Time is of the essence

Last weekend heralded the official end of summertime as the EU put its clocks back one hour. Since most electronic clocks are updated automatically many of us hardly notice the difference, but others may be forgiven for waking up somewhat confused as to what time it really is. I guess that must have occurred to the legislators in Brussels when discussing the possibility of imposing a requirement in MiFID II for trading firms and exchanges to synchronise their business clocks.

Clearly, in a world where trading is driven more and more by high performance and low latency trading machines, getting your timestamps right is crucial. But as businesses are already doing exactly that, where is the added value in legislating for it? The recent discussion around Federal Reserve Announcements and comments made by Virtu Financial highlight the point that it is not the synchronisation of clocks but the granularity of timestamps for incoming and outgoing messages that is important. As long as trading firms and exchanges stamp these according to their internal clock then everyone can reconstruct the sequence of events.

Attempting to synchronise all geographically distributed venues and traders will always suffer from some margin of error due to the distance between central clock and trading system. Even differences in speed and gravitation can cause problems in measuring time precisely. Let’s just hope the legislators keep their hands off this particular ticking clock.