Traceable Time Regulations Go Far Beyond Financial Services
Two years after MiFID II RTS 25 first introduced the requirement for accurate traceable timing in European financial markets, we have learnt that precision timing hardware and software is widely available, but it is difficult and resource intensive to integrate.
Below Simon Kenny, CEO of Hoptroff, explains that traceable time is not something you can just install and forget, but must be carefully integrated so that it maintains fully traceable time across all the servers the regulations require.
We have learnt that the challenge is not so much about installing traceable time, but more about adapting traceable time so it works within an existing infrastructure without interfering with performance. Many variations on solutions have therefore been installed, often based on different interpretations of what the regulators require. So the solution adopted by one enterprise might not work at all for another or even offer useful precedents on how to solve the problem.
The FCA is seeing the results of this fragmented development process. It has noted in its bulletins that it is finding that many companies have timing irregularities in their data records. However, it has not moved aggressively to generally enforce the timing regulations, preferring instead to give companies more time to find a compliance solution that works with their existing systems. But this position can only be sustained for so long.
Traceable timing was introduced because data records on automated transactions were unreliable and could not be used to reconstruct transactions after the event accurately. If market participants are to be able to trust reported outcomes from automated systems and have confidence in the market, then sequence and interval in event records need to be verified.
Traceable timing was introduced because data records on automated transactions were unreliable and could not be used to reconstruct transactions after the event accurately.
There might not be a simple solution everyone can acquire and install 'off the shelf', but traceable timing compliance is getting easier. Network connectivity providers such as BT are beginning to offer traceable time as a network service, where companies do not need to buy and integrate additional hardware.
Traceable time synchronization is done in software, using connections to cloud grandmaster clocks to provide trusted time sources. As this method gains adoption, the FCA will be less patient with bespoke timing solutions that do not produce the reliable records they need to regulate market practices.
This work being done by financial services will potentially become important in other industries that use widely distributed automated systems to conduct trading. The Information Commissioners Office (ICO) in the UK is currently conducting a review of the Real Time Buying (RTB) process in the digital advertising industry. This is the process through which a personally targeted advertisement is marketed, sold and provisioned in the interval between when you click on a particular website page and the advertisement actually appearing. It takes milliseconds, but can involve hundreds of third parties, all of whom get access to the personal information of the user as part of the process. However, under the terms of the General Data Protection Act (GDPR), that information is supposed to be under the control of the publisher, who has the permission to use it, not multiple unidentified third parties who don’t have direct permission. If the ICO wants to track this “data leakage,” so it can protect personal data then the work done by the financial services industry to create traceable records using synchronized time could be invaluable.
Similarly, the online gambling industry uses fast, automated systems to offer and adjust betting odds on different outcomes in sporting events. In this process the precise sequence and intervals between events are important; if a user bets 'in-play' during a football match that a penalty will be given, and at that precise moment of making the bet a foul is committed which is then given as a penalty, the timing of events, and how they are recorded, will determine whether the bet is accepted. Did the bet happen in time? What mattered? When did the user pressed send, or when did the bet hit the platform server? The UK gambling commission is regularly being asked to look at disputes when gambling companies reject bets that would have won had they been accepted. If all the parties in the chain had traceable time to confirm the sequence and interval between events, disputes could be settled more quickly and much more cost effectively.
There are no traceable timing requirements in the digital advertising market, or in online gambling at present, but both have a need for traceable data records to underpin market confidence in non-transparent automated systems. The regulators will likely move cautiously on introducing a regulation like traceable timing. Like the FCA, they want to make sure that the potential market disruption this might cause is justified by the market efficiency benefits to be gained. But the faster the systems become, the wider they are deployed and the smarter the applications get, the greater the need for verified transactions records. Financial services are leading the way on developing ways to help keep automated systems accountable. Other industries will reap the benefits, because when additional regulators unveil a requirement for traceable timing, the systems developed for financial services will be available, almost 'off the shelf', to these other industries, which make automation more accountable but ultimately boost market confidence.