# What Are the Specific Due Diligence Requirements for Onboarding a Systematic Internaliser as a Counterparty? ▴ Question

**Published:** 2025-08-02
**Categories:** Question

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## Concept

The decision to engage a [Systematic Internaliser](https://prime.greeks.live/area/systematic-internaliser/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (SI) as a counterparty represents a critical architectural choice in the construction of a modern institutional trading framework. Viewing this process through the lens of mere counterparty onboarding is a fundamental misreading of the market’s structure. An SI is a specialized liquidity and data node, a purpose-built engine for [executing client orders](https://prime.greeks.live/question/what-are-the-primary-mechanisms-for-mitigating-information-leakage-when-executing-large-orders/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) against proprietary capital under a specific regulatory framework. Its integration into a firm’s execution management system (EMS) or order management system (OMS) is akin to installing a high-performance processing core into a complex computational machine.

The objective is to achieve a systemic advantage through superior access to unique liquidity, enhanced price discovery, and a more controlled execution environment. The [due diligence process](https://prime.greeks.live/area/due-diligence-process/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), therefore, is the system administrator’s rigorous pre-flight check, designed to validate the integrity, performance, and compatibility of this new component before it is granted access to the core system.

The genesis of the SI regime within the Markets in Financial Instruments Directive (MiFID) provides the essential context. MiFID I introduced the concept for equities, defining an SI as an investment firm executing [client orders](https://prime.greeks.live/question/how-might-the-growth-of-all-to-all-rfq-models-change-the-traditional-dealer-client-relationship/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) on its own account on an organized, frequent, and systematic basis outside of a regulated market (RM) or multilateral trading facility (MTF). This initial framework allowed firms to opt-in, but its adoption was limited. [MiFID II](https://prime.greeks.live/area/mifid-ii/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) expanded this regime significantly, extending it to non-equity instruments like bonds and, critically, replacing the discretionary opt-in with quantitative, data-driven thresholds.

An investment firm becomes an SI not by choice, but by crossing specific, measurable hurdles related to the frequency and volume of its over-the-counter (OTC) trading activity. This shift from a voluntary designation to a mandatory classification based on empirical data is the central design principle. It aims to increase transparency in what was once the opaque world of bilateral, off-venue trading by subjecting these significant liquidity providers to [pre-trade transparency](https://prime.greeks.live/area/pre-trade-transparency/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) obligations similar to those of traditional exchanges.

> A Systematic Internaliser functions as a regulated, high-volume liquidity provider that executes client orders against its own capital, bringing transparency to off-venue trading.

Understanding this regulatory architecture is the first step in the due [diligence process](https://prime.greeks.live/question/how-should-a-firms-due-diligence-process-evaluate-the-sufficiency-and-implementation-of-a-ccps-entire-default-waterfall/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). The SI is not an unregulated dark pool; it is a defined market structure with specific obligations. Its primary function is to internalize [order flow](https://prime.greeks.live/area/order-flow/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), meaning it completes a client’s trade using its own inventory of securities. This creates a distinct liquidity environment.

The liquidity offered by an SI is proprietary and unique to that firm, a closed system of supply and demand that exists parallel to the public order books of lit venues. The core challenge and opportunity of onboarding an SI is to safely and efficiently connect your firm’s order flow to this private liquidity source. The [due diligence](https://prime.greeks.live/area/due-diligence/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) process is the protocol for establishing that connection, ensuring that it is robust, compliant, and strategically accretive. It moves beyond a simple KYC/AML check to a deep, technical, and operational validation of the counterparty’s entire execution infrastructure and business model.

The systemic implications are profound. A properly vetted SI can provide access to substantial size, potentially reducing the [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) associated with executing large orders on lit venues. It can offer a more controlled environment for price discovery, as quotes are provided directly to the client in a bilateral relationship.

The due diligence required is a direct reflection of these potential benefits and their associated risks. It is a process of mapping the SI’s operational DNA ▴ its technology, its risk management protocols, its compliance framework, and its market-making philosophy ▴ to determine its compatibility with your own firm’s strategic objectives and operational tolerances.

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![A sophisticated, angular digital asset derivatives execution engine with glowing circuit traces and an integrated chip rests on a textured platform. This symbolizes advanced RFQ protocols, high-fidelity execution, and the robust Principal's operational framework supporting institutional-grade market microstructure and optimized liquidity aggregation](https://options.greeks.live/wp-content/uploads/2025/08/advanced-digital-asset-derivatives-rfq-protocol-engine-architecture.jpg)

## Strategy

A [strategic framework](https://prime.greeks.live/question/what-is-the-strategic-importance-of-integrating-last-look-analysis-into-a-broader-tca-framework/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) for SI due diligence organizes the process around a central objective ▴ risk mitigation and performance optimization. This approach transforms the [onboarding process](https://prime.greeks.live/question/what-is-the-process-for-onboarding-to-an-rfq-platform/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) from a reactive compliance checklist into a proactive assessment of a potential strategic partner. The core of this strategy is a multi-layered risk analysis that dissects the SI’s operations to identify and quantify potential failure points.

This analysis provides the empirical foundation for the decision to onboard, creating a defensible and well-documented rationale for the engagement. The strategy is built upon the understanding that the SI is an extension of your own firm’s trading apparatus, and any weakness in its structure becomes a potential vulnerability in yours.

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## A Multi-Dimensional Risk Assessment Framework

The due diligence strategy must be built upon a comprehensive [risk assessment](https://prime.greeks.live/area/risk-assessment/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) that covers every facet of the SI’s operations. This framework can be broken down into several key domains, each requiring a specific line of inquiry and a dedicated set of validation procedures. The goal is to build a holistic picture of the counterparty, moving from its financial stability to the intricacies of its technological infrastructure.

![A precision-engineered component, like an RFQ protocol engine, displays a reflective blade and numerical data. It symbolizes high-fidelity execution within market microstructure, driving price discovery, capital efficiency, and algorithmic trading for institutional Digital Asset Derivatives on a Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/high-fidelity-execution-engine-core-for-institutional-digital-asset-derivatives-rfq-protocol-price-discovery.jpg)

## How Do You Evaluate Counterparty Financial Integrity?

The most foundational layer of due diligence is assessing the financial solvency and stability of the SI. As a bilateral counterparty, the SI exposes the firm to direct credit risk. A failure of the SI could result in significant financial loss. The strategic approach here involves a deep analysis of the SI’s financial health.

- **Capital Adequacy Analysis** This involves reviewing the SI’s regulatory capital filings to ensure it maintains capital reserves well in excess of minimum requirements. The analysis should consider the composition of the capital and its resilience under various stress scenarios.

- **Financial Statement Scrutiny** A thorough review of audited [financial statements](https://prime.greeks.live/question/how-do-firms-differentiate-between-financial-and-non-financial-misconduct/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), including the balance sheet, income statement, and cash flow statement, is essential. This review should focus on profitability trends, leverage ratios, and liquidity position.

- **Credit Rating Verification** Independent credit ratings from major agencies provide an external, objective measure of the SI’s creditworthiness. These ratings should be monitored on an ongoing basis.

![Polished metallic disc on an angled spindle represents a Principal's operational framework. This engineered system ensures high-fidelity execution and optimal price discovery for institutional digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/08/high-fidelity-digital-asset-derivatives-rfq-execution-platform.jpg)

## Operational and Technological Resilience

An SI’s ability to provide consistent and reliable liquidity is entirely dependent on the robustness of its operational and technological infrastructure. An operational failure, such as a system outage or a connectivity issue, can prevent access to liquidity at critical moments, leading to missed trading opportunities or an inability to manage risk. The due diligence strategy must therefore include a rigorous technical audit.

This involves assessing the SI’s system architecture, latency profiles, and data security protocols. It also requires a detailed review of their [business continuity](https://prime.greeks.live/question/how-does-sa-ccr-change-the-business-case-for-central-clearing/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) and [disaster recovery](https://prime.greeks.live/question/how-does-reverse-stress-testing-inform-a-banks-recovery-and-resolution-planning/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) plans to ensure they can maintain operations during market-wide disruptions or firm-specific incidents. The goal is to gain confidence that the SI’s technology is not a source of unmanaged risk.

![A sharp, reflective geometric form in cool blues against black. This represents the intricate market microstructure of institutional digital asset derivatives, powering RFQ protocols for high-fidelity execution, liquidity aggregation, price discovery, and atomic settlement via a Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-digital-asset-derivatives-rfq-protocol-for-institutional-trading.jpg)

## The Strategic Data Collection Matrix

To execute this multi-dimensional risk assessment, a structured data collection process is required. The following table provides a strategic matrix that maps key due diligence data points to the specific risks they are designed to mitigate. This matrix serves as a practical tool for organizing the data gathering phase of the onboarding process, ensuring that all critical areas are covered in a systematic and defensible manner.

### Strategic Due Diligence Data Matrix

| Risk Domain | Required Data Points & Documentation | Strategic Mitigation Objective |
| --- | --- | --- |
| Regulatory & Compliance Risk | Copy of regulatory authorization and permissions. Confirmation of SI status from National Competent Authority (NCA) register. Internal policies on MiFID II pre-trade and post-trade transparency. Best execution policy and historical reports (RTS 27/28). Conflicts of Interest policy. | Verify the SI operates within its mandated regulatory authority and adheres to all applicable transparency and reporting obligations, preventing regulatory breaches. |
| Counterparty Credit Risk | Latest audited annual financial statements. Pillar 3 disclosures and capital adequacy reports. Credit ratings from recognized agencies. Parent company guarantees, if applicable. | Assess the SI’s financial stability and ability to meet its obligations, protecting the firm from losses due to counterparty default. |
| Operational & Technical Risk | System architecture diagrams and technology stack overview. FIX connectivity specifications and API documentation. Business Continuity Plan (BCP) and Disaster Recovery (DR) test results. Information security policies and data protection protocols. Historical system uptime and latency statistics. | Validate the resilience, security, and performance of the SI’s trading infrastructure to ensure reliable access to liquidity and prevent operational disruptions. |
| Execution Quality & Information Leakage Risk | Detailed description of quoting methodology and pricing sources. Policy on handling client order flow and information leakage. Sample Transaction Cost Analysis (TCA) reports. Rules of engagement for quote requests (e.g. last look practices). | Evaluate the quality and integrity of the SI’s execution to ensure fair pricing, minimize market impact, and protect the confidentiality of trading intentions. |

This structured approach ensures that the due diligence process is not a superficial exercise. It becomes a strategic deep dive that provides a clear, evidence-based assessment of the potential counterparty. The findings from this process directly inform the final decision to onboard and are used to calibrate the level of engagement with the SI, setting appropriate trading limits and monitoring protocols. This methodical strategy transforms due diligence from a simple requirement into a source of competitive advantage, ensuring that every counterparty relationship strengthens the firm’s overall execution architecture.

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## Execution

The execution of a due diligence program for a Systematic Internaliser is a procedural and analytical deep dive that translates the strategic framework into a series of concrete, auditable actions. This phase is about methodical verification, quantitative analysis, and operational integration. It requires a cross-functional team, typically involving legal, compliance, risk, and technology experts, to systematically dissect and validate every aspect of the SI’s operations. The process can be logically segmented into distinct phases, from initial screening to deep-dive analysis and, finally, operational onboarding and continuous monitoring.

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## Phase 1 Pre Engagement and Initial Screening

The initial phase serves as a filter to ensure that resources are not wasted on unsuitable counterparties. It involves verifying the most fundamental and non-negotiable requirements before committing to a full-scale due diligence process. This is a high-level qualification gate.

- **Regulatory Status Verification** The first action is to confirm the entity’s legal status as an SI. This is accomplished by checking the official registers maintained by the European Securities and Markets Authority (ESMA) and the relevant National Competent Authority (NCA). This step provides definitive proof that the firm is authorized to operate under the SI regime.

- **[Legal Entity Identifier](https://prime.greeks.live/area/legal-entity-identifier/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (LEI) Confirmation** Under MiFID II, a valid LEI is a prerequisite for all transaction reporting. The LEI of the potential counterparty must be verified against the Global LEI Foundation (GLEIF) database. An entity without a valid LEI cannot be a counterparty in a compliant trading relationship.

- **Initial Due Diligence Questionnaire (DDQ)** A standardized DDQ should be sent to the potential SI. This document serves to gather preliminary information on their business model, the asset classes they cover, their market-making strategies, and their key operational contacts. The responses to the DDQ provide the initial dataset for the deeper analysis to follow.

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## Phase 2 the Deep Dive Analysis

This is the core of the execution phase, where the team conducts a forensic examination of the SI’s documentation, policies, and systems. This analysis is structured around the risk domains identified in the strategic framework.

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## What Does a Legal and Regulatory Deep Dive Entail?

The legal and compliance review focuses on ensuring the SI operates within a sound legal and regulatory framework. It is a meticulous process of document review and policy analysis.

- **Review of Authorizations** The team must obtain and review the SI’s official authorization documents from its home state regulator. This review confirms the specific financial instruments the SI is permitted to trade and the services it is authorized to provide.

- **Analysis of [Compliance Policies](https://prime.greeks.live/question/what-specific-technological-and-data-infrastructure-is-required-to-effectively-manage-nsfr-compliance-in-collateral-policies/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)** A critical step is the detailed review of the SI’s internal compliance policies. This includes their Best Execution Policy, which outlines how they ensure the best possible results for their clients; their policy on pre-trade quote publication and [post-trade reporting](https://prime.greeks.live/area/post-trade-reporting/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), which is a core MiFID II requirement; and their Conflicts of Interest Policy, which details how they manage potential conflicts between their own interests and those of their clients.

- **Scrutiny of the Client Agreement** MiFID II mandates that a binding written agreement be in place between the firm and the SI. The legal team must scrutinize this agreement, paying close attention to clauses related to liability, termination rights, confidentiality, and dispute resolution.

> A rigorous examination of the SI’s legal agreements and compliance documents is essential to confirm adherence to regulatory standards before integration.

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## Operational and Technical Validation

The technology team’s objective is to validate the SI’s technical capabilities and [operational resilience](https://prime.greeks.live/area/operational-resilience/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). This involves moving beyond documentation to assessing the actual systems and infrastructure.

The assessment begins with connectivity. The team reviews the SI’s FIX protocol documentation to ensure compatibility with the firm’s own EMS/OMS. Latency is another critical factor; the team will analyze the SI’s network infrastructure and may request latency statistics to understand the speed of quote delivery and order execution. System stability is evaluated by reviewing historical uptime reports and the details of their technology stack.

Finally, the Business Continuity Plan (BCP) and Disaster Recovery (DR) procedures are examined to ensure the SI can withstand and recover from significant operational disruptions. The team will look for evidence of regular testing and clear recovery time objectives (RTOs).

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## Quantitative Execution Quality Analysis

Beyond qualitative reviews, a quantitative approach is essential for evaluating an SI’s [execution quality](https://prime.greeks.live/area/execution-quality/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). This is typically achieved through [Transaction Cost](https://prime.greeks.live/area/transaction-cost/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) Analysis (TCA). If the SI can provide historical execution data, or once a pilot trading relationship is established, a formal TCA process can be implemented. This analysis provides objective metrics on the quality of the prices and execution provided by the SI.

### Transaction Cost Analysis (TCA) Framework for SI Evaluation

| TCA Metric | Definition | Analytical Objective |
| --- | --- | --- |
| Price Improvement | The amount by which the execution price is better than the European Best Bid and Offer (EBBO) at the time of the trade. Measured in basis points or currency terms. | To quantify the added value provided by the SI’s quote compared to the prevailing public market price. Consistent price improvement is a key indicator of a high-quality liquidity source. |
| Effective/Quoted Spread | The difference between the price at which the SI is willing to buy and sell a security. The effective spread is the actual spread paid on a round-trip trade. | To measure the cost of liquidity provided by the SI. A tighter spread indicates a more competitive and cost-effective counterparty. |
| Fill Rate | The percentage of orders sent to the SI that are successfully executed. This can be analyzed by order size and market conditions. | To assess the reliability and consistency of the SI’s liquidity. A high fill rate indicates that the SI is consistently able to meet its quoting obligations. |
| Reversion | The tendency of a security’s price to move in the opposite direction after a trade is executed. It is a measure of market impact. | To evaluate the information leakage associated with trading with the SI. Low reversion suggests that trading with the SI does not signal trading intentions to the wider market. |
| Quote Response Time | The time elapsed between sending a request for quote (RFQ) and receiving a firm quote from the SI. | To measure the latency and responsiveness of the SI’s quoting engine. Fast response times are critical in fast-moving markets. |

![A sharp, metallic blue instrument with a precise tip rests on a light surface, suggesting pinpoint price discovery within market microstructure. This visualizes high-fidelity execution of digital asset derivatives, highlighting RFQ protocol efficiency](https://options.greeks.live/wp-content/uploads/2025/07/precision-digital-asset-derivative-rfq-execution-market-microstructure-high-fidelity-alpha-generation-prime-os-system.jpg)

## Phase 3 Onboarding and Ongoing Monitoring

Once the deep dive analysis is complete and the decision to onboard has been made, the final phase begins. This involves the practical steps of integrating the SI into the firm’s trading workflow and establishing a framework for continuous oversight.

The legal agreement is finalized and executed by both parties. The technology team works with the SI to establish and test FIX connectivity, configuring the firm’s EMS/OMS to route orders to the SI. Trading and credit limits are set in the firm’s risk management systems. Once live, the relationship enters a state of continuous monitoring.

The MiFID II framework itself mandates an annual due diligence review for certain client types, a practice that should be adopted for all critical counterparties like SIs. This involves a periodic refresh of the due diligence file, including updated financial statements, a review of any changes to compliance policies, and an ongoing TCA process to ensure that execution quality remains high. This disciplined, lifecycle approach to due diligence ensures that the initial rigor of the onboarding process is maintained throughout the lifetime of the counterparty relationship.

![Smooth, reflective, layered abstract shapes on dark background represent institutional digital asset derivatives market microstructure. This depicts RFQ protocols, facilitating liquidity aggregation, high-fidelity execution for multi-leg spreads, price discovery, and Principal's operational framework efficiency](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-protocol-multi-leg-spreads.jpg)

## References

- Fenergo. “MiFID II ▴ 6 Key Changes for Client Lifecycle Management.” 2017.

- European Securities and Markets Authority. “Guidelines on certain aspects of the MiFID II compliance function requirements.” 2020.

- International Capital Market Association. “MiFID II/R ▴ Systematic Internalisers An ICMA ‘FAQ’ for bond markets.” 2016.

- Bloomberg L.P. “MiFID II solutions.” 2017.

- A-Team Group. “Meeting Client and Counterparty Identity Requirements Under MiFID II.” 2017.

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

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

![A transparent geometric object, an analogue for multi-leg spreads, rests on a dual-toned reflective surface. Its sharp facets symbolize high-fidelity execution, price discovery, and market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-digital-asset-derivatives-high-fidelity-execution.jpg)

## Reflection

The integration of a Systematic Internaliser into a firm’s trading architecture is a decision that reshapes its access to market liquidity. The due diligence process detailed here provides a robust framework for managing the technical, regulatory, and financial risks associated with such a decision. The true strategic insight, however, comes from viewing this process not as a static, one-time event, but as the initial calibration of a dynamic relationship. How will your firm’s monitoring protocols adapt to changes in the SI’s quoting behavior or shifts in its regulatory landscape?

The knowledge gained through this rigorous vetting process is a foundational component of a larger system of institutional intelligence. It provides the data and the framework for making informed, adaptive decisions about where and how to source liquidity. The ultimate objective is to build an execution ecosystem that is resilient, efficient, and precisely aligned with your firm’s strategic goals. The quality of that ecosystem is a direct reflection of the rigor of its construction.

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## Glossary

<a href="https://prime.greeks.live/question/what-are-the-primary-mechanisms-for-mitigating-information-leakage-when-executing-large-orders/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A multi-faceted geometric object with varied reflective surfaces rests on a dark, curved base. It embodies complex RFQ protocols and deep liquidity pool dynamics, representing advanced market microstructure for precise price discovery and high-fidelity execution of institutional digital asset derivatives, optimizing capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/multi-faceted-institutional-digital-asset-derivatives-execution-infrastructure.jpg)

## Executing Client Orders

Mitigating information leakage requires architecting an execution that obscures intent through algorithmic dispersion, venue selection, and discreet liquidity sourcing. </a><a href="https://prime.greeks.live/area/systematic-internaliser/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Precision-engineered modular components, resembling stacked metallic and composite rings, illustrate a robust institutional grade crypto derivatives OS. Each layer signifies distinct market microstructure elements within a RFQ protocol, representing aggregated inquiry for multi-leg spreads and high-fidelity execution across diverse liquidity pools](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-multi-layered-algorithmic-rfq-liquidity-aggregation.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/due-diligence-process/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A layered, spherical structure reveals an inner metallic ring with intricate patterns, symbolizing market microstructure and RFQ protocol logic. A central teal dome represents a deep liquidity pool and precise price discovery, encased within robust institutional-grade infrastructure for high-fidelity execution](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-prime-os-orchestrating-rfq-protocols-for-high-fidelity-execution-and-multi-asset-liquidity.jpg)

## Due Diligence Process

Meaning ▴ The Due Diligence Process constitutes a systematic, comprehensive investigative protocol preceding significant transactional or strategic commitments within the institutional digital asset derivatives domain. </a><a href="https://prime.greeks.live/question/how-might-the-growth-of-all-to-all-rfq-models-change-the-traditional-dealer-client-relationship/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A multi-faceted crystalline star, symbolizing the intricate Prime RFQ architecture, rests on a reflective dark surface. Its sharp angles represent precise algorithmic trading for institutional digital asset derivatives, enabling high-fidelity execution and price discovery](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-high-fidelity-execution-market-microstructure-optimization-for-prime-os-alpha-generation.jpg)

## Client Orders

All-to-all RFQ models transmute the dealer-client dyad into a networked liquidity ecosystem, privileging systemic integration over bilateral relationships. </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">
![Sharp, intersecting metallic silver, teal, blue, and beige planes converge, illustrating complex liquidity pools and order book dynamics in institutional trading. This form embodies high-fidelity execution and atomic settlement for digital asset derivatives via RFQ protocols, optimized by a Principal's operational framework](https://options.greeks.live/wp-content/uploads/2025/07/institutional-grade-digital-asset-derivatives-market-microstructure-high-fidelity-execution-across-multi-leg-spread-rfq-protocol-orchestration-within-principals-operational-framework.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/pre-trade-transparency/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A dark, precision-engineered core system, with metallic rings and an active segment, represents a Prime RFQ for institutional digital asset derivatives. Its transparent, faceted shaft symbolizes high-fidelity RFQ protocol execution, real-time price discovery, and atomic settlement, ensuring capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-prime-os-core-for-high-fidelity-rfq-protocol-execution-and-atomic-settlement.jpg)

## Pre-Trade Transparency

Meaning ▴ Pre-Trade Transparency refers to the real-time dissemination of bid and offer prices, along with associated sizes, prior to the execution of a trade. </a><a href="https://prime.greeks.live/question/how-should-a-firms-due-diligence-process-evaluate-the-sufficiency-and-implementation-of-a-ccps-entire-default-waterfall/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sophisticated, layered circular interface with intersecting pointers symbolizes institutional digital asset derivatives trading. It represents the intricate market microstructure, real-time price discovery via RFQ protocols, and high-fidelity execution](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-institutional-digital-asset-derivatives-rfq-market-microstructure.jpg)

## Diligence Process

A firm's due diligence must model the CCP's default waterfall as a dynamic system to quantify the firm's specific contingent liabilities. </a><a href="https://prime.greeks.live/area/order-flow/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![An abstract, multi-component digital infrastructure with a central lens and circuit patterns, embodying an Institutional Digital Asset Derivatives platform. This Prime RFQ enables High-Fidelity Execution via RFQ Protocol, optimizing Market Microstructure for Algorithmic Trading, Price Discovery, and Multi-Leg Spread](https://options.greeks.live/wp-content/uploads/2025/08/institutional-grade-digital-asset-derivatives-trading-platform-powering-high-fidelity-execution-via-advanced-rfq-protocol-prime-os-intelligence-layer.jpg)

## Order Flow

Meaning ▴ Order Flow represents the real-time sequence of executable buy and sell instructions transmitted to a trading venue, encapsulating the continuous interaction of market participants' supply and demand. </a><a href="https://prime.greeks.live/area/due-diligence/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![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)

## Due Diligence

Meaning ▴ Due diligence refers to the systematic investigation and verification of facts pertaining to a target entity, asset, or counterparty before a financial commitment or strategic decision is executed. </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 central RFQ engine orchestrates diverse liquidity pools, represented by distinct blades, facilitating high-fidelity execution of institutional digital asset derivatives. Metallic rods signify robust FIX protocol connectivity, enabling efficient price discovery and atomic settlement for Bitcoin options](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-engine-liquidity-orchestration.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/question/what-is-the-strategic-importance-of-integrating-last-look-analysis-into-a-broader-tca-framework/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precise metallic central hub with sharp, grey angular blades signifies high-fidelity execution and smart order routing. Intersecting transparent teal planes represent layered liquidity pools and multi-leg spread structures, illustrating complex market microstructure for efficient price discovery within institutional digital asset derivatives RFQ protocols](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-engine-for-high-fidelity-execution-across-market-microstructure-dynamics.jpg)

## Strategic Framework

Integrating last look analysis into TCA transforms it from a historical report into a predictive weapon for optimizing execution. </a><a href="https://prime.greeks.live/question/what-is-the-process-for-onboarding-to-an-rfq-platform/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek, black and beige institutional-grade device, featuring a prominent optical lens for real-time market microstructure analysis and an open modular port. This RFQ protocol engine facilitates high-fidelity execution of multi-leg spreads, optimizing price discovery for digital asset derivatives and accessing latent liquidity](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-execution-engine-for-high-fidelity-price-discovery-and-latent-liquidity-aggregation-across-multi-leg-spreads.jpg)

## Onboarding Process

Onboarding to an RFQ platform is the architectural integration of legal, risk, and technology systems to access discreet liquidity. </a><a href="https://prime.greeks.live/area/risk-assessment/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A luminous conical element projects from a multi-faceted transparent teal crystal, signifying RFQ protocol precision and price discovery. This embodies institutional grade digital asset derivatives high-fidelity execution, leveraging Prime RFQ for liquidity aggregation and atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineered-rfq-protocol-orchestration-for-institutional-digital-asset-derivatives-high-fidelity-execution.jpg)

## Risk Assessment

Meaning ▴ Risk Assessment represents the systematic process of identifying, analyzing, and evaluating potential financial exposures and operational vulnerabilities inherent within an institutional digital asset trading framework. </a><a href="https://prime.greeks.live/question/how-do-firms-differentiate-between-financial-and-non-financial-misconduct/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Polished metallic pipes intersect via robust fasteners, set against a dark background. This symbolizes intricate Market Microstructure, RFQ Protocols, and Multi-Leg Spread execution](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineered-metallic-nodes-illustrating-rfq-protocols-for-multi-leg-digital-asset-derivatives-institutional-execution.jpg)

## Financial Statements

Firms differentiate misconduct by its target ▴ financial crime deceives markets, while non-financial crime degrades culture and operations. </a><a href="https://prime.greeks.live/question/how-does-sa-ccr-change-the-business-case-for-central-clearing/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract geometric structure with sharp angles and translucent planes, symbolizing institutional digital asset derivatives market microstructure. The central point signifies a core RFQ protocol engine, enabling precise price discovery and liquidity aggregation for multi-leg options strategies, crucial for high-fidelity execution and capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/principals-operational-framework-optimizing-institutional-digital-asset-derivatives-rfq-protocol-execution-for-alpha-generation.jpg)

## Business Continuity

SA-CCR changes the business case for central clearing by rewarding its superior netting and margining with lower capital requirements. </a><a href="https://prime.greeks.live/question/how-does-reverse-stress-testing-inform-a-banks-recovery-and-resolution-planning/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A dark, precision-engineered module with raised circular elements integrates with a smooth beige housing. It signifies high-fidelity execution for institutional RFQ protocols, ensuring robust price discovery and capital efficiency in digital asset derivatives market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-rfq-system-core-high-speed-price-discovery-module.jpg)

## Disaster Recovery

Reverse stress testing informs RRP by defining plausible failure scenarios, which validates the credibility of recovery triggers and options. </a><a href="https://prime.greeks.live/question/what-role-does-a-resolution-authority-play-in-the-valuation-of-derivatives-during-a-bank-failure/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A dark, glossy sphere atop a multi-layered base symbolizes a core intelligence layer for institutional RFQ protocols. This structure depicts high-fidelity execution of digital asset derivatives, including Bitcoin options, within a prime brokerage framework, enabling optimal price discovery and systemic risk mitigation](https://options.greeks.live/wp-content/uploads/2025/07/institutional-rfq-protocol-architecture-for-digital-asset-derivatives.jpg)

## National Competent Authority

A resolution authority executes a defensible valuation of derivatives to enable orderly loss allocation and prevent systemic contagion. </a><a href="https://prime.greeks.live/area/best-execution-policy/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A symmetrical, multi-faceted structure depicts an institutional Digital Asset Derivatives execution system. Its central crystalline core represents high-fidelity execution and atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-engine-microstructure.jpg)

## Best Execution Policy

Meaning ▴ The Best Execution Policy defines the obligation for a broker-dealer or trading firm to execute client orders on terms most favorable to the client. </a><a href="https://prime.greeks.live/area/business-continuity-plan/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precision-engineered metallic cross-structure, embodying an RFQ engine's market microstructure, showcases diverse elements. One granular arm signifies aggregated liquidity pools and latent liquidity](https://options.greeks.live/wp-content/uploads/2025/07/institutional-rfq-engine-microstructure-for-atomic-settlement.jpg)

## Business Continuity Plan

Meaning ▴ A Business Continuity Plan is a structured framework designed to maintain the continuous operation of critical business functions and systems during and following disruptive events. </a><a href="https://prime.greeks.live/question/how-can-a-leakage-model-differentiate-between-market-impact-and-systemic-information-leakage/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A segmented circular structure depicts an institutional digital asset derivatives platform. Distinct dark and light quadrants illustrate liquidity segmentation and dark pool integration](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-liquidity-aggregation-protocols.jpg)

## Information Leakage

A leakage model isolates the cost of compromised information from the predictable cost of liquidity consumption. </a><a href="https://prime.greeks.live/area/transaction-cost-analysis/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precision-engineered control mechanism, featuring a ribbed dial and prominent green indicator, signifies Institutional Grade Digital Asset Derivatives RFQ Protocol optimization. This represents High-Fidelity Execution, Price Discovery, and Volatility Surface calibration for Algorithmic Trading](https://options.greeks.live/wp-content/uploads/2025/07/principal-operational-framework-precision-calibration-for-institutional-digital-asset-derivatives-rfq-protocol-high-fidelity-execution-prime-os-and-volatility-surface-optimization.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/legal-entity-identifier/?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)

## Legal Entity Identifier

Meaning ▴ The Legal Entity Identifier is a 20-character alphanumeric code uniquely identifying legally distinct entities in financial transactions. </a><a href="https://prime.greeks.live/area/post-trade-reporting/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract dark reflective planes and white structural forms are illuminated by glowing blue conduits and circular elements. This visualizes an institutional digital asset derivatives RFQ protocol, enabling atomic settlement, optimal price discovery, and capital efficiency via advanced market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-optimized-for-high-fidelity-execution-1.jpg)

## Post-Trade Reporting

Meaning ▴ Post-Trade Reporting refers to the mandatory disclosure of executed trade details to designated regulatory bodies or public dissemination venues, ensuring transparency and market surveillance. </a><a href="https://prime.greeks.live/question/what-specific-technological-and-data-infrastructure-is-required-to-effectively-manage-nsfr-compliance-in-collateral-policies/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A clear, faceted digital asset derivatives instrument, signifying a high-fidelity execution engine, precisely intersects a teal RFQ protocol bar. This illustrates multi-leg spread optimization and atomic settlement within a Prime RFQ for institutional aggregated inquiry, ensuring best execution](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-precision-execution.jpg)

## Compliance Policies

Effective NSFR infrastructure integrates disparate data into a real-time engine for predictive funding optimization. </a><a href="https://prime.greeks.live/area/operational-resilience/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A translucent, faceted sphere, representing a digital asset derivative block trade, traverses a precision-engineered track. This signifies high-fidelity execution via an RFQ protocol, optimizing liquidity aggregation, price discovery, and capital efficiency within institutional market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-block-trade-high-fidelity-execution-protocol-prime-os-path.jpg)

## Operational Resilience

Meaning ▴ Operational Resilience denotes an entity's capacity to deliver critical business functions continuously despite severe operational disruptions. </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">
![A reflective surface supports a sharp metallic element, stabilized by a sphere, alongside translucent teal prisms. This abstractly represents institutional-grade digital asset derivatives RFQ protocol price discovery within a Prime RFQ, emphasizing high-fidelity execution and liquidity pool optimization](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-derivatives-rfq-prime-os-microstructure-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/transaction-cost/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A metallic precision tool rests on a circuit board, its glowing traces depicting market microstructure and algorithmic trading. A reflective disc, symbolizing a liquidity pool, mirrors the tool, highlighting high-fidelity execution and price discovery for institutional digital asset derivatives via RFQ protocols and Principal's Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-protocols-driving-high-fidelity-execution-and-market-microstructure-optimization-via-principal-prime-os.jpg)

## Transaction Cost

Meaning ▴ Transaction Cost represents the total quantifiable economic friction incurred during the execution of a trade, encompassing both explicit costs such as commissions, exchange fees, and clearing charges, alongside implicit costs like market impact, slippage, and opportunity cost. </a>

**Tags:** [MiFID II](https://options.greeks.live/area/mifid-ii/), [Transaction Cost Analysis](https://options.greeks.live/area/transaction-cost-analysis/), [Business Continuity Plan](https://options.greeks.live/area/business-continuity-plan/), [Due Diligence Process](https://options.greeks.live/area/due-diligence-process/), [Pre-Trade Transparency](https://options.greeks.live/area/pre-trade-transparency/), [Post-Trade Reporting](https://options.greeks.live/area/post-trade-reporting/)	

## Discover More

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### [What Are the Primary Conflicts of Interest a Best Execution Committee Must Manage and Disclose?](https://options.greeks.live/question/what-are-the-primary-conflicts-of-interest-a-best-execution-committee-must-manage-and-disclose/)
![A gleaming, translucent sphere with intricate internal mechanisms, flanked by precision metallic probes, symbolizes a sophisticated Principal's RFQ engine. This represents the atomic settlement of multi-leg spread strategies, enabling high-fidelity execution and robust price discovery within institutional digital asset derivatives markets, minimizing latency and slippage for optimal alpha generation and capital efficiency.](https://options.greeks.live/wp-content/uploads/2025/07/inst-digital-asset-deriv-rfq-os-for-optimal-high-fidelity-trade-exec.jpg)

A Best Execution Committee systematically manages conflicts between firm revenue and client duty through rigorous data analysis and transparent disclosure.

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### [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/)
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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.

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### [How Do Regulators Define the “Most Favorable Terms” in Best Execution?](https://options.greeks.live/question/how-do-regulators-define-the-most-favorable-terms-in-best-execution/)
![A precision optical system with a reflective lens embodies the Prime RFQ intelligence layer. Gray and green planes represent divergent RFQ protocols or multi-leg spread strategies for institutional digital asset derivatives, enabling high-fidelity execution and optimal price discovery within complex market microstructure.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-intelligent-core-driving-digital-asset-derivatives-rfq-protocols-high-fidelity-execution-across-diverse-liquidity-pools-for-optimal-price-discovery.jpg)

Regulators define "most favorable terms" as a dynamic, evidence-based assessment of execution quality across price, cost, speed, and likelihood.

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### [How Should a Best Execution Policy Adapt to the Rise of Algorithmic and AI-Driven Trading Strategies?](https://options.greeks.live/question/how-should-a-best-execution-policy-adapt-to-the-rise-of-algorithmic-and-ai-driven-trading-strategies/)
![Abstract metallic and dark components symbolize complex market microstructure and fragmented liquidity pools for digital asset derivatives. A smooth disc represents high-fidelity execution and price discovery facilitated by advanced RFQ protocols on a robust Prime RFQ, enabling precise atomic settlement for institutional multi-leg spreads.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-market-microstructure-optimizing-rfq-protocols-for-high-fidelity-execution-on-prime-os.jpg)

An adaptive best execution policy integrates AI-driven strategies and robust TCA to navigate modern market complexity for superior outcomes.

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### [How Did MiFID II’s Best Execution Standard Change Fixed Income Trading?](https://options.greeks.live/question/how-did-mifid-iis-best-execution-standard-change-fixed-income-trading/)
![A polished, dark teal institutional-grade mechanism reveals an internal beige interface, precisely deploying a metallic, arrow-etched component. This signifies high-fidelity execution within an RFQ protocol, enabling atomic settlement and optimized price discovery for institutional digital asset derivatives and multi-leg spreads, ensuring minimal slippage and robust capital efficiency.](https://options.greeks.live/wp-content/uploads/2025/08/quantitative-finance-driven-rfq-workflow-for-best-execution-in-digital-assets.jpg)

MiFID II transformed fixed income best execution from a qualitative goal into a quantitative, data-driven, and auditable discipline.

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### [What Are the Primary Conflicts of Interest When Trading with a Systematic Internaliser?](https://options.greeks.live/question/what-are-the-primary-conflicts-of-interest-when-trading-with-a-systematic-internaliser/)
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Systematic Internaliser conflicts arise from their dual role as principal and agent, creating information and pricing asymmetries.

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### [How Do Regulators Define “Sufficient Steps” for Proving Best Execution?](https://options.greeks.live/question/how-do-regulators-define-sufficient-steps-for-proving-best-execution/)
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Regulators define "sufficient steps" as the demonstrable, data-driven process a firm uses to consistently secure the best client outcomes.

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### [How Should Buy Side Best Execution Policies Evolve in a Post Si Derivatives Market?](https://options.greeks.live/question/how-should-buy-side-best-execution-policies-evolve-in-a-post-si-derivatives-market/)
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Evolving buy-side best execution in a post-SI derivatives market demands a data-driven, systematic approach to achieve optimal outcomes.

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### [What Are the Primary Challenges in Applying Best Execution Rules to Illiquid or OTC Derivatives?](https://options.greeks.live/question/what-are-the-primary-challenges-in-applying-best-execution-rules-to-illiquid-or-otc-derivatives/)
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Applying best execution to OTC derivatives requires constructing a verifiable price through a systemic process of analysis and competitive inquiry.

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---

**Original URL:** https://options.greeks.live/question/what-are-the-specific-due-diligence-requirements-for-onboarding-a-systematic-internaliser-as-a-counterparty/
