I’ve always appreciated the saying “a man with one clock knows the time, a man with two is not sure.” This certainly applies to all of the time stamping clocks that participate in the execution of a securities transaction. So, let’s talk time stamps, as they play what is the central role in reconstructing a chain of events from order origination to execution, and how accurate and reliable timekeeping is vital to a fair securities market.
MiFID II regulations require trading systems to time stamp key trading event records all within an assured level of accuracy — 100 microseconds to UTC — and an assured level of granularity — 1 microsecond. Think of UTC as the “one clock” mentioned earlier (though, by definition, it is actually many atomic clocks around the planet that contribute to the time and scientists are basically deriving what UTC time was, not is, but I digress). For the purposes of MiFID II compliance, it is relatively straightforward to synchronize clocks to far better than 100 microseconds to what UTC likely is at the instant the time stamp is needed. (For more on MiFID II, click here.) To deliver that accurate time stamp, three technical elements must be present:
- An accurate and reliable source of UTC time
- Accurate and reliable delivery of UTC time from the source to the time stamping location
- A way to monitor time accuracy to demonstrate compliance.
Know that when it comes to a UTC time source, for the most part, there are two options typically used: publicly available time servers or GNSS satellites. Of these two options, the second one is preferable. Satellite-referenced time servers with nanosecond-caliber time accuracy to UTC can reside close to the trading machines, which inherently makes them more accurate, reliable, and secure, while time transfer from free Internet sources is risky, unreliable, and not nearly accurate enough to be compliant with MiFID II.
When deciding how to distribute time from the time server to trading systems over an internal network, operators basically have two options, but in reality, just one where MiFID II compliance is concerned:
1. Network Time Protocol (NTP): Not a viable option given the MiFID II accuracy requirements, and
2. Precise Time Protocol (PTP): Properly engineered and referencing time from satellites, PTP networks are well-suited to deliver time better than 100 microseconds to UTC, which is the minimum time accuracy threshold specified by MiFID II.
Before I completely toss out NTP, understand why. High-accuracy time transfer over Ethernet requires two key attributes: a reasonably fast packet exchange rate and hardware time stamping at both the time server and the client. These two attributes combine to help sophisticated clock steering algorithms reduce errors in time transfer. Regular NTP does not have a packet exchange rate faster than once every 16 seconds (or 16 million microseconds!), and there are no commercially available NTP hardware-based slaves. For these reasons NTP should not be deployed in an attempt to meet MiFID II requirements.
Enter PTP. In the early part of this decade, HFT firms migrated systems to use PTP with its higher timing packet exchange rates, available hardware time stamping, and synchronization to UTC to improve their trading system performance. I’m of the mind that we can thank them for proving that time stamps with 100 microsecond accuracy to UTC or better is not only achievable, it is now commonplace and realistic for moving into regulations like MiFID II. The key to successful time synchronization is the last mile which is a properly configured trading machine leveraging PTP and maintaining the accuracy and reliability of the time transferred from satellite-referenced time servers. Once accomplished, the challenge then centers on compliance, which I’ll discuss in a later blog post.
What does all of this mean? Simply put, the EU’s European Securities Markets Authority (ESMA) MiFID II rules mandate much stricter levels of time stamp accuracy and granularity in financial market transactions than in the past. If you participate in these markets, you need to deploy an accurate source of UTC time from which to transfer time over the network using PTP to trading machines involved in time stamping. And if you think you’re exempt for not being European-based, remember that markets and market participants are highly interconnected, so these rules will have a ripple effect worldwide.
Never has it been more important to choose a network timekeeping architecture that will be accurate, reliable, and compliant to the MiFID II regulations and anticipated SEC requirements. Will you be ready to meet these regulations? Download this whitepaper now to find out.
I am available to discuss this topic in more detail; please reach out at any time.
Leave a Reply
You must be logged in to post a comment.