ESMA guidelines issued at the end of 2015 clarify timestamp regulation in ways that make a lot of sense. The most immediately notable point was to reinforce earlier statements that GPS is an acceptable “traceable” source of time per MiFIR RTS 25. A number of parties had been insisting otherwise the face of common sense and explicit statements in the cost benefit analysis. It’s true that common sense is not always embodied by regulations but it is important to remember that ESMA is not conducting a physics experiment. They don’t care about astronomical time, they just want to be able to make sense of trading records. That’s why the other two paragraphs in the same section (“3.3 Compliance with the maximum divergence requirements”) are probably more interesting for managers and technical staff looking at how to ensure compliance.
The first paragraph of the section discusses system design and documentation.
Operators of trading venues and their members or participants shall establish a system of traceability of their business clocks to UTC. This includes ensuring that their systems operate within the granularity and a maximum tolerated divergence from UTC as per RTS 25. Operators of trading venues and their members or participants shall be able to evidence that their systems meet the requirements. They shall be able to do so by documenting the system design, it’s functioning and specifications. Furthermore operators of trading venues and their members or participants shall evidence that the crucial system components used meet the accuracy standard levels on granularity and maximum divergence of UTC as guaranteed and specified by the manufacturer of such system components (component specifications shall meet the required accuracy levels) and that these system components are installed in compliance with the manufacturer’s installation guidelines.
For the last 6 years, at least, we’ve been explaining to customers that solid time synchronization is not just a matter of plugging in a source (GPS or not) and hoping that downstream components do the right thing. Time sync is an end-to-end problem and it’s the time at the end of the chain, where timestamps are applied, that matters the most. To make time synchonization solid, IT designers need to be sure there is end-to-end monitoring of time quality and reliable alerting and, if possible, fail-over. ESMA regulators make this point specifically for firms relying on GPS sources, but it is critical no matter what sources are used. Without that kind of solid system design, time at the point the reference source enters the data center may well be accurate while servers that are processing orders are not in compliance. That is the point made in the final paragraph of the section.
For the purposes of Article 4 of the MiFIR RTS 25, for users of a satellite system, even though the first point at which the system design, functioning and specifications should be considered is on the receiver (e.g. the model of the GPS receiver and the designed accuracy of the GPS receiver) used to obtain the timestamp message from the satellite, the accuracy required under in the RTS shall apply to any point within the domain system boundary where time is measured.
Time must be accurate at “any point within the domain system boundary where time is measured”. And, as explained in the first paragraph, market participants need to be able to document how they have ensured that this requirement is being satisfied.
Painting via Wikipedia. An Experiment on a Bird in an Air Pump by Joseph Wright of Derby, 1768. Original in the en:National Gallery, London.