High frequency trading is set to face the hurdle of MiFID II – but the atomic clock may come to the rescue.
The UK’s National Physical Laboratory (NPL) has teamed up with Intercontinental Exchange (ICE) and the New York Stock Exchange to help compliance with the MiFID II regulation.
The regulations require trades to be time stamped so that regulators can check for adherence to its rules, but how do you time stamp trades when several hundred occur in a second, when a trade can be initiated, and either cancelled or confirmed, in nanoseconds? One thing is for sure, a stop watch won’t do it.
But the NPL’s atomic clock could.
The clock, which is called the NPL-CsF2, is the most accurate timing device in the world. The atomic clock, which works by using an electronic transition frequency in the microwave, optical, or ultraviolet region of the electromagnetic spectrum of atoms, was first created by NPL in 1955.The latest version of its clock is reported to be accurate to within one second every 158 million years – that’s roughly how long the dinosaurs were on earth.
MiFID II rules requiring the time stamping of trades kick in on 3rd January next year (2018).
The arrangement with the two exchanges involves NPL Time, a new time-over-fibre service to be delivered to the financial sector in partnership with leading network infrastructure providers.
Leon Lobo, from NPL, said: "In today's markets, timing is everything. High-frequency trading represents around 30 per cent of UK trades and 50 per cent in the US. Precise timing offers competitive advantage."
He added: “Current systems rely on GPS, which is vulnerable to jamming and other interferences and uses equipment that can be inaccurate. Timing issues have led to trading irregularities with the potential to disrupt markets.”
But things could get more accurate – NPL is now working on a clock that aims to reduce deviation to one second every 14 billion years – to put that in context, that is roughly the age of the universe.
UBS agreed to use the NPL technology last year, at that time, Chris McConville, the global co-head of equity electronic agency trading at UBS, said that the NPL technology would “provide UBS infrastructure with a stable, accurate and resilient time signal, whilst simplifying the MiFID II.”