In this day and age, if your company trades securities, then you can’t avoid talking about time stamping and financial regulations. As you hopefully already know, the EU’s European Securities and Markets Authority (ESMA) last year set new rules in its MiFID II regulation regarding the accuracy of time stamps applied to various steps in the lifecycle of a trade. These go into effect in January 2018. You may be thinking this doesn’t apply to my financial firm; we’re not based in Europe! Think again, the reality is that MiFID II has a global impact on market participants worldwide that also trade in European markets and if you’re not prepared to comply with the new timekeeping requirements, you must act now or find your firm non-compliant. My understanding of “non-compliant” is synonymous with “subject to fines if caught,” but I digress.
You see, time stamps play a key role in reconstructing the lifecycle of a trade when there’s an expectation that all aspects of the market are fair, even on a global scale. The timekeeping of these trade lifecycle events from quote to execution must be accurate and reliable, which again, is critical to a fair market. When regulators audit and correlate market activity at any given point in time, key time stamping clocks must all agree across the entire network related to order flow to provide meaningful results. This is especially important in these times of high-frequency trading (HFT). Markets handle millions of orders every day, prices go up and down in microseconds, buyers and sellers are located around the world, and there are numerous systems to handle the multitude of steps present in the entire transaction process.
So, what exactly are the new requirements with MiFID II as they relate to timekeeping? Well, the big idea is if all key trading clocks are synchronized to the same “global” clock, then it should be easy (or at least easier) to audit the lifecycle of trades and trading behaviors. Simply put, MiFID II mandates levels of time accuracy and time stamp granularity for trading machines directly involved with order flow for the purposes of post trade auditing. Implied with this is a mechanism to prove time accuracy compliance, if asked, at the time of the trade in question. The time accuracy must be referenced and traceable to Coordinated Universal Time (UTC) as the official time reference for trading systems. For HFT environments, this translates to 100 microseconds to UTC with a time stamp granularity of 1 microsecond or better. The regulation takes effect on January 3, 2018.
Concerned now about your timekeeping system? You should be. Meeting these accuracy and granularity levels will clearly be a challenge for some market participants. You need to ask yourself the following fundamental questions:
- Do we have the systems in place to assure the required timekeeping accuracy?
- Can we demonstrate compliance?
More often than not, the answer to both questions is “no.” And, if that’s the case, you need to act now if you intend to continue trading with European securities firms and exchanges come January 2018.
If you’re facing a challenge deploying MiFID II or SEC-compliant timing infrastructure for your trading platform, please know that Microsemi has in-house expertise to recommend timing architectures to meet regulatory requirements. Download this white paper to learn how to choose a network timing solution that will be accurate, reliable, and compliant to the new regulations.
As always, please feel free to connect with me if I may be of assistance.
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