Why clock synchronisation and data quality is crucial for financial services
Author: Simon Kenny, CEO, Hoptroff
If our expanding dependency on technology to function in the world is set to continue. Then, accurate time synchronisation must become a global standard.
The EU and the USA are leading the way in the roll-out of time synchronisation by utilising its benefits in the financial services industry. However, the value of timing goes far beyond just one sector and provides the opportunity to bolster the very fabric of our vital infrastructure.
MIFID II and CAT clock synchronisation requirements for fintech and banking
For financial services, accurate timing is required by law: the Second Markets in Financial Instruments Directive (MIFID II) in the EU, and Consolidated Audit Trail (CAT) in the USA.
These regulations demand a sub-second accuracy of 100 microseconds and 50 milliseconds respectively. If all the devices in a distributed process don’t share the same time to sufficient accuracy, then the records they produce will put events in the wrong sequence and with incorrect intervals.
Clocks can easily drift, creating chasms of doubt in the data. Particularly in financial services, where thousands of transactions take place every second, the results of unsynchronised clocks can be chaotic. A transaction can appear to arrive at the recipient before it left the sender, two parties may disagree over the timeline of events and disputes cannot be easily resolved. This is not solely a transatlantic concern.
Regulators in Asia have acknowledged that MIFID II and CAT have had an influence on their operations through interactions with European and American partners. Deutsche Bank has armed this stating that the introduction of MIFID II was “felt globally”.
Asia is also setting its sights on formulating their own regulations on financial services and algorithmic trading, following in the footsteps of MIFID II and CAT.
Data quality becoming increasingly important in financial services
Time synchronisation is now well established as a necessary component of the financial services infrastructure, but it holds significant potential for other sectors and applications.
For example, how do you prove where digital events happened? The answer is to turn place into time – time and space are inextricably linked. If a server tells some of its neighbours about an event, and the round-trip time of the message is measured, we can be confident that the event happened where the server claims it did. This adds an additional layer of data validation and immutability.
The recent years have accelerated our trajectory even further into digital transformation, resilient and reliable timing has never been more important. Currently, timing solutions rely on just one source of UTC, a GPS satellite signal.
As technology has become more sophisticated, satellites have become far more vulnerable to spoofing, interference, and failure. The new generation of software timing solutions has risen to this challenge and combines timing sources from three different satellites as well as a terrestrial stratum-zero time source.
Highly accurate timing is becoming an essential component of global infrastructure and pioneers in timing are now ready to provide solutions that not only reduce cost and hassle, but increase resilience and reliability for financial services and beyond.
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This article was originally published in Fintech Futures.