The deadline for implementing a new EU directive in financial markets is approaching soon. On January 3, 2018, MiFID II (Markets in Financial Instruments Directive) will come into effect. It will improve transparency for securities markets, investment intermediaries and trading venues in the EU as records from all trading events need to be reported along with a precise timestamp.
Trading venues, investment firms, and other financial market participants are revisiting their time distribution systems in order to meet regulatory requirements. Currently applied synchronization solutions frequently achieve timing accuracy of only tens of milliseconds, while the new regulation requests a 100µs accuracy against UTC in the application layer, which in most cases means 1-5usec at the physical layer.
Today, NTP (Network Time Protocol) is widely applied to distribute time over public or private IP networks. This technology has significant shortcomings when timing precision is mandatory and won’t be able to provide sufficiently accurate and trustworthy timing in financial markets:
Timestamped L2/L3 packets are delayed as they travel through the data network. Latency can vary in an unpredictable way. Asymmetric delay makes it impossible to calculate exact time at the client side.
NTP packets are processed by software and in most cases don't support hardware timestamping. NTP has no mechanism to eliminate network impairments like delay or asymmetry – a mechanism which is available with PTP TC and BC. As such, NTP networks suffer from higher delay variances, creating a high level of uncertainty.
Migration From NTP to PTP
An essential step for meeting regulatory requirements for timing accuracy in trading networks is the transition from NTP to PTP (Precision Time Protocol). The NTP server is replaced by a PTP grandmaster, which synchronizes to accurate time delivered by a GNSS-disciplined oscillator. Presently, data networks installed in trading venues will in many cases meet delay and delay variation requirements for transport of PTP packets. A critical component when innovating timing networks is migrating the NTP clients in the trading appliances to PTP. There are two different approaches: either installing new interface cards with PTP support in the servers or, alternatively, applying PTP-to-NTP protocol conversion close to the appliance. The latter benefits from the improved PTP delivery performance and avoids an upgrade of the financial appliance. In order to improve time accuracy, the NTP client can be supported by a highly precise 1PPS external synchronization signal provided from the NTP-PTP gateway.
Trinity of Timing Accuracy in Finance
Financial institutions will initially focus on meeting MiFID compliance by partially introducing PTP. It’s very likely that a further step of operationalization of the timing architecture will happen after January 3rd. Three different components make a reliable, secure and precise synchronization network: a mechanism for UTC-traceable timing delivery needs to be backed-up by a local timing source, and both require an assurance function for monitoring and recording the quality of the timing signal. IT teams will make their initial decisions with an understanding that further opportunities for synchronization network evolution are available, enabling them to make the overall migration as smooth and efficient as possible.
Do-It-Yourself PTP or Time as a Service
Financial markets and their institutions have different options when it comes to synchronizing their business clocks. They can self-provide timing from an onsite GNSS receiver synchronizing a precise clock. Alternatively, timing can be provided by a service provider such as a communication service provider (CSP) or the operator of the hosting data center. Time as a service (TaaS) provides high reliability and removes the need for onsite satellite-based timing for highest availability.
Assuring Synchronization Delivery
The ruling of the European Securities and Markets Authority (ESMA) requires financial appliances to timestamp transaction records for high-frequency and algorithmic trading with an accuracy of 100µs. This needs to cover accumulation of time errors all the way from a reference clock over PTP transport in the WAN and LAN up to processing of time information in financial appliances. The time delivery network, however, needs to be much more precise. Financial institutions are implementing PTP solutions that provide an assured 1µs time accuracy against UTC.
There are various impairments in a data network which can have negative impact on the precision of timing information. Monitoring tools need to assure compliance with required timing accuracy. With PTP, probes can be implemented for monitoring the performance of PTP flows and comparing recovered timing information against precise GNSS-sourced time.
Improving Resilience With Long-Holdover Oscillators
With the strict time-stamping requirements imposed on financial transactions, the availability of precise timing information becomes mandatory for executing transactions. Loss of traceable timing information would require the interruption of trading activities. Assurance of precision therefore needs to be combined with assurance of availability. Adding local oscillators with long holdover times to the timing architecture allows trading activities to continue during periods when an externally supplied timing signal is unavailable. The local clock can now be used as a business clock leveraging the long holdover times. Oscillators might be equipped with temperature-controlled crystal or atomic frequency standards such as rubidium or cesium.
Timing Solutions for Financial Markets
Oscilloquartz is supporting the finance market and its TaaS providers with a comprehensive product portfolio for delivery and assurance of precise synchronization. Existing networks can seamlessly be upgraded from legacy NTP to highly precise PTP. The unique portfolio provides efficient means to improve the resiliency of synchronization networks by introducing long-holdover atomic clocks as well as redundant GNSS concepts.
For more information, download our latest brochure, Timing in Financial Trading and catch my talk at the Workshop on Time Compliance for MiFID II in London on September 12.