Timing and synchronization have become top concerns for finance IT managers. Standard trades, high-frequency trades – they all carry the same high stakes.
The European Union and European Securities and Markets Authority (ESMA) have published MiFID II standards that include requirements for business clock timing and synchronization to be applied to trading venues, and the members and participants associated with them. While requirements in other regions might not be as stringent, global financial institutions generally want to meet the most advanced requirements, so this has emerged as a global issue.
So, what are the latest strategies IT teams are embracing to ensure precision time delivery and meet a more ambitious standard?
Meeting the MiFID II timing requirements
The MIFID II regulations state that in trading venues clocks need to be synchronized to within 100 microseconds of UTC and have time stamps of 1 microsecond granularity.
While the Network Timer Protocol (NTP) synchronized clocks within datacenters with millisecond-level accuracy, the new standards are requiring the precise time synchronization capabilities of Precision Time Protocol (PTP), which can provide accuracy much better than the 100µs maximum divergence from UTC that is acceptable to be compliant with MiFID II.
The standards demand network designs that minimize synchronization errors. This can be addressed to some extent by creating an error budget that allocates error across all the devices involved. Obviously, the more devices there are, the more sources of error.
Meta (previously known as Facebook) has recently made available, as open source, PTP synchronization time cards as part of the Open Compute Project (OCP) and Time Appliance Project (TAP). Through this project, they have developed a versatile and economical time engine using hardware time stamping to enable µs-accurate PTP synchronization. The time card removes much of the cost and other drawbacks of reference clocks on the market.
While new technologies such as the time card, along with proper network design, will allow operators to economically implement the MiFID II requirements, proper monitoring and verification of compliance is also essential.
Methods to monitor and verify compliance
In mobile networks, timing inaccuracies and non-compliance cause performance degradation or network failures that set off alarms. But in financial networks, these same issues are likely to go unnoticed. This means audit and verification plans must be in place to make sure nothing slips through the cracks. On this front, testing is essential to validate µs accuracy.
The MIFID standard provides a great deal of guidance but there is some room for interpretation as to exactly how trading venues should test and verify the timing accuracy. Annual testing is a minimum, but industry best practice indicates that regular or even continuous monitoring and archival of clock accuracy is advantageous. This archival data would be very useful to prove compliance for any prior event, such as in the case of government audits.
Common verification methodologies include:
Periodic testing: Timing accuracy tests are performed at regular intervals at specific points across the network. Because timing accuracy can be affected by network activity, these tests should capture periods of high and low traffic volumes.
Continuous monitoring: By measuring continuously, conditions can be reviewed historically, which can assist troubleshooting, audits and assessing performance during abnormally high traffic situations.
Stress testing: Since timing accuracy is affected by the network load, stress testing the network with emulated traffic provides insight into worst-case scenarios.
Given the stringent MiFID II requirements and the many technical and traffic-related opportunities for timing issues to occur, a clearly defined and implemented synchronization test plan is essential.
Go deeper on MiFID II timing and synchronization considerations
Learn more about timing and synchronization in trading venues with Spirent’s technology brief that dives into more depth on the requirements, potential time errors, and test methods for meeting MiFID II standards.
Guest contributor: Bryan Hovey, Product Manager, Calnex Solutions