Precision timing and transaction reporting after MiFID II

Regulation has featured heavily in recent conversations in the financial world. With compliance deadlines on the horizon for both DORA and NIS2, financial institutions are putting measures in place to make sure they’re on the right side of the new rules. 

As we’ve seen already, a major lesson of these regulations is that precision timing is an essential component of the digital ecosystem that the financial services industry relies on. In this sense, NIS2 and DORA are building on the legacy of a slightly older, but equally vital piece of legislation – the Markets in Financial Instruments Directive, or MiFID II. 

Time takes centre stage: the impact of MiFID II 

MiFID II is a cornerstone of financial regulation, and was introduced to keep financial markets unified, fair and transparent. Applying to all financial institutions across the European Union, MiFID II put in place measures to expand the common level of market oversight, ensure that all trading takes place on regulated platforms, increase investor protection and set new rules on algorithmic and high-frequency trading. 

It’s been in operation since 2018, and updated the original MiFID (first introduced in 2007), which was a foundational piece of financial legislation, but one which was due some much-needed revisions – particularly after the 2008 financial crisis and the 2010 Dow Jones ‘flash crash’. In the latter case, investigations into the cause of the crash were hampered by poorly synchronised time. Spurred on by the recognition that clock drift can cause chaos in financial markets, MiFID II was implemented as a response to flaws like this. 

Its requirements put timing centre stage. Financial institutions must now synchronise all of their timekeeping devices to within a hundred microseconds from the benchmark of Universal Coordinated Time (UTC), an invaluable improvement when it comes to event reconstruction. The directive also stipulated high standards for the speed and accuracy of financial transaction reporting – making access to precision time a priority for financial institutions. 

Smart timing: an easy compliance solution 

MiFID II recognised that the failure of timing systems has a bottom-line impact, and cemented the fact that effective transaction reporting is crucial for the functioning of financial markets. In doing so, it brought forward the need for innovation in financial institutions’ timing systems. 

Hoptroff’s Smart Timing Software was developed partly as a response to this demand. The creation of a new plug-and-play timing solution held a significant cost advantage over hardware-based solutions, and meant that businesses no longer had to take on the highly specialist technology and expertise necessary to run their own grandmaster clocks. 

The availability of highly accurate time – fully traceable to UTC within the 100-microsecond limit, synchronised with down-to-nanosecond accuracy, and protected by a predictive failover algorithm – makes compliance with MiFID II and regulations since then easy for businesses across the financial sector. 

Time as the hidden currency: what MiFID II taught us

Looking back at MiFID II and the new standards of time synchronisation and transaction reporting that it ushered in, it’s clear that newer regulations such as DORA and NIS2 underline a key takeaway from MiFID: that time is the hidden currency of the financial world. 

Precision timing is vital to a well-regulated financial sector, and as the financial sector continues to move forward, such regulation remains crucial. Even if some have argued for scrapping MiFID II in Britain since Brexit, the directive has made the financial world a more transparent and trustworthy place, factors which are essential in maintaining public and investor confidence in financial markets. 

Given the pace of change in our digital capabilities, staying up to date with new regulations, and understanding the technological opportunities they create, is crucial. Perhaps we can look forward to a MiFID III in future – but either way, the importance of precision timing in financial services is here to say. 

Our expert team is always on hand to advise on regulatory compliance or to explain how our precision timing solutions can work for your organisation.