Time-stamping and business clocks synchronisation under MiFID II
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.
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25 November 2021
Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 600/2014 as regards enhancing market data transparency, removing obstacles to the emergence of a consolidated tape, optimising the trading obligations and prohibiting receiving payments for forwarding client orders (COM(2021) 727 final) - harmonises the synchronisation of the business clock, Article 1(10) extends the mandate of synchronisation of business clocks beyond trading venues and their members to systematic internalisers, APAs and CTPs (Article 22c).
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The respective legal basis is Article 50 of MiFID II, 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.
European Commission Proposal for a Directive of the European Parliament and of the Council amending Directive 2014/65/EU on markets in financial instruments (COM(2021) 726 final) in Article 1(7) deletes Article 50 of MiFID II as the relevant provisions are moved to MiFIR.
Recital 9 of the said Proposal reads:
"The receipt of high quality data is of the utmost importance for the functioning of the consolidated tape and the internal market. That includes the need for all market data contributors and the consolidated tape provider to timestamp their data in a synchronized manner and thus to synchronise their business clocks. Regulation (EU) COM 727 has therefore amended Regulation (EU) 600/2014 to extend that requirement, which under Directive 2014/65/EU only applied to trading venues and their members, to systematic internalisers, APAs and CTPs. Since that requirement is now laid down in Regulation (EU) 600/2014, it can be removed from Directive 2014/65/EU".
The intention of the Regulation mentioned above (Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 600/2014 as regards enhancing market data transparency, removing obstacles to the emergence of a consolidated tape, optimising the trading obligations and prohibiting receiving payments for forwarding client orders (COM(2021) 727 final)) is to harmonise the synchronisation of the business clock.
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 (RTS 25).
MiFID II Article 50
Synchronisation of business clocks
1. Member States shall require that all trading venues and their members or participants synchronise the business clocks they use to record the date and time of any reportable event.
2. ESMA shall develop draft regulatory technical standards to specify the level of accuracy to which clocks are to be synchronised in accordance with international standards.
ESMA shall submit those draft regulatory technical standards to the Commission by 3 July 2015.
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.
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) - the designation formally accepted in 1960 and substituted for the Greenwich Mean Time (GMT) as from 1974 the as the sole, global standard.
Under the RTS 25 the maximum divergence from UTC is to be either one millisecond or 100 microseconds (each microsecond is one-millionth of a second).
For members and participants in the trading venues the particularly relevant items of the said Regulation are the Table 2 (Level of business clock accuracy) in the Annex and Articles 1 and 4.
Members and participants in the trading venues are required by the RTS 25:
1. to synchronise the business clocks used 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 (business clocks may also be synchronised with UTC disseminated by a satellite system, provided that any offset from UTC is accounted for and removed from the timestamp);
2. to establish a system of traceability to UTC, in particular:
- to be able to demonstrate traceability to UTC by documenting the system design, functioning and specifications,
- to 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,
- conduct reviews of the compliance of the traceability system at least once a year.
Table 1: Level of business clock accuracy for operators of trading venues
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Gateway-to-gateway latency time of the trading system
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Maximum divergence from UTC |
Granularity of the timestamp |
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> 1 millisecond
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1 millisecond | 1 millisecond or better |
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< 1 millisecond
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100 microseconds | 1 microsecond or better |
Table 2: Level of business clock accuracy for members or participants of a trading venue
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Type of trading activity |
Description |
Maximum divergence from UTC |
Granularity of the timestamp |
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Activity using high frequency algorithmic trading technique
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High frequency algorithmic trading technique | 100 microseconds | 1 microsecond or better |
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Activity on voice trading systems
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Voice trading systems as defined in Article 5(5) of Commission Delegated Regulation (EU) 2017/583 | 1 second | 1 second or better |
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Activity on request for quote systems where the response requires human intervention or where the system does not allow algorithmic trading
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Request for quotes systems as defined in Article 5(4) of Delegated Regulation (EU) 2017/583 | 1 second | 1 second or better |
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Activity of concluding negotiated transactions
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Negotiated transaction as set out in Article 4(1)(b) of Regulation (EU) No 600/2014 | 1 second | 1 second or better |
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Any other trading activity
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All other trading activity not covered by this table. | 1 millisecond | 1 millisecond or better |
In the face of increasing speed and volume of financial transactions, among those particularly affected may be High Frequency Trading (HFT) firms.
As the Bloomberg reports (“Lack of Awareness Surrounding MiFID II Deadline Could See €5m Fines”), to date, one of the most common methods currently used for timestamping is Network Time Protocol-based Internet Time - method that is only accurate to the tenth of a second and while suitable for human trading, it cannot remain a solution for high frequency trading HFT and non-HFT.
These methods require 100 microsecond and one millisecond accuracy respectively, under RTS 25.
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.
“Reportable event”
Under Article 1 of the RTS 25 the requirement to synchronise the business clocks with the UTC relates to the recording of the date and time of any “reportable event”.
It is argued (Bloomberg, “The Advantages of Timestamping Beyond MiFID II Compliance – Part II”) that at the trading terminal, “it would be safe to assume that timestamps related to any trading instructions or orders submitted from the terminal will need to be recorded”.
Moreover:
- when it comes to automated or algorithmic component of a strategy or system, where the algo engines are programmed to automatically place trades based on a predefined set of instructions or triggers and the most stringent microsecond timestamping and synchronisation applies, the accurate time stamps will need to be recorded both when any instructions are received from the terminal, when the specific signal that triggers an order is received by the system, as well as exactly when the order is sent;
- timestamps should record the time the exchange gateway receives the order and the exact times that each ‘chunk’ of the order is sent to an exchange;
- employing time synchronization at the network level enables firms to ensure a complete and accurate view of the market, or at least the exchanges and liquidity venues to which it is connected, and in turn prove that best execution was achieved.
Generally, 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 (TheTradeNews, “MiFID II's algo plans come under fire”).