Up until now, EU trading firms were the most concerned with regulatory requirements for timestamping. In one of our earlier blogs, we mentioned the timestamping requirements are quite aggressive, with accuracy below a millisecond in some cases. However, with the introduction of SEC Rule 613 and the CAT (Consolidated Audit Trail), the SEC regulated broker-dealers and exchanges will face similar hurdles.
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Earlier this year in May, the SEC published Rule 613 into the Federal Register. The rule dictates new timestamping and reporting requirements and specifies data sets to be held in a central repository (CAT) for broker-dealers and exchanges trading US equities and options. Similar to MiFID, Rule 613 requires that all participants synchronize to a central reference point and both rules require that business clocks be accurate within a specified range. Rule 613 requires electronic trading business clocks to be accurate to within 50ms of the NIST (National Institute of Standards and Technology) clocks, unlike MiFID II’s stricter requirements requiring accuracy to within 1 millisecond or less based on the type of trading activity. Both regulations require voice (a.k.a. manual) trading timestamps to be within 1 second of the reference clock. Also, we can expect a change in the 50 millisecond window since the CAT NMS Plan states that “once both large and small broker-dealers begin reporting to the Central Repository, and as clock synchronization technology matures further, the Participants will assess, in accordance with Rule 613, tightening CAT’s clock synchronization standards to reflect changes in industry standards.”
The NMS (National Market System) plan for Rule 613 must be acted upon within 180 days of being published (on May 17th, 2016) into the Federal Register. This means that the Rule 613 plan will be approved by November 11th, 2016 at the latest. Participants in the rule will be required to implement the timekeeping solution within 4 months of approval of the plan which yields a date of March 11th, 2017. Most broker-dealers and exchanges have time synchronization being performed today but Rule 613 is forcing a standard approach across all of them. In addition, the data submitted to the CAT will consist of several events surrounding a trade such as origination, modification, cancellation, routing and execution. According to the CAT implementation timeline, exchanges must begin submitting data within one year of approval of the plan.
Assuming the plan is approved on November 11th, 2016, the timeline will be as follows:
|May 17th, 2016||Rule 613 published into Federal Register|
|November 11th, 2016||Last day to approve Rule 613|
|March 11th, 2017||Must implement timekeeping solution if approved on Nov. 11th, 2016|
|November 11th, 2017||Exchanges must begin submitting data to the CAT if approved on Nov. 11th, 2016|
In the short term, participants must prepare to implement a time synchronization solution for their trading environments. Considerations for this include:
- Consider leveraging a single technical solution for both Rule 613 and MiFID II. Keep in mind, even though the solution may be the same, the reference points will most likely be regional (NIST or NPL). More information on the NPL and time synchronization can be found here.
- Whether to synchronize all clocks throughout the enterprise or only the trading systems within the immediate regulatory scope.
- How to embed timestamps into logs to the millisecond for electronic trading and down to the second for voice (a.k.a. manual) trading.
- Suitability of existing internal synchronization mechanisms such as traditional NTP or asset class specific ultra-low latency trading requirements.
- How to prove compliance with Rule 613’s time synchronization requirements.
- How to collate and report all of the necessary events to the CAT (exchanges first, followed by broker dealers).