MiFID II introduces the requirement to
synchronise the business clocks of trading venues and their
customers, standardising the recorded time on post-trade
data, transaction reporting and, most importantly, order
Regulators argue that in the event of
unusual market activity they will be able to pinpoint the
exact moment things turned sour. A noble cause then, but is
The first problem is that of a clock
source. Trading systems will need to synchronise themselves
to some 'golden source’ of time.
In the interests of avoiding
monopolistic 'Time Lords’ who have legislative
authority to charge lots of money for telling the time,
it’s probably best to settle on an existing
system like GPS. It’s accurate to tens of
nanoseconds, but can we use it?
Specialised Precision Time Protocol
(PTP) hardware can synchronise clocks in a network at the
nanosecond resolution but these are prohibitively expensive
– especially for smaller, independent investors
running their own hardware.
The software implementations of PTP only
achieve accuracy to the order of microseconds –
that’s thousands of times less accurate than
discussion paper speculates
will be required for HFT firms.
Assuming you have spent a lot of money
on buying a GPS time source, upgrading your network to use it
and modifying software to take advantage of the higher
resolution clocks, can you meet the requirements?
Possibly. Reading the time through
off-the-shelf operating systems takes some nanoseconds,
writing an auditable event takes some nanoseconds, sending a
signal down copper wire takes some nanoseconds.
Along with other unpredictable jitters
in the system, all of these will conspire to degrade accuracy
beyond the acceptable regulated allowance. Perhaps regulating
to a few milliseconds’ accuracy may be more
Regulation is only as good as its
enforceability. Given the inherent instability of time
measurements at the speculated resolution, how is anyone ever
going to provably measure that it is not correct? Are we all
just wasting our time?