Hang on a second!
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 event auditing.
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 it feasible?
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 ESMA’s 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
achievable?
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?
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