItem",
            "position": 3,
            "name": "In What Circumstances Can a Firm Justify Using Internal Data over Third-Party Quotes in a Close-Out?",
            "item": "https://options.greeks.live/question/in-what-circumstances-can-a-firm-justify-using-internal-data-over-third-party-quotes-in-a-close-out/"
        }
    ]
}
```

```json
{
    "@context": "https://schema.org",
    "@type": "Organization",
    "@id": "https://greeks.live/#organization",
    "name": "Greeks.Live",
    "url": "https://greeks.live/",
    "description": "Greeks.live is the definitive toolkit for the professional options trader, dedicated to empowering our users with institutional-grade data, advanced analytics, and a comprehensive suite of trading tools designed to provide a decisive edge in the market. Every article and guide published under the Greeks.live name is a product of our deep commitment to data-driven analysis and our mission to support the global trading community.",
    "email": "support@greeks.live",
    "logo": {
        "@type": "ImageObject",
        "url": "https://options.greeks.live/wp-content/uploads/2025/07/Greeks.Live-Logo-Icon.svg"
    },
    "hasPart": [
        {
            "@type": "WebSite",
            "name": "About Us",
            "url": "https://about.greeks.live"
        },
        {
            "@type": "WebSite",
            "name": "App Download Page",
            "url": "https://about.greeks.live/#/download/basic_trade"
        },
        {
            "@type": "WebSite",
            "name": "Newcomers' Guide",
            "url": "https://twisty-sign-c8b.notion.site/Guide-for-Greeks-live-X-Deribit-Newbies-5a08a3052822427d800af6eaf3704c8d"
        },
        {
            "@type": "WebSite",
            "name": "Knowledge Base",
            "url": "https://linktr.ee/greeks.live"
        },
        {
            "@type": "WebSite",
            "name": "Option Terminology",
            "url": "https://greekslive.notion.site/88dfc00e7c584d4d8969b6302a79a12f?pvs=4"
        },
        {
            "@type": "WebSite",
            "name": "Terms of Service",
            "url": "https://greeks.live/#/tos"
        },
        {
            "@type": "WebSite",
            "name": "Disclaimer",
            "url": "https://greeks.live/#/disclaimer"
        }
    ],
    "sameAs": [
        "https://x.com/greekslive",
        "https://youtube.com/@greeks_live?si=-KjT0Lkw4WUCI0tD",
        "https://t.me/greekslive_notifications",
        "https://t.me/greekslive",
        "https://pinterest.com/greekslive/"
    ],
    "makesOffer": [
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "RFQ Platform",
                "url": "https://rfq.greeks.live",
                "description": "Execute institutional-grade block trades for crypto options and futures. This platform provides deep, over-the-counter (OTC) liquidity via a professional Request for Quote system.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Lending Tools",
                "url": "https://lend.greeks.live",
                "description": "Manage crypto lending and borrowing activities to earn yield or secure loans. This suite of tools helps users analyze interest rates and manage collateralized debt positions.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Data Lab",
                "url": "https://greeks.live/#/deribit/tools/datalab/BTC",
                "description": "Analyze historical and real-time options data with advanced metrics. This tool is designed for backtesting strategies and identifying market trends through comprehensive data visualization.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Profit & Loss Analysis (PnL)",
                "url": "https://greeks.live/#/deribit/tools/pnl_analysis",
                "description": "Track and analyze the Profit and Loss (PnL) of your options portfolio. This tool provides detailed performance metrics to help traders evaluate and refine their strategies.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Position Visualization",
                "url": "https://greeks.live/#/deribit/tools/pv/BTC",
                "description": "Visualize complex options positions and their corresponding risk profiles. This tool generates payoff diagrams to help traders intuitively understand potential profit, loss, and exposure.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Options Calculator",
                "url": "https://greeks.live/#/deribit/tools/calculator",
                "description": "Calculate the theoretical price and risk parameters ('the Greeks') of crypto options. An essential tool for pricing new trades and analyzing the sensitivity of existing positions.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Greeks.live Main Platform",
                "url": "https://greeks.live/",
                "description": "The central hub for the Greeks.live suite of professional cryptocurrency options and derivatives trading tools. Access analytics, manage positions, and explore the ecosystem.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Community Forum",
                "url": "https://t.greeks.live",
                "description": "Join the official Greeks.live community. Connect with other traders, share insights, and receive the latest updates directly from the team.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Greeks.live for Deribit",
                "url": "http://deribit.greeks.live",
                "description": "A dedicated interface for trading on the Deribit exchange. This platform leverages Greeks.live's advanced analytics and tools specifically for users of Deribit's options and futures markets.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Greeks.live for OKX",
                "url": "http://okx.greeks.live",
                "description": "A dedicated interface for trading on the OKX exchange. This platform integrates Greeks.live's powerful analytics with the OKX marketplace, focusing on its options and derivatives products.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "GLVS.AI Trading Platform",
                "url": "https://www.glvs.ai/",
                "description": "An AI-powered platform for automated crypto options trading. Leverage advanced algorithms and data-driven signals to develop and deploy sophisticated, hands-free trading strategies.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "API Testnet & Sandbox",
                "url": "https://test.greeks.live",
                "description": "A dedicated testnet environment for developers to test their API integrations and automated trading strategies. This sandbox allows for full functionality testing without risking real funds.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        }
    ],
    "subOrganization": [
        {
            "@type": "Organization",
            "name": "GreeksLive HK Co., Limited",
            "email": "support@greeks.live",
            "telephone": "+852-56418949",
            "address": {
                "@type": "PostalAddress",
                "streetAddress": "Unit 11, 27/F, K. Wah Centre, 191 Java Road",
                "addressLocality": "Hong Kong",
                "addressRegion": "North Point",
                "addressCountry": "CN",
                "postalCode": "0000"
            },
            "geo": {
                "@type": "GeoCoordinates",
                "latitude": "22.2932357",
                "longitude": "114.2022026"
            },
            "image": "https://options.greeks.live/wp-content/uploads/2025/08/Wah-Centre-Hong-Kong.jpg"
        }
    ]
}
```

```json
{
    "@context": "https://schema.org",
    "@type": "Article",
    "mainEntityOfPage": {
        "@type": "WebPage",
        "@id": "https://options.greeks.live/question/in-what-circumstances-can-a-firm-justify-using-internal-data-over-third-party-quotes-in-a-close-out/"
    },
    "headline": "In What Circumstances Can a Firm Justify Using Internal Data over Third-Party Quotes in a Close-Out? \u25b4 Question",
    "description": "A firm can justify using internal data in a close-out when proprietary models offer a more accurate valuation than unreliable third-party quotes. \u25b4 Question",
    "url": "https://options.greeks.live/question/in-what-circumstances-can-a-firm-justify-using-internal-data-over-third-party-quotes-in-a-close-out/",
    "datePublished": "2025-08-01T14:45:20+00:00",
    "dateModified": "2025-10-23T21:10:13+00:00",
    "articleSection": [
        "Question"
    ],
    "author": {
        "@id": "https://greeks.live/#organization"
    },
    "publisher": {
        "@id": "https://greeks.live/#organization"
    },
    "image": {
        "@type": "ImageObject",
        "url": "https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-precision-execution-system-microstructure.jpg",
        "caption": "The hard drive's intricate internal components symbolize the sophisticated Principal's operational framework for institutional digital asset derivatives. The precise read/write head over the data platter signifies high-fidelity execution, sub-millisecond latency, and granular price discovery vital for multi-leg options strategies. This robust infrastructure supports efficient RFQ protocol management, ensuring optimal liquidity aggregation, counterparty risk mitigation, and atomic settlement across Crypto Derivatives OS, facilitating alpha generation and best execution."
    },
    "keywords": [
        "Close-Out Netting",
        "Commercially Reasonable",
        "Counterparty Risk",
        "Credit Risk",
        "Derivative Pricing",
        "Internal Data",
        "Internal Data Valuation",
        "Internal Model",
        "Internal Models",
        "ISDA Master Agreement",
        "Market Liquidity",
        "Proprietary Data",
        "Risk Management",
        "Third-Party Quotes",
        "Valuation Models"
    ]
}
```

```json
{
    "@context": "https://schema.org",
    "@type": "WebSite",
    "url": "https://options.greeks.live/",
    "potentialAction": {
        "@type": "SearchAction",
        "target": "https://options.greeks.live/?s=search_term_string",
        "query-input": "required name=search_term_string"
    }
}
```

```json
{
    "@context": "https://schema.org",
    "@type": "FAQPage",
    "mainEntity": [
        {
            "@type": "Question",
            "name": "When Are External Quotes Unreliable?",
            "acceptedAnswer": {
                "@type": "Answer",
                "text": "A core component of this strategy is the systematic identification of market and asset conditions that degrade the quality of third-party quotes. A firm must develop a clear taxonomy of situations where the informational content of external prices is likely to be low. This allows the institution to move from a reactive to a proactive stance, justifying the use of internal data based on a pre-agreed and documented policy."
            }
        },
        {
            "@type": "Question",
            "name": "What Is The Legal Basis For Using Internal Data?",
            "acceptedAnswer": {
                "@type": "Answer",
                "text": "The justification for using internal data is often embedded within the contractual language of standard financial agreements. The ISDA Master Agreement, a cornerstone of the OTC derivatives market, provides for different methods of calculating close-out amounts. While the \"Market Quotation\" method relies on third-party dealer quotes, the \"Loss\" method allows a party to determine its total losses and costs resulting from the termination in a commercially reasonable manner. When market quotes are unavailable or demonstrably unreasonable, a firm can argue that using its own consistently applied and validated internal models is the most commercially reasonable way to determine its true economic loss. The key is the ability to prove that the internal calculation was performed in good faith and reflects a value that could have been realized over time, absent the fire-sale conditions of a default."
            }
        },
        {
            "@type": "Question",
            "name": "Is Your Valuation Process An Asset Or A Liability?",
            "acceptedAnswer": {
                "@type": "Answer",
                "text": "The decision to rely on internal data during a close-out moves a firm's valuation framework from a passive accounting function to an active component of its risk management architecture. It forces a critical self-examination. Does your firm possess a body of proprietary data deep enough to be considered a strategic asset? Are your models sufficiently robust and independently validated to withstand the intense scrutiny of a legal challenge? The integrity of a close-out is a reflection of the integrity of the firm's entire risk infrastructure."
            }
        }
    ]
}
```


---

**Original URL:** https://options.greeks.live/question/in-what-circumstances-can-a-firm-justify-using-internal-data-over-third-party-quotes-in-a-close-out/
