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Proving MiFID II
timing compliance

As of January 2018, the new version of the Markets in Financial Instruments Directive, or MiFID II, has been implemented aiming at creating a more transparent and fair financial environment. One of the implications of MiFID II is the increased requirement in the time accuracy of business clocks. Business clocks in the trading venue and firms must be synchronised to UTC using an implementation that is traceable and has accurate, provable, time-stamping.

The detailed requirements are outlined in the Regulatory Technical Specification (RTS) 25, for example, the accuracy levels are as high as 1 ps, with no more than 100 ps divergence from UTC.

So how can we guarantee these limits are achieved?

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Implementation method: NTP/GPS or PTP?

One of the widespread methods for synchronisation in financial markets is NTP (Network Time Protocol). However, for some MiFID II requirements (and the unique applications of some applications such as High Frequency Trading), NTP cannot achieve the required accuracy. Synchronization via PTP (Precision Time Protocol, defined in IEEE1588-2008) offers an ideal solution.

PTP networks not only meet the requirements regarding accuracy, but also the option of additional timing paths for added redundancy to ensure accurate time is maintained in the event of equipment failures, etc.

PTP can also be used in conjunction with GNSS, to distribute time to locations within – or between – locations without relying on additional GNSS installations. Such installations can be costly and are sensitive to their location, sometimes requiring long (and, again, expensive) cable runs.

Proving implementation compliance

It is essential to test the system prior to deployment to support the MiFID II validation, to provide evidence as a key part of any review exercise. Testing can help ensure at least three aspects of compliance to this regulation:

  • Interoperability in the network

  • Interoperability is one of the challenges in deploying PTP networks. A network requires compatible applications of the PTP profile across all devices. A robust testing structure can save time and avoid costs associated with misconfigurations discovered during deployment.

  • Device-Specific Standard Compliance

  • Depending on the trade system or activity, every device in the network must have their profiles tuned in order to comply with the specified requirements. In order to validate the network equipment’s performance and ensure that the ‘steady state’ timing accuracy is maintained, test equipment should have a measurement accuracy of at least an order of magnitude greater than the specified requirements.

  • Testing ‘negative condition’ responses (e.g. error messages)

  • It is important to ensure that the network can handle negative conditions such as protocol error, timing offsets, etc., gracefully. However, it can be hard to evaluate just how the equipment will respond under such conditions. Testing equipment can simulate negative conditions to validate the network’s performance under such scenarios.

How Calnex can help?

No matter whether you want to validate PTP fields for interoperability, optimise network design, test devices in negative conditions, or require a remote GPS reference source in your lab, Calnex Paragon family and Sentinel can help. The test devices offered can help address the test challenges, reduce the complexity of testing, enhance the test effectiveness and validate the time compliance of your devices with high efficiency.