To safeguard the integrity of global financial systems, regulatory bodies such as FINRA’s CAT NMS in the US and ESMA’s MiFID II in the EU have imposed strict rules on the accuracy of timestamping financial trading transactions. MiFID II, for example, stipulates that business clock synchronization must be accurate to 1 microsecond for electronic transactions and be traceable to Coordinated Universal Time (UTC). And in the US, CAT NMS rules state that business clocks should be synchronized to within 50 milliseconds of the time maintained by the National Institute of Standards and Technology (NIST).
Here’s an executive summary of global business clock requirements:
||MiFID II RTS 25
|Timestamp granularity||1ms||1µs for HFT/1ms for non HFT|
|Trader clock accuracy
|Exchange clock accuracy||100µs||100µs
|Clock sync deviation||50ms from NIST||100µs from UTC|
|Clock traceability||To NIST thru GPS/GNSS||To UTC thru GPS/GNSS|
|Records for audits||Stored for up to seven years or more for regulatory forensics||Stored for 5 years for regulatory forensics|
|Clock compliance||Proof of accuracy/deviation reporting through stored client logs|
But this isn’t the end of the story. Compliance tools also play a crucial role in meeting the robust standards set out by regulatory bodies, which are then enforced through unanticipated audits. Compliance tools track, record and measure deviation for each transaction. By analyzing patterns and detecting anomalies, these tools can generate insightful, detailed reports that help auditors identify suspicious activities or violations of financial regulations.
Key features of an ideal compliance reporting tool
To help meet the demands of ever-evolving regulatory environments, compliance reporting tools must be adaptable and scalable. As each financial institution has unique needs and processes, they should also be readily customizable and be able to track the business clock’s timestamping of thousands of servers and virtual machines, all running critical and time-sensitive trading applications, including algorithmic trading.
Effective compliance reporting should also possess several other key characteristics:
- Security: The solution must safeguard data integrity and prevent unauthorized data manipulation, tampering or loss.
- Reliability: It should consistently provide accurate, verifiable timestamps and other transaction data.
- Vendor-agnostic: The tool should seamlessly integrate with various NTP and PTP software clients and monitor the traceability of any vendor’s GPS/GNSS grandmaster, safeguarding legacy investment.
- Resiliency: US Executive Order 13905 outlines the need to swiftly deploy mitigation controls in critical financial infrastructure in the event of GPS/GNSS disruption. Assured positioning navigation and timing (aPNT) solutions detect malicious and unintended disturbances to GNSS, and provide fault-tolerant mitigation. By leveraging atomic cesium clocks they also provide extended holdover capability in case of GPS/GNSS loss.