Richard Hoptroff, CTO, Hoptroff
Recent global financial regulations such as MiFID II require that all stock exchanges, credit institutions, investment firms and other trading venues, and their members or participants, must synchronise their server clocks to Coordinated Universal Time (UTC) to be able to record the date and time of any reportable event.
Stock exchanges, futures, investment firms and banks within the financial services industry require accurate timestamping to track transactions across networks. When networks lack clock synchronisation, the involved end users on the network become out of sync. If there is no precise and trusted timestamping solution present on the network, then every device is at risk of being out of sync. The aim of the clock synchronisation requirement is to, amongst others, make sure there is consistency in reporting and to assist market surveillance in the event of suspected foul play.
Current solutions for accurate and trusted timestamping in fintech services rely almost solely on Global Navigation Satellite Systems (GNSS) for their time source. These GNSS signals, whilst free at the point of use, are often susceptible to interference from a variety of human-made and natural sources. This is a risk that can indirectly and directly affect multiple industries, including global financial services. Typical interference occurs when additional radio waves are generated via non-essential equipment ranging from ovens to faulty antennas. These signals begin to drown the GNSS signals causing false information on the position, navigation or timing of a device connected to the GNSS network.
A second risk of inaccurate time to the global financial services is the ability to be sure of, and to be able to prove, traceability. If you had two clocks, each with distinct, independent chains of comparisons back to different Stratum Zero sources, you would at least know if one was wrong, but you wouldn’t know which one. For complete traceability, three clocks are needed, each with independent chains of comparisons back to different Stratum Zero sources e.g. NIST/NPL. This additionally offers resilience against the failure of any individual chain of comparisons as well as failures in GNSS outages.
In global financial services, accurate and trusted timestamping is a legal requirement. These requirements come in the form MiFID II in the EU, and Consolidated Audit Trail (CAT) in the USA.
Both require sub-second accuracy and up to 100 microseconds for certain entities. Therefore, every device on a bank, stock exchange, or investment firm network needs to be accurate and trusted within this margin. If not, the records produced from the events taken place on the network will be incorrect, causing reputational and authenticity issues for the banks, stock exchanges, fintech companies and other trading venues respectively.
Terrestrial timing solutions only have one stratum source zero grandmaster clock (GMC) that controls one individual network. Banks and stock exchanges would have to buy a terrestrial timing hub for each of their networks to ensure accurate and trusted clock synchronisation between networks. The problem with this is that these GMCs are not cheap to install or maintain. Every 3-5 years they need to be changed and require human labour to operate and manage their timing solution. As the popularity amongst cloud-based fintech solutions increase, software-based solutions must become the standard for global financial services.
Timing and timestamping solutions need to be cost-effective and forward-thinking. With the shift to the cloud, fintech firms will need to adopt a resilient cloud network architecture such as a Cloud Timing Hub. This Hub creates resilience and accuracy through simultaneously comparing multiple timing sources to confirm the time is always correct. In effect, the solution will maintain timing accuracy and traceability to a higher standard than local installations that generally rely on one connection to primary UTC.
Satellite signals crashing and losing connectivity would be considered to most, a ‘black swan’ event. However, if anything was learnt from the coronavirus pandemic it was that preparation and fall-back options are now necessary. In early 2020, US Executive Order 13905 mandated that all critical infrastructure in the United States must be able to function reliably in the event of disruption or manipulation of GNSS services. A similar approach was taken in the UK with the UK government announcing £36 million investment in a new National Timing Centre to provide additional time resilience to financial services and other key industries against the potential impact of satellite systems failure.
Governing bodies, at the highest level, are committing to reducing their vulnerability to these risks by implementing necessary legal requirements. However, this risk must raise the question on an industry basis, do we need to back up our sensitive data and time feeds and not rely on one fragile satellite system?
The future of timing solutions and trusted timestamping in the global financial services and fintech ideally needs precise and accurate clock synchronisation across the major industries, such as, stock exchanges, banks, and data centres. These solutions must include multiple time feeds that effectively distribute data across a network, with accurate time synchronisation that meets legal requirements, and most importantly, validation and traceability right back down to multiple stratum zero sources.
