The second halfling kingdom is a stretch of land within Midgardian borders, using Midgardian law. Most of the population doesn't call themselves Midgardians though.
You can find the halfling kingdom among the lakes west of the silver peak mountains. The residents are often called lake halflings.
The kingdom is a true kingdom, with a royal family that reigns the area. The king has vowed alliance to the Banking guild and won't change any of it's laws, but in times of crisis the area fields it's own army and the royal family has complete reign on the taxes system like all local rulers within Midgard.
The Tenluur family is the royal family and finances the render-war in the first halfling kingdom .
History of the second halfling kingdom
The full history of the kingdom can be read in the history of halflings .