Clock Synchronization – A Challenge That Need New Solution

Traders Magazine Online News, March 10, 2017

Kelvin To

March 15, 2017 is the next milestone target date for the U.S. Securities and Exchange Commission (SEC)’s Consolidated Audit Trail (CAT) project – the world’s largest data repository. By then, Self-Regulatory Organizations (SROs) and Broker-dealers (BDs) shall comply with 11.6820(the Rule) to synchronize their clocks in milliseconds with the atomic clock of National Institute of Standards and Technology (NIST). Sadly, the CAT billion dollars’ budget does not include firms wanting to have NTP (Network Time Protocol) servers upgrade to GPS (Global Positioning System) time source for better clock accuracy.

March 15, 2017 is the next milestone target date for the U.S. Securities and Exchange Commission (SEC)’s Consolidated Audit Trail (CAT) project – the world’s largest data repository. By then, Self-Regulatory Organizations (SROs) and Broker-dealers (BDs) shall comply with 11.6820 (the Rule) to synchronize their clocks in milliseconds with the atomic clock of National Institute of Standards and Technology (NIST). Sadly, the CAT billion dollars’ budget does not include firms wanting to have NTP (Network Time Protocol) servers upgrade to GPS (Global Positioning System) time source for better clock accuracy. This paper aims to discover new solution to solve this clock synch challenge and minimize the industry’s burden.

(1)    Rationales to push for the extreme clock synch precision

Clock synch is huge issue because the usefulness of CAT data depends on the ability to sequence trade activities on a play-by-play basis to unveil intelligence to address the flash crash. If one player is 50 milliseconds faster, while another player is 50 milliseconds slower than NIST and/or exchange’s server, a lot can happen (including unfair advantages) in between the 100 milliseconds total time difference. So people in risk analytics are advocating for the extreme precision in clock synch wherever possible.

(2)    Are the CAT clock synch requirements being reasonable

Reference to an empirical report – International Comparison of NTP Servers, most NTP servers’ clocks seem fine synching with NIST, unless one really gets technical about the occasionally out-of-synch causes.The 50 milliseconds maximum divergence is not unattainable. It is already more lenient than Europe – MiFID II RTS 25 requirements.

The only trouble I have is regarding manual orders. The prescribed 1 second tolerance limit may be artificially represented because it probably takes more than a second to measure and record time manually. Yet, one should consider if longer tolerance limit may introduce too much noise and/or overly distorted signals for market surveillance and manipulation detection purposes. Bottom line is: any time stamp granularity requirements must be reasonably enforceable, or else the standard would be meaningless.

(3)    Out-of-synch causes and how strict the enforcement should be

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