MiFID II requires time stamping, but as is so often the case, the reality is more complex than the theory. There are protocols too, Precision Time Protocol, for example and Network Time Protocol, and there are technology solutions, but this is one of those occasions when getting the timing right is vital. What to do?
MiFID II, due to be implemented on the second working day of 2018, is unambiguous. “Competent authorities need to be able to reconstruct all events relating to an order throughout the lifetime of each order in an accurate time sequence.” It continues that these authorities need “to be able to reconstruct these events over multiple trading venues on a consolidated level to be able to conduct effective cross-venue monitoring on market abuse.”
It continues: “It is therefore necessary to establish a common reference time and rules on maximum divergence from the common reference time to ensure that all operators of trading venues and their members or participants are recording the date and time based on the same time source and in accordance with consistent standards. It is also necessary to provide for accurate time stamping to allow competent authorities to distinguish between different reportable events which may otherwise appear to have taken place at the same time.”
Before we go any further, it is important to understand that MiFID II requires time stamping relative to Coordinated Universal Time – known as UTC.
In practice, however, the requirements of time stamping with MiFID II depends – it depends on who, why and when.
It partially depends on gateway speeds, in the case of trading venues where the gateway speed is under one millisecond (thousandth of a second) time-stamps must be accurate to 100 microseconds – with a microsecond equating to a millionth of a second.
For high frequency trading time stamps must be accurate to 100 microseconds.
Non-high frequency trading algorithmic trades must be time stamped to within one millisecond.
Trading that is conducted by those slow, cumbersome creatures called humans must be time stamped to one second accuracy.
But achieving such accuracy all of the time is not easy. It is possible to test the accuracy of your time stamps, find that they accurate to within 100 microsounds, only for a later activity to throw the accuracy out.Such accurate timing is very sensitive, and needs to be tested for accuracy on multiple occasions, throughout the day.
Related to this is the issue of what it is tested against.Even atomic clocks run by a country’s national timing centre can deviate from UTC by 20 nanoseconds over the course of a year.Okay, that may not seem like much, a deviation of 20 nanoseconds a year would mean that over the course of a millennium, two such clocks may differ by 20 microseconds – still a tiny difference. It would take 200 million years before the time difference equates to a full second, to put that in context, the extinction of the dinosaurs occurred 65 million years ago.
MiFID II requires accurate timing, not so much split-second timing, but something far more accurate than that, but there are limits.
The Precision Time Protocol, defined in 2002, and revised in 2008, concerns nanosecond - or even picosecond-level synchronisation.
By contrast the Network Time Protocol has been in operation since 1985, but the latest version is intended to synchronise computers to within a few milliseconds of Coordinated Universal Time.
So, it does indeed depend.For high frequency trading, or for when gateways speeds are under one millisecond, then the Precision Time Protocol (PTP) may appear to be more appropriate, for human trading, or non-high frequency trading algorithmic trading, Network Time Protocol, which is both easier and cheaper to implement, is sufficient.
One technique applied to provide the level of timing required for consistency with MiFID II and providing Precision Time Protocol functionality, entails synchronisation via GPS, for example Fixnetix’s iX-PTP product, which can provide time-stamping to an accuracy of 10 microseconds, well within the 100 microseconds stipulated by MiFID II for high frequency trading. To find out more about iX-PTP click here