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MiFID II: Revenge of The Regulator

I'm a movie lover. I've seen more than the average person and can re-watch the same film hundreds of times (I'm looking at you Star Wars, Jaws, Ghostbusters…).  When you watch a lot of movies you start to spot the tropes, those little repeating themes, devices or motifs. One of my favourites is always just before the big third act set piece, in the moments before the heist, the daring rescue, or the desperate last stand where our protagonists are about to initiate ‘the plan’.  It's where the tension is high and the anticipation is higher, that someone says the line; “synchronise watches”.   Then you get either an overhead shot of fists in a circle and all sporting watches set to identical times, or a series of cuts showing lots of different time pieces starting their countdowns with the push of a button that almost always beeps – even on analogue watches !  Only now are they ready, synchronised with their team mates, or with the explosive charges that will blow the damn, the bridge or the Nakatomi building, to win the day, safe in the knowledge that everything will occur as it should. And most importantly, when it should.


So, it’s with a nerdy sense of glee that I find myself immersed in one of the biggest watch synchronisations our industry has ever seen. As trading organisations prepare to come under siege from the various regulators, one of the things they must have is properly synchronised clocks on their trading systems. Here is what’s required:


•      Human-powered trading requires a clock that is accurate to 1 second of UTC

•      Algorithmic, but not High Frequency Trading (HFT), participants must be at 1 millisecond of UTC

•      HFT market participants must meet the 100-microsecond of UTC standard


The differences between these clock resolutions is bigger than you might think. As I write this, the time is now 08:24 and 17 seconds, but does that tell whole story?  Let’s say that I’m telling my time on an extremely accurate, high frequency clock. If that was the case, what time would I tell you I was writing this?  Let's have a look – I’ve highlighted how these numbers relate to the regulations to show how accurate firms will need to be.


The first one is easy:

 08:24:17 (we could still use our watches here!) 1 tick per second.


At millisecond precision things become a little more complicated, as we’re talking about thousandths of a second – which could look like this:

 08:24:17.753 – so there are now 1,000 ticks inside a single second.


Things get even more fun at microsecond precision, as we’ve entered millionth of a second territory – which could look like this:

 08:24:17.795123 – so now there are 1,000,000 ticks inside a single second.  1,000,000 “nows” if you like.


These degrees of accuracy are designed to allow regulators and ‘appropriate authorities’ to reconstruct trades and trading behaviors, so they can sort out the good guys from the bad guys. It's therefore important that everyone adheres to these standards. Firms just need to “synchronize watches” and then get on with what they really want to do, trade.  Easy right?




Time is a subtle beast. When trading firms take the red pill and descend into a world of digital control (taking the blue pill is not an option here), they will find that the machines are as disobedient and hard to pin down as anything the Matrix had to offer.


But let's leave that discussion to the sequel. 




Comments: (4)

Willem Lambrechts
Willem Lambrechts - Drebbel - Ghent 21 March, 2017, 08:51Be the first to give this comment the thumbs up 0 likes

Thank you Peter, for this interesting view on the clock matter in the Mifid context. Fortunately the time stamps will be used and put in the right context by machines, not by humans. It is technically more than just feasible to track and trace thousands of transactions per second, in real time and with time stamps going to nanosecond detail.

It is a bit like in the movie. The reality often overtakes imagination, both in a postive and in a negative way.

In any case, as you I'm looking forward to the sequel!

A Finextra member
A Finextra member 21 March, 2017, 15:53Be the first to give this comment the thumbs up 0 likes

Thanks for the comment and I agree it's more than feasible to do this.  I say that from experience becuase we've done it here at CJC and it was the process of going through the creation of the system with our team that got me fascinated by this subject.  

A Finextra member
A Finextra member 22 March, 2017, 00:00Be the first to give this comment the thumbs up 0 likes

Microseconds!? In order to re-construct what goes in the market, the timestamps need to be measured in nanoseconds relative to each other. The response times of traders are substantially sub-micro, and the response times of the venues themselves are below the 100 us accuracy required by MiFID II. In other words, a trader could report two orders which were sent serially, simultaneously. 

A Finextra member
A Finextra member 22 March, 2017, 10:38Be the first to give this comment the thumbs up 0 likes

Absolutly agree.  Nano seconds is the way to go if we are to be in a position to accuratly represent the activities and behaviours in the HFT market. 

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