Business clocks synchronisation
European Union Electricity Market Glossary

 


 

 

Among major MiFID II innovations is the requirement put on all trading venues to synchronise the business clocks they use to record the date and time of any reportable event.

 

The respective legal basis is Article 50 of MiFID, which imposes the obligation of trading venues and their members and participants to record the date and time of any reportable event using an accurate time source (details of this new framework have been further stipulated in the Commission Delegated Regulation (EU) 2017/574 of 7 June 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council with regard to regulatory technical standards for the level of accuracy of business clocks).

 

The essence of new provisions on clock synchronisation is accurate and reliable time-stamping i.e. recording of date and time when execution, pre- or post-trade publication, etc., occurs, for the purpose of establishing evidence that data existed at a particular time.

 

According to the Annex to the said Regulation trading firms’ and venues’ business clocks must be synchronised with Coordinated Universal Time (UTC), allowing the maximum divergence from UTC to be either one millisecond or 100 microseconds.

 

 

Table 1: Level of business clock accuracy for operators of trading venues

 

 

 

 Gateway-to-gateway latency time of the trading system

 

Maximum divergence from

 UTC 

 Granularity of the 

timestamp 

 

> 1 millisecond  

 

 1 millisecond   1 millisecond or better 

 

  < 1 millisecond

 

100 microseconds   1 millisecond or better 
 

 

 

Table 2: Level of business clock accuracy for members or participants of a trading venue

 

 

 Type of trading activity 

Description  

 Maximum divergence from

UTC 

Granularity of the 

timestamp 

  

Activity using high frequency algorithmic trading technique

 

High frequency algorithmic trading technique 100 microseconds  1 microsecond or better 

Activity on voice trading systems

Voice trading systems as defined in Article 5(5) of Commission Delegated Regulation (EU) 2017/583 1 second  1 second or better 

 

Activity on request for quote systems where the response requires human intervention or where the system does not allow algorithmic trading

 

Request for quotes systems as defined in Article 5(4) of Delegated Regulation (EU) 2017/583 1 second 1 second or better

 

Activity of concluding negotiated transactions

 

Negotiated transaction as set out in Article 4(1)(b) of Regulation (EU) No 600/2014 1 second 1 second or better

 

 Any other trading activity

 

 All other trading activity not covered by this table. 1 milisecond or better 1 milI second or better

 

 

The new requirements are perceived as complex and costly, 100% synchronisation at all times is said to be at this point in time “technically impossible” within reasonable resources (see: MiFID II's algo plans come under fire).

 

In the face of increasing speed and volume of financial transactions, among those particularly affected may be High Frequency Trading (HFT) firms.

 

 

 

 

Commission Delegated Regulation (EU) 2017/574 of 7 June 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council with regard to regulatory technical standards for the level of accuracy of business clocks

 

Article 1
Reference time


Operators of trading venues and their members or participants shall synchronise the business clocks they use to record the date and time of any reportable event with the Coordinated Universal Time (UTC) issued and maintained by the timing centres listed in the latest Bureau International des Poids et Mesures Annual Report on Time Activities. Operators of trading venues and their members or participants may also synchronise the business clocks they use to record the date and time of any reportable event with UTC disseminated by a satellite system, provided that any offset from UTC is accounted for and removed from the timestamp.

 

Article 3 


Level of accuracy for members or participants of a trading venue


1. Members or participants of trading venues shall ensure that their business clocks used to record the time of reportable events adhere to the level of accuracy specified in Table 2 of the Annex.


2. Members or participants of trading venues that engage in multiple types of trading activities shall ensure that the systems that they use to record reportable events adhere to the level of accuracy applicable to each of these trading activities in accordance with the requirements set out in Table 2 of the Annex. 


 

Article 4 


Compliance with the maximum divergence requirements


Operators of trading venues and their members or participants shall establish a system of traceability to UTC. They shall be able to demonstrate traceability to UTC by documenting the system design, functioning and specifications. They shall be able to identify the exact point at which a timestamp is applied and demonstrate that the point within the system where the timestamp is applied remains consistent. Reviews of the compliance with this Regulation of the traceability system shall be conducted at least once a year.

 

Explanatory Memorandum

 

Article 50 of Directive 2014/65/EU in financial instruments (MiFID II) introduces accuracy requirements, as it refers to the obligation of trading venues and their members/participants to record the date and time of any "reportable event using an accurate time source".

 

In particular, Article 50(1) of MiFID II requires Member States to oblige all trading venues and those accessing the venues to trade to synchronise the business clocks they use to record the date and time of any reportable event.
Clock synchronisation has a direct impact in many areas within trading in financial markets. For instance, it is critical for accurate and reliable time-stamping (recording of date and time).

 

Time-stamping is needed to define the exact moment when an event occurs (e.g. execution, pre- or post-trade publication, etc.).

 

The role of a time-stamp is to establish evidence indicating that data existed or an event took place at a particular time.

 

This is highly important to have a clear audit trail of which market events took place when, particularly in jurisdictions where trading is fragmented amongst multiple trading venues or in cases where markets trade different but related instruments (e.g., a derivative and the associated underlying asset).

 

As such, it is an essential component of any surveillance system, especially for ensuring compliance with time sensitive regulatory requirements.

 

 

 

Documentation

 

 

Commission Delegated Regulation (EU) 2017/574 of 7 June 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council with regard to regulatory technical standards for the level of accuracy of business clocks, OJ L 87, 31.3.2017, p. 148–151

  

 

 

 

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Last Updated on Wednesday, 24 May 2017 23:15
 

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