The accurate and traceable timestamping of financial market transactions is a legal requirement. In order to fulfill this requirement, entities under the obligation to synchronize their timestamping servers must be able to access some official source of time.
The global time reference (UTC)
The global time reference is Universal Coordinated Time (UTC). It is an average value generated by the Bureau international des poids et mesures (BIPM), based on clock values in 75 institutes from all over the world.
Since 2018, ILNAS – a public administration under the authority of the Minister of the Economy, and which is, among other things, the National metrology institute (NMI) – is a member of this network, composed mainly of NMIs. Each participant possesses several atomic clocks that generate within the country a local time reference, designated UTC(k), where (k) is the abbreviation of the participant country’s laboratory. In Luxembourg, this reference value is denoted UTC(LUX).
In metrology, a measure is considered as traceable when it can be linked to a reference through a continuous chain of intermediate measures that each have a calculated margin of error (known as that measure’s uncertainty).
In Luxembourg, UTC(LUX) is the national reference for both time and frequencies. It is given by ILNAS’ cesium-based atomic clocks. The exact time is then disseminated via the Internet, through a server to which customers can directly connect in order to synchronize their clocks, thus ensuring traceability.
Deviations are estimated by continuous monitoring (NTP monitoring). This new service by ILNAS gives professionals the possibility to guarantee the accuracy of their timestamping.
Regulatory requirements for clock synchronization in the financial sector
Since 2018, the European Securities and Markets Authority (ESMA) has imposed to member states a series of technical requirements in the Commission Delegated Regulation (EU) 2017/574, which complements the MiFiD II Directive 2014/65/EU in markets of financial instruments. These requirements are on business clock synchronization, and are summarized in the four articles below.
Article 1 stipulates that the business clocks of operators of trading venues and their members or participants that are used for timestamping of any reportable event shall be synchronized with UTC, using either a link to one of the institutes providing UTC(k), or the synchronized signals disseminated by GPS or another satellite system, the latter under certain conditions.
Article 2 describes the level of accuracy that operators of trading venues shall ensure, taking into account the gateway-to-gateway latency of their trading systems.
Article 3 defines the level of accuracy for members or participants of a trading venue.
Article 4 specifies the obligation to be able to demonstrate traceability to UTC through the documentation of a system, and that this system shall be revised at least once per year.
ILNAS NTP – A description of the proposed service
ILNAS has made available a clock synchronization system using the NTP (Network Time Protocol) with an accuracy of 10 ms. Registered users dispose of secure and personal access to the server.
A monthly report of observed deviations can be produced for customers. This allows users of the service to present proof of traceability at any time it may be requested by an audit.
Through the international mutual recognition agreements signed by ILNAS, all reference values and established reports are recognized worldwide.
Any reference to exact time is entirely supported by ILNAS. This allows users subjected to regulations to demonstrate conformity to requirements regarding their timestamping without having to put into place and manage internal equipment dependent on hertzian systems or GPS, which are vulnerable to interference, urban canyon effects or space weather, or use unreliable and non-traceable Internet sources.
Precision Time Protocol (PTP)
For customers that require even greater precision, for instance for high frequency algorithmic trading, ILNAS is currently developing an alternative service based on an appropriate protocol: PTP. This protocol also works over the Internet, but provides synchronization with a much greater precision. The uncertainty below 100 ns satisfies the most stringent specifications and requirements in the regulation. The signal is transmitted via optical fiber. Byusing dedicated optical fiber lines, it is possible to achieve connections over a distance of up to 80 km from the ILNAS server, without additional equipment. Furthermore, the protocol can be continuously monitored, and reports can be provided to the customer.