The financial trading industry requires highly accurate, reliable, and documentable clock synchronization for business logic, competitive advantage, and regulatory compliance. Without reliable clock synchronization, trading records can only be identified by timestamps that are off by seconds or more.
MiFID II, FINRA, CAT NSM, SEC Rule 613, ESMA and MiFIR regulations in Europe and the US are similar to emerging regulations around the world and call for clock traceability (to UTC, NIST, or other national atomic clock standards), reliable time sync, and transaction timestamping accuracy performance in applications, as well as time sync data analytics and auditable records for proof-of-compliance reporting over multiple years. MiFID II RTS 25 currently requires 100µs accuracy in high frequency applications as a "minimum" requirement for participants in CAT 613 NMS, while industry members are currently required to met the 50ms accuracy standard. CAT's timestamp reporting specification requires accuracy in milliseconds, but finer timestamp increments up to nanoseconds for order handling or execution systems must be recorded and reported to the CAT as well. Meeting the standard is not sufficient, however; firms must be able to document compliance.
Business Logic Requirements
Firms participating in any type of electronic asset trading must posess high quality clock sync management infrastructure to be able to guarantee data integrity for internal controls/compliance, data mining, and performance monitoring. Trading venues are so fast that without highly accurate clock synchronization, the order of events cannot be determined even from trading records. In addition, clock synchronization is necessary to monitor network performance and SLAs from networking providers, trading venues, and other trading counter-parties.
Automated trading systems require highly accurate data to find exploitable correlations. Financial trading firms seeking competitive advantage from their trading data benefit enormously from accurate timestamps.
The Value of a Millisecond - Without reliably accurate network clock synchronization, it is impossible to measure, monitor and improve trading latency efficiency. "TABB Group estimates that if a broker’s electronic trading platform is 5 milliseconds behind the competition, it could lose at least 1% of its flow; that’s $4 million in revenues per millisecond. Up to 10 milliseconds of latency could result in a 10% drop in revenues. From there it gets worse. If a broker is 100 milliseconds slower than the fastest broker, it may as well shut down its FIX engine and become a floor broker."
The Cost of Non Compliance
FINRA audits financial institutions and fines them for being non compliant (inaccurate timestamp) or failing to report compliance on the accuracy performance of order event timestamps against NIST traceability. Over $30M in FINRA fines have been issued from 2000 to 2018 to financial institutions for inaccurate timestamp issues, such as
- "the timestamp for the related subsequent report occurred prior to the receipt of the order"
- "failed to report the accurate time of execution"
- "the timestamp for the related subsequent report occurred prior to the timestamp for the combined order-route report"
- "cancelled timestamp that was in excess"
- "failed to timestamp"