Today’s financial markets participants must comply with emerging and existing regulatory requirements that dictate the level of precision and accuracy of time needed for transactions. Timestamping and clock synchronisation are an important part of operations
in any business that trades. In heavily regulated industries like finance, participants also need to be informed of the potential legal punishments and repercussions of non-compliance, as well as the technologies available to enable them to trade efficiently
and by the books, while maintaining a commercial edge over competitors.
1. MiFID II is here
What path should a business take to conform to the time synchronisation rules in RTS-25?
It’s not a surprise that time precision and stamping are at the heart of regulatory compliance, with MiFID II RTS-25 placing strict requirements on the accuracy and granularity of timestamps and the maximum divergences of clocks that are being read.
It’s essential to notice that clock synchronisation subsequently plays a critical role in investor protection by being a mechanism that supports fair, efficient and transparent markets.
Ensuring accurate and secure clock synchronisation and timestamping is a major challenge for financial firms. The need for pre- and post-trade transparency is a critical piece in earning and keeping investor trust in the capital markets. Any firm that trades
in the United States or European Union needs reliable, synchronised clock feeds to connect to their trading applications and order management systems.
2. CAT NMS is also here
Do businesses have to comply with the 100 microsecond or the 50 millisecond rule? How are they achieving that?
As a reminder, the Consolidated Audit Trail will track orders throughout their life cycles and identify the broker-dealers handling them, thus allowing regulators to more efficiently track activity in Eligible Securities throughout the U.S. markets.
The primary goal of the Securities and Exchange Commission (SEC) Rule 613 is to improve the ability of the SEC and the self-regulatory organisations (SROs) to oversee trading in the U.S. securities markets.
3. Security is core
Now that the regulations are in place and effective, it’s time to focus on reliability and compliance. Businesses should be asking themselves:
- How should we ensure that our time feed stays secure and dependable?
- How will we deal with the consequences of missed data?
- How can we do it cost effectively?
There are inherent issues and challenges with GPS, especially ensuring that GPS-based feeds remain as reliable as possible. Signals are susceptible to jamming and spoofing (whether accidental or intentional), antennas can be mistakenly blocked, and equipment
can fail. The finance industry is beginning to recognise the limitations with GPS, something that many professionals in the government and military sectors have been telling us about for some time now. The U.S. Congress is taking action to enhance and secure
GPS for the future, but practical solutions are still not available and the ultimate next steps are likely still years away.
But speaking realistically, businesses are most likely limited to using a GPS-based for their time synchronisation needs. Yes, in some limited locations organisations can access a direct feed from an atomic clock but it’s only available at very few sites
globally and the cost can be prohibitive. A GPS time feed is the most practical and cost-effective option for many companies.
So, how do firms ensure that they meet regulatory requirements and satisfy compliance initiatives, while also managing the risks and controlling costs, all at the same time?
4. Choosing a solid technology to deliver a clock feed is a good first step
Today, technologies that can help are available in many of the world’s major financial market cities, and the best can deliver a feed with built-in backup and redundancy to many colocation centres where such a service is needed. It is particularly important
that sites relying on these technologies are supplied with rubidium holdovers, ensuring that a compliance-ready time feed can be held for many days during a possible GPS outage. Additionally, best-in-breed technologies have multiple GPS antennas in distinct
locations, to make sure that businesses can continue to receive a valuable time feed in the case of a localised GPS issue. All of this enables proper management around the sorts of issues that can negatively impact time feeds delivered by GPS.
The best providers deliver solutions from multiple critical colocation facilities across the European Union, North America and Asia. Accurate, reliable and auditable time feeds should be established using the GPS satellite network, and even better receiving
the time from an atomic clock, this ensures the same time is available for all clocks globally that rely on the technology. Tiered solution delivery should be available at a variety of different levels of accuracy ranging from one to 250 microseconds.