# What Due Diligence Is Required before an Institution Engages with a Systematic Internaliser? ▴ Question

**Published:** 2025-07-30
**Categories:** Question

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## Concept

An institution’s decision to engage with a [Systematic Internaliser](https://prime.greeks.live/area/systematic-internaliser/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (SI) is a recalibration of its execution architecture. It represents a deliberate choice to access a specific, concentrated liquidity source that operates under a distinct regulatory framework. The core of this engagement is the understanding that an SI is an investment firm executing client orders on its own account, dealing on a principal basis outside the conventional multilateral framework of a regulated market or multilateral trading facility (MTF). This structure is a direct consequence of market evolution, specifically the [MiFID II](https://prime.greeks.live/area/mifid-ii/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) directive’s objective to bring transparency and order to the over-the-counter (OTC) space.

The operational reality for a portfolio manager or trader is that the SI functions as a bilateral counterparty. When an institution sends an order to an SI, it is a request for the SI to fill that order from its own inventory. This process is governed by stringent pre-trade and post-trade transparency obligations designed to prevent the fragmentation of liquidity from undermining price discovery on public venues.

The SI must provide firm quotes upon request for liquid instruments, creating a direct, albeit controlled, window into its pricing engine. This mechanism introduces a unique dynamic into the execution process, blending the direct relationship of OTC trading with the rule-based transparency of regulated venues.

> Engaging a Systematic Internaliser requires an institution to fundamentally assess its counterparty risk framework and execution quality benchmarks against the advantages of a dedicated, principal-based liquidity source.

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## The Architectural Role of a Systematic Internaliser

From a systems perspective, the SI is a specialized node within the broader network of financial market liquidity. Its purpose under MiFID II is to formalize and regulate a significant channel of OTC trading, particularly in non-equity instruments like bonds and derivatives. The regime compels investment firms whose [principal trading](https://prime.greeks.live/area/principal-trading/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) activity crosses specific quantitative thresholds to register as SIs.

This mandatory registration ensures that a substantial portion of what was previously opaque bilateral trading is brought into a monitored and transparent environment. An institution connecting to an SI is, in effect, plugging into a regulated source of principal liquidity.

The [due diligence process](https://prime.greeks.live/area/due-diligence-process/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), therefore, begins with a clear understanding of this architecture. The institution must validate that the potential SI partner adheres to its core obligations. These duties are not uniform; they are contingent on the liquidity of the instrument being traded.

For liquid instruments, the SI’s duty to provide public firm quotes is a critical feature, offering a reliable data point for [best execution](https://prime.greeks.live/area/best-execution/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) analysis. For illiquid instruments or large-in-scale orders, waivers on transparency apply, which necessitates a different, more qualitative assessment of the SI’s capabilities and trustworthiness.

![A sophisticated dark-hued institutional-grade digital asset derivatives platform interface, featuring a glowing aperture symbolizing active RFQ price discovery and high-fidelity execution. The integrated intelligence layer facilitates atomic settlement and multi-leg spread processing, optimizing market microstructure for prime brokerage operations and capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-crypto-derivatives-rfq-engine-intelligence-layer.jpg)

## What Are the Core Obligations of an SI?

The responsibilities of a Systematic Internaliser form the bedrock of an institution’s [due diligence](https://prime.greeks.live/area/due-diligence/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) checklist. These are mandated by regulation and serve as the primary assurance of a fair and orderly interaction. The key obligations are:

- **Firm Quote Provision** For liquid instruments, an SI must provide firm quotes to its clients upon request. These quotes must be made public and accessible, often through an [Approved Publication Arrangement](https://prime.greeks.live/area/approved-publication-arrangement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (APA). This allows the institution to hold the SI accountable for its pricing. The SI can, however, establish a non-discriminatory [commercial policy](https://prime.greeks.live/question/how-does-a-court-objectively-assess-commercial-reasonableness-in-a-derivatives-dispute/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to manage which clients it provides quotes to and limit the number of transactions per quote.

- **Post-Trade Transparency** The SI is responsible for the public disclosure of transaction details after a trade is executed. It must report the trade to ensure market-wide transparency. Crucially, the SI is required to inform its counterparty that it is handling this reporting obligation to prevent duplicate reporting.

- **[Non-Discriminatory Access](https://prime.greeks.live/area/non-discriminatory-access/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)** While an SI can choose its clients based on a clear commercial policy, the criteria for this access must be objective and non-discriminatory. An institution must scrutinize this policy to ensure it is being treated equitably relative to other clients of the SI.

- **[Execution Quality](https://prime.greeks.live/area/execution-quality/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) Monitoring** SIs, like other execution venues, are subject to rules requiring them to publish data on the quality of their execution. This data, often detailed in RTS 27 reports, provides a quantitative basis for an institution to assess the SI’s performance.

Understanding these obligations is the first step. The subsequent due [diligence process](https://prime.greeks.live/question/what-specific-red-flags-should-trigger-enhanced-due-diligence-for-a-master-account-relationship/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is about verifying the robustness and consistency with which a specific SI meets these requirements in practice.

![A precision-engineered institutional digital asset derivatives execution system cutaway. The teal Prime RFQ casing reveals intricate market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-prime-os-rfq-protocol-core-engine.jpg)

![A precision sphere, an Execution Management System EMS, probes a Digital Asset Liquidity Pool. This signifies High-Fidelity Execution via Smart Order Routing for institutional-grade digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/principal-rfq-engine-orchestrating-global-digital-asset-derivatives-liquidity-pool-price-discovery-and-high-fidelity-execution.jpg)

## Strategy

The strategic decision to integrate a Systematic Internaliser into an institution’s execution workflow is an exercise in optimizing the trade-off between concentrated liquidity and [counterparty risk](https://prime.greeks.live/area/counterparty-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). The primary strategic objective is to secure access to unique pricing and liquidity streams, potentially reducing [market impact](https://prime.greeks.live/area/market-impact/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) and improving execution outcomes for specific types of orders. This requires a formal framework for evaluating, onboarding, and continuously monitoring SI relationships. The strategy moves beyond a simple check-the-box compliance exercise into a dynamic assessment of how a given SI contributes to the institution’s overarching best execution mandate.

An effective strategy involves classifying potential SI partners based on their specialization, market share, and the depth of liquidity they offer in the institution’s core instruments. Not all SIs are created equal. Some may be large banks with broad coverage across asset classes, while others might be specialized firms focusing on niche markets.

The institution’s strategy must align its trading needs with the specific strengths of the SI. For instance, an institution frequently trading large blocks in specific corporate bonds would prioritize an SI with a demonstrated history of providing competitive quotes and absorbing significant volume in those instruments.

![Metallic rods and translucent, layered panels against a dark backdrop. This abstract visualizes advanced RFQ protocols, enabling high-fidelity execution and price discovery across diverse liquidity pools for institutional digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/precision-market-microstructure-for-institutional-digital-asset-derivatives-rfq.jpg)

## Framework for SI Selection and Evaluation

Developing a robust selection framework is the central pillar of the due diligence strategy. This framework should be a written, repeatable process that allows for the objective comparison of different SI candidates. It operationalizes the institution’s risk appetite and execution policies into a set of measurable criteria. The evaluation should be structured around several key pillars, including regulatory standing, operational resilience, and execution quality.

The table below outlines a strategic comparison between utilizing an SI and a traditional trading venue. This comparison forms the basis of the decision-making process, helping the institution determine which execution channel is optimal for a given trade under specific [market conditions](https://prime.greeks.live/question/in-what-market-conditions-should-a-waterfall-rfq-protocol-be-deployed-over-a-simultaneous-one/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).

| Factor | Systematic Internaliser (SI) | Traditional Trading Venue (e.g. MTF, RM) |
| --- | --- | --- |
| Liquidity Source | Bilateral, from the SI’s own principal account. | Multilateral, from a diverse pool of participants. |
| Price Discovery | Based on the SI’s quote, which must reflect market conditions. | Centralized, based on the interaction of multiple bids and offers. |
| Market Impact | Potentially lower for large orders, as execution is off-book. | Higher potential for information leakage and market impact. |
| Counterparty Risk | Concentrated on the single SI firm. | Diversified, often mitigated by a central counterparty (CCP). |
| Transparency | Mandated pre-trade quote and post-trade reporting obligations. | High degree of pre-trade and post-trade transparency in a central order book. |
| Relationship | Direct, relationship-based interaction. | Anonymous or pseudonymous interaction. |

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## How Does an Institution Assess an SI’s Commercial Policy?

A critical component of the due diligence strategy is the deep analysis of the SI’s commercial policy. An SI is permitted to decide which clients it gives access to its quotes, provided the policy is objective and non-discriminatory. The institution must obtain and review this policy to understand the rules of engagement. Key areas to scrutinize include:

- **Client Tiering** Does the SI segment its clients into different tiers? If so, what are the criteria for each tier, and how does this affect quote access and pricing? The institution must ensure its own classification is fair and transparent.

- **Quote Throttling** The policy may specify limits on the number of quotes a client can request or the number of transactions they can execute based on a single quote. This must be evaluated to ensure it does not unduly constrain the institution’s ability to trade.

- **Instrument Scope** The policy should clearly define the specific financial instruments for which the SI is acting as an SI. This allows the institution to confirm that its intended trading activity falls within the SI’s regulated scope.

- **Exceptional Market Conditions** The SI can withdraw its quotes under exceptional market conditions. The institution must understand the SI’s definition of such conditions to predict when liquidity might be unavailable.

> A thorough analysis of an SI’s commercial policy reveals the true nature of the offered liquidity and the rules governing access to it.

Ultimately, the strategy for engaging with an SI is about building a diversified portfolio of execution options. The SI becomes one of several tools available to the trading desk. The goal is to develop a clear, data-driven methodology for directing order flow to the venue or counterparty that offers the highest probability of achieving best execution for each specific trade.

![Abstract clear and teal geometric forms, including a central lens, intersect a reflective metallic surface on black. This embodies market microstructure precision, algorithmic trading for institutional digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-prime-os.jpg)

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## Execution

The execution phase of due diligence translates strategic objectives into a concrete, operational process. It involves a granular, evidence-based assessment of a potential Systematic Internaliser partner. This is where the institution moves from reviewing policies to testing systems, analyzing data, and verifying claims.

The objective is to build a comprehensive operational profile of the SI, covering its regulatory bona fides, technological capabilities, risk profile, and historical execution performance. This process should be documented meticulously, creating an audit trail that justifies the decision to onboard and route flow to the SI.

A core component of this phase is direct engagement with the SI. The institution should prepare a detailed request for information (RFI) and conduct multiple sessions with the SI’s compliance, operations, and technology teams. The goal is to move beyond marketing materials and gain a deep understanding of the SI’s internal workings. This includes a thorough review of their rulebook, connectivity options, and procedures for handling disputes and errors.

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## A Procedural Checklist for SI Due Diligence

The following checklist provides a structured, multi-stage process for executing due diligence on a Systematic Internaliser. It is designed to be a practical tool for compliance and trading teams.

- **Regulatory and Legal Verification**

<li>**Confirm Registration** Verify the firm’s status as a Systematic Internaliser for the relevant asset classes on the official ESMA register. This is a non-negotiable first step.

- **Review Legal Documentation** Scrutinize the client agreement, terms of business, and the SI’s commercial policy. Engage legal counsel to identify any non-standard or concerning clauses.

- **Assess Sanctions History** Check with relevant national competent authorities (NCAs) for any past enforcement actions or sanctions against the firm.

</li>
- **Counterparty and Credit Risk Assessment**

<li>**Financial Health Analysis** Conduct a thorough assessment of the SI’s financial stability. This includes reviewing their balance sheet, capital adequacy ratios, and credit ratings from major agencies.

- **Establish Credit Lines** If significant exposure is anticipated, establish appropriate credit lines and collateral agreements to mitigate counterparty risk.

- **Review Risk Management Framework** Request documentation on the SI’s internal risk management controls, particularly those related to market risk and counterparty exposure.

</li>
- **Operational and Technical Review**

<li>**Connectivity and Protocols** Test the technical connectivity to the SI. Confirm support for standard protocols (e.g. FIX) and understand the data formats for receiving quotes and sending orders.

- **Quote Publication Mechanism** Verify that the SI’s quotes are published via a recognized APA in a machine-readable format as required. Assess the latency and reliability of this data feed.

- **System Redundancy and BCP** Evaluate the SI’s business continuity plan (BCP) and disaster recovery capabilities. Understand their procedures for system outages and communication during disruptions.

</li>

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## Quantitative Analysis of Execution Quality

Beyond procedural checks, a quantitative assessment of the SI’s execution quality is vital. This requires historical data, either from the SI’s own RTS 27/28 reports or through a pilot period of limited trading. The goal is to benchmark the SI’s performance against other available execution venues.

> Quantitative analysis of execution quality provides the objective evidence needed to validate an SI’s value proposition.

The following table provides a model for the type of data an institution should request and analyze. This data allows for a detailed comparison of execution performance.

| Metric | Data Point to Request | Purpose of Analysis |
| --- | --- | --- |
| Price Improvement | Percentage of orders executed at a better price than the prevailing market bid/offer. | To measure the tangible price benefit of trading with the SI. |
| Quote Competitiveness | The SI’s quoted spread versus the spread on the primary lit market for the same instrument. | To assess the tightness of the SI’s pricing. |
| Rejection/Fill Rates | The percentage of orders sent to the SI that are accepted and fully executed. | To evaluate the reliability and capacity of the SI’s liquidity. |
| Execution Speed | Average latency from order submission to execution confirmation (in milliseconds). | To assess the technological efficiency of the SI’s trading system. |
| Slippage Analysis | The difference between the expected execution price (e.g. arrival price) and the final execution price. | To measure market impact and the cost of execution. |

By systematically working through this execution-focused due diligence process, an institution can build a comprehensive and defensible case for engaging with a Systematic Internaliser. This methodical approach ensures that the relationship is built on a foundation of verified facts and quantitative evidence, aligning the operational reality with the strategic goal of achieving superior execution.

![The image depicts two intersecting structural beams, symbolizing a robust Prime RFQ framework for institutional digital asset derivatives. These elements represent interconnected liquidity pools and execution pathways, crucial for high-fidelity execution and atomic settlement within market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-cross-market-execution-architecture-for-digital-assets.jpg)

## References

- International Capital Market Association. “MiFID II implementation ▴ the Systematic Internaliser regime.” 2017.

- Federal Financial Supervisory Authority (BaFin). “Systematic internalisers ▴ Main points of the new supervisory regime under MiFID II.” 2017.

- Financial Conduct Authority. “MAR 6.3 Criteria for determining whether an investment firm is a systematic internaliser.” FCA Handbook, 2016.

- European Securities and Markets Authority. “ESMA70-156-2756 MiFIR report on systematic internalisers in non-equity instruments.” 2020.

- European Securities and Markets Authority. “Article 5 Due-diligence requirements for institutional investors.” Securitisation Regulation.

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## Reflection

Integrating a Systematic Internaliser is an architectural decision that reshapes an institution’s liquidity access and counterparty risk map. The due diligence process detailed here provides the blueprint for that integration. The final consideration is a strategic one ▴ how does this new component enhance the overall resilience and performance of your execution system? A relationship with an SI is not a static endpoint.

It is a dynamic data feed on market appetite and principal liquidity that must be continuously analyzed. The true advantage is gained by those who can translate this data into a more intelligent, adaptive, and ultimately more effective trading operation, turning regulatory structure into a source of competitive edge.

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## Glossary

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

Meaning ▴ A Systematic Internaliser (SI) is a financial institution executing client orders against its own capital on an organized, frequent, systematic basis off-exchange. </a><a href="https://prime.greeks.live/area/mifid-ii/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A central RFQ aggregation engine radiates segments, symbolizing distinct liquidity pools and market makers. This depicts multi-dealer RFQ protocol orchestration for high-fidelity price discovery in digital asset derivatives, highlighting diverse counterparty risk profiles and algorithmic pricing grids](https://options.greeks.live/wp-content/uploads/2025/07/centralized-digital-asset-rfq-orchestration-for-multi-venue-liquidity-aggregation-and-high-fidelity-execution-across-diverse-counterparties.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/principal-trading/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Principal Trading

Meaning ▴ Principal Trading defines the operational paradigm where a financial entity engages in market transactions utilizing its own capital and balance sheet, rather than executing orders on behalf of clients. </a><a href="https://prime.greeks.live/area/due-diligence-process/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A smooth, off-white sphere rests within a meticulously engineered digital asset derivatives RFQ platform, featuring distinct teal and dark blue metallic components. This sophisticated market microstructure enables private quotation, high-fidelity execution, and optimized price discovery for institutional block trades, ensuring capital efficiency and best execution](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-system-microstructure-core.jpg)

## 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/area/best-execution/?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)

## Best Execution

Meaning ▴ Best Execution is the obligation to obtain the most favorable terms reasonably available for a client's order. </a><a href="https://prime.greeks.live/area/due-diligence/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precision-engineered, multi-layered system visually representing institutional digital asset derivatives trading. Its interlocking components symbolize robust market microstructure, RFQ protocol integration, and high-fidelity execution](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-high-fidelity-execution-4.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/area/approved-publication-arrangement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract depiction of an institutional digital asset derivatives execution system. A central market microstructure wheel supports a Prime RFQ framework, revealing an algorithmic trading engine for high-fidelity execution of multi-leg spreads and block trades via advanced RFQ protocols, optimizing capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-prime-os-rfq-execution-system-1.jpg)

## Approved Publication Arrangement

Meaning ▴ An Approved Publication Arrangement (APA) is a regulated entity authorized to publicly disseminate post-trade transparency data for financial instruments, as mandated by regulations such as MiFID II and MiFIR. </a><a href="https://prime.greeks.live/question/how-does-a-court-objectively-assess-commercial-reasonableness-in-a-derivatives-dispute/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Commercial Policy

A court objectively assesses commercial reasonableness by forensically examining the valuation process and its outcome against prevailing market standards. </a><a href="https://prime.greeks.live/area/non-discriminatory-access/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Non-Discriminatory Access

Meaning ▴ Non-Discriminatory Access defines the principle where all qualified participants are afforded equal opportunity to interact with a trading system or market, without preferential treatment based on size, frequency, or affiliation. </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">
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## 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/question/what-specific-red-flags-should-trigger-enhanced-due-diligence-for-a-master-account-relationship/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A metallic disc, reminiscent of a sophisticated market interface, features two precise pointers radiating from a glowing central hub. This visualizes RFQ protocols driving price discovery within institutional digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-price-discovery.jpg)

## Diligence Process

Enhanced due diligence for a master account relationship mitigates systemic risk by deconstructing client complexity and transactional opacity. </a><a href="https://prime.greeks.live/area/counterparty-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A polished metallic needle, crowned with a faceted blue gem, precisely inserted into the central spindle of a reflective digital storage platter. This visually represents the high-fidelity execution of institutional digital asset derivatives via RFQ protocols, enabling atomic settlement and liquidity aggregation through a sophisticated Prime RFQ intelligence layer for optimal price discovery and alpha generation](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-optimization-for-high-fidelity-execution-and-liquidity-aggregation-via-prime-os-intelligence-layer.jpg)

## Counterparty Risk

Meaning ▴ Counterparty risk denotes the potential for financial loss stemming from a counterparty's failure to fulfill its contractual obligations in a transaction. </a><a href="https://prime.greeks.live/area/market-impact/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Intricate metallic components signify system precision engineering. These structured elements symbolize institutional-grade infrastructure for high-fidelity execution of digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-precision-engineering-for-high-fidelity-execution-and-latency-optimization.jpg)

## Market Impact

Meaning ▴ Market Impact refers to the observed change in an asset's price resulting from the execution of a trading order, primarily influenced by the order's size relative to available liquidity and prevailing market conditions. </a><a href="https://prime.greeks.live/question/in-what-market-conditions-should-a-waterfall-rfq-protocol-be-deployed-over-a-simultaneous-one/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A luminous digital market microstructure diagram depicts intersecting high-fidelity execution paths over a transparent liquidity pool. A central RFQ engine processes aggregated inquiries for institutional digital asset derivatives, optimizing price discovery and capital efficiency within a Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-high-fidelity-execution-principal-operational-framework-price-discovery.jpg)

## Market Conditions

A waterfall RFQ should be deployed in illiquid markets to control information leakage and minimize the market impact of large trades. </a>

**Tags:** [Counterparty Risk](https://options.greeks.live/area/counterparty-risk/), [Post-Trade Reporting](https://options.greeks.live/area/post-trade-reporting/), [Systematic Internaliser](https://options.greeks.live/area/systematic-internaliser/), [Due Diligence Process](https://options.greeks.live/area/due-diligence-process/), [Market Impact](https://options.greeks.live/area/market-impact/), [Principal Trading](https://options.greeks.live/area/principal-trading/)	

## Discover More

- 
### [How Does a Systematic Internaliser’s Quoting Obligation Differ from That of a Regulated Market?](https://options.greeks.live/question/how-does-a-systematic-internalisers-quoting-obligation-differ-from-that-of-a-regulated-market/)
![Polished metallic surface with a central intricate mechanism, representing a high-fidelity market microstructure engine. Two sleek probes symbolize bilateral RFQ protocols for precise price discovery and atomic settlement of institutional digital asset derivatives on a Prime RFQ, ensuring best execution for Bitcoin Options.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-institutional-digital-asset-derivatives-rfq-engine-core-market-microstructure-intelligence-layer.jpg)

A Systematic Internaliser's quoting is a bilateral duty to a client, while a Regulated Market's is a multilateral obligation to all participants.

- 
### [How Does the Concept of a Systematic Internaliser under MiFID II Affect RFQ Best Execution?](https://options.greeks.live/question/how-does-the-concept-of-a-systematic-internaliser-under-mifid-ii-affect-rfq-best-execution/)
![A futuristic system component with a split design and intricate central element, embodying advanced RFQ protocols. This visualizes high-fidelity execution, precise price discovery, and granular market microstructure control for institutional digital asset derivatives, optimizing liquidity provision and minimizing slippage.](https://options.greeks.live/wp-content/uploads/2025/07/advanced-rfq-protocols-for-digital-asset-derivatives-price-discovery.jpg)

The Systematic Internaliser regime codifies bilateral liquidity, transforming RFQ into a data-driven process for evidencing best execution.

- 
### [How Do Regulatory Frameworks like Mifid Ii Treat Hybrid Execution Venues Compared to Pure Dark Pools?](https://options.greeks.live/question/how-do-regulatory-frameworks-like-mifid-ii-treat-hybrid-execution-venues-compared-to-pure-dark-pools/)
![A translucent teal layer overlays a textured, lighter gray curved surface, intersected by a dark, sleek diagonal bar. This visually represents the market microstructure for institutional digital asset derivatives, where RFQ protocols facilitate high-fidelity execution. The transparency suggests price discovery across diverse liquidity pools, optimizing capital efficiency and minimizing slippage for block trades.](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-derivatives-rfq-protocols-driving-optimal-execution.jpg)

MiFID II governs non-displayed liquidity by capping pure dark pools while integrating hybrid venues via transparency obligations.

- 
### [How Does the SI Model Affect Best Execution Obligations for the Buy-Side?](https://options.greeks.live/question/how-does-the-si-model-affect-best-execution-obligations-for-the-buy-side/)
![A diagonal composition contrasts a blue intelligence layer, symbolizing market microstructure and volatility surface, with a metallic, precision-engineered execution engine. This depicts high-fidelity execution for institutional digital asset derivatives via RFQ protocols, ensuring atomic settlement.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-for-institutional-digital-asset-derivatives-execution.jpg)

The Systematic Internaliser model compels buy-side firms to evolve best execution from a compliance task into a data-driven, strategic capability.

- 
### [How Do Regulatory Frameworks like MiFID II Influence the Design and Adoption of Hybrid RFQ Protocols?](https://options.greeks.live/question/how-do-regulatory-frameworks-like-mifid-ii-influence-the-design-and-adoption-of-hybrid-rfq-protocols/)
![Metallic rods and translucent, layered panels against a dark backdrop. This abstract visualizes advanced RFQ protocols, enabling high-fidelity execution and price discovery across diverse liquidity pools for institutional digital asset derivatives. It embodies optimal market microstructure and algorithmic trading within a Prime RFQ.](https://options.greeks.live/wp-content/uploads/2025/07/precision-market-microstructure-for-institutional-digital-asset-derivatives-rfq.jpg)

MiFID II reshaped RFQs by mandating an auditable, on-venue framework, creating hybrid protocols that fuse discretion with compliance.

- 
### [To What Extent Must a Firm’s Best Execution Committee Be Involved in the SI Vs Lit Market Decision?](https://options.greeks.live/question/to-what-extent-must-a-firms-best-execution-committee-be-involved-in-the-si-vs-lit-market-decision/)
![A transparent, angular teal object with an embedded dark circular lens rests on a light surface. This visualizes an institutional-grade RFQ engine, enabling high-fidelity execution and precise price discovery for digital asset derivatives. It optimizes capital efficiency, manages counterparty risk, supports multi-leg spread strategies, and provides deep market microstructure insights within a Prime RFQ framework.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-rfq-engine-high-fidelity-execution.jpg)

The Best Execution Committee's involvement in the SI vs. lit decision must be comprehensive, architecting and validating the data-driven framework that governs all venue selection.

- 
### [Can the Use of a Systematic Internaliser for Large in Scale Orders Actually Reduce Overall Market Risk?](https://options.greeks.live/question/can-the-use-of-a-systematic-internaliser-for-large-in-scale-orders-actually-reduce-overall-market-risk/)
![A sleek, bimodal digital asset derivatives execution interface, partially open, revealing a dark, secure internal structure. This symbolizes high-fidelity execution and strategic price discovery via institutional RFQ protocols. It optimizes capital efficiency by aggregating latent liquidity, minimizing slippage, ensuring best execution for multi-leg spreads and block trades, and mitigating information leakage.](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-protocols-price-discovery.jpg)

The use of a Systematic Internaliser for large-in-scale orders can reduce overall market risk by containing price impact and information leakage.

- 
### [What Are the Key Differences between an SI and an Organized Trading Facility?](https://options.greeks.live/question/what-are-the-key-differences-between-an-si-and-an-organized-trading-facility/)
![A sophisticated digital asset derivatives RFQ engine's core components are depicted, showcasing precise market microstructure for optimal price discovery. Its central hub facilitates algorithmic trading, ensuring high-fidelity execution across multi-leg spreads. This system supports institutional prime brokerage operations, minimizing counterparty risk.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-engine-optimizing-multi-leg-spreads-for-optimal-capital-efficiency.jpg)

An SI is a firm bilaterally executing client orders with its own capital; an OTF is a discretionary, multilateral venue for non-equities.

- 
### [What Are the Key Differences in Due Diligence for Equity versus Non-Equity SIs?](https://options.greeks.live/question/what-are-the-key-differences-in-due-diligence-for-equity-versus-non-equity-sis/)
![A sleek, symmetrical digital asset derivatives component. It represents an RFQ engine for high-fidelity execution of multi-leg spreads. This balanced design optimizes capital efficiency and risk profiles within market microstructure, enabling best execution and price discovery for institutional block trades.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-engine-for-optimized-market-microstructure.jpg)

Equity SI due diligence verifies execution quality; non-equity SI due diligence assesses counterparty and valuation risk.

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---

**Original URL:** https://options.greeks.live/question/what-due-diligence-is-required-before-an-institution-engages-with-a-systematic-internaliser/
