The RTS 25 requirement
From time to time I have been asked about RTS 25 in MiFiD 2, which deals with clock synchronization. Some people are worried about complying to RTS-25 and every once in a while a vendor tries to scare me into buying their kit or service. While RTS-25 is a real requirement and does require some work, it's nothing to be too worried about.
Markets and market participants have to make their activity traceable using time stamps with a usable precision. Initially an accuracy of a microsecond was proposed, which caused some worry. This type of precision would not provide meaningful information and would be overly costly. The time source required was also an initial discussion, another cause for concern. With one microsecond accuracy, everyone would have to use an extremely accurate clock source and it has to be ensured that everyone uses the same source.
After consultation, these requirements have been adjusted to more workable accuracy:
- 100 microseconds for most operators of venues (If the gateway-to-gateway latency of the venue is higher than one millisecond this precision can be one millisecond),
- 100 microseconds for high frequency traders.
- 1 millisecond for non high frequency algorithmic traders
- 1 second for manual trading
The source requirement also has been made more practical. The reference still is time centers specified by Bureau International des Poids et Mesures. It will be allowed to use GPS based (neutrally referred to as satellite based system) systems as long as the offset to the reference can be accounted for.
Meeting the accuracy
Assuming that any useful piece of trading software produces the log or trace files required, the main challenge will be to meet the accuracy required. Let's look at accuracy from coarse to fine.
Your friendly system administrator will have to make sure nothing is mis-configured and you're using a proper industry standard NTP time server, which should be in place already.
One millisecond precision can be achieved by by using a precision time synchronization systems, such as PTP. The source will require more attention. GPS clocks that can provide this precision, have become fairly common. If you don't want to go through the trouble of installing and running one yourself, various service providers and data centers will be able to provide you with a timing service.
Achieving 100 Microseconds is not that different from 1 Millisecond. It requires the same source the one millisecond scenario requires. To actually produce time stamps with this accuracy, the required software needs to be well written. In some cases, hardware based functionality on some network cards will let time-stamping be done by the network hardware. This would improve accuracy and removes the workload from the software.
Commercial solutions will be ready for the requirements and any HFT trading firm or venue is likely to have the knowledge in-house already.
For most market participants these time stamping requirements are doable and implementing the requirement will require some work. For most, the effort itself will not be overly complicated. For venues and HFT, the requirement is harder to achieve, however these organizations should already have the knowledge and experience available. Deutsche Boerse, for example, has an excellent team working on this. For those who aren't there yet but would like to be, Luke Bigum at LMAX did an excellent write-up.