Time and Money II:
The Workshop on Time Sync Requirements in Financial Markets

Sync as a Service for Financial Trading Companies

Focus on Time and Money: The ATIS Workshop on Time Sync in Financial Markets

by Marcella Wolfe | @atisupdates | Dec. 4, 2016

ATIS: The finance community has typically approached timing as a day/date/time issue. Are there finance-market-specific features for timing delivery systems?

Gil Biran: Two sets of regulations create an increased impetus for financial trading companies to seriously look into and implement Precision Time Protocol (PTP) sync in their network and for telecom operators to propose "sync as a service" to these financial trading companies:

  • The first is the U.S. Securities and Exchange Commission’s Rule 613, which goes into effect in 2018. It requires that all machine-to-machine trading transactions are recorded with an accuracy of one millisecond. To execute this recording, clock accuracy must be 100 microseconds, which is not supported in today’s Network Time Protocol (NTP) -based timing infrastructure. There is, however, another requirement not specifically related to the SEC, which has to do with the analysis or improvement of algorithmic trading. Here, because we’re talking about machine-to-machine transaction with microsecond time intervals, we see the requirement to sample the data with accuracy of as low as 100 nanoseconds.
  • The European Securities Market Authority (ESMA) has also developed its own regulation, Markets in Financial Instruments Directive (MiFID) II. ESMA came up with Regularity Technical Standard, Number 25, and based on this there is a need for a time stamping of one microsecond for high-frequency trading. MiFID II goes into effect on January 3, 2018.

Large changes in financial trading organizations’ timing infrastructure are needed to comply with these new regulations.

ATIS: What do financial trading firms in the U.S. need to do to meet the regulatory imperatives that they may be facing?

The Time and Money Workshop will deliver a great value by expanding on what I’ve covered in this interview to show financial trading companies more about the most cost-effective way to meet upcoming sync regulatory requirements. Any company that needs to comply with SEC 613 and MiFID II will benefit from attending."

Gil Biran
SVP and General Manager
Oscilloquartz, an ADVA Optical Networking Company

Biran: There are some differences between the U.S. versus the European requirements mainly around the accuracy. However the implementation for the U.S. requirements is very similar to the one that is needed in Europe. The current U.S. infrastructure — which is based mainly on NTP — cannot meet the new requirements of neither the SEC nor ESMA, mainly because the current deployment of NTP is not based on hardware timestamp. An NTP-based solution means that any one of these transaction networks has NTP servers, which provide the time of day and the time tick. All of the client servers and the data servers have to support NTP and must have NTP network interface cards (NIC), which derive the time of day with the relevant accuracy from the NTP servers. Many of these NTP NICs have also one pulse per second (PPS) input, which is not so much in use today but can be important for the future.

In order to deliver the accuracy that the ESMA and SEC will soon require, there is a need to move from NTP to PTP. Adding a PTP grandmaster to the network is not a big deal. You don’t need a huge number of them. Each one of these units can support a large number of clients. The main issue is that replacing the NTP NIC in all the servers to PTP NIC can be a large investment. It definitely won’t happen over a few years. It might not happen at all because of the cost. One option to overcome this is to keep the time source as NTP because time is time and NTP is good enough to deliver the Time of Day (ToD) source. The accuracy will come from the PTP infrastructure and be delivered to the NTP NIC over the 1PPS input.

The other option of replacing the NTP NIC with a PTP NIC can be very expensive. This creates a need for a low-cost PTP client that could be plugged to a client server that is used for the financial transactions. One of the most cost-effective options would be to have a PTP client on a small-form-factor pluggable (SFP) and plug it into a spare SFP port of NTP NIC in the client server. Suddenly there would be no need to invest, in this case, significant money to replace the NTP NIC with a PTP NIC.

ATIS: Let’s take a global perspective on the issue. Do the buying habits in the finance markets differ across Asia, Europe and North America?

Biran: In terms of sync in finance today, Europe and North America are at about the same phase. The SEC and ESMA regulations discussed earlier in this interview are the catalyst for any future investment in sync delivery in finance markets. The Asian market is a quite far behind since there is no local regulation around sync requirement. Eventually, however, they will have to follow the SEC and ESMA regulations or create their own.

There are two types of enterprises in Asia. One consists of the global organizations (e.g. Citibank, Morgan Stanley, Deutsche Bank, Barclays, etc...). They are active in global transactions between Asia, Europe and North Americas and will have to follow the SEC and ESMA regulations. When they deploy synchronization, they will do it throughout their entire global networks because a transaction might be between Hong Kong and New York, for example.

The first wave in Asia will come due to the same regulation by the same U.S.-based or Europe-based banks. These banks will create the first wave of sync deployment in Asia. The second group consists of the local banks in China, Japan, and India, which are not as active in North America or Europe and will create the second wave of sync deployment in Asia. This will come later.

ATIS: Do you believe that sync as a service offered by specialist providers or telecom operators would be attractive to the financial marketplace? What are the barriers to adoption?

Biran: I am a big believer in sync as a service, not only for the finance sector, but also for the mobile sector. Synchronization is a complicated topic that requires strong expertise. Not many people understand how to build sync networks and maintain the quality of service for synchronization. As with other services, why not outsource? If I were the head of IT for a major bank, I would seek the best global service provider to provide me with sync as a service to offload my team — and it is essential that the organization chosen be global because the transactions conducted in the finance industry are global. Someone is needed who has a footprint through many different countries.

Currently, at Oscilloquartz we are involved in multiple sync as a service projects in which the sync infrastructure was already installed and the first customers, international banks, subscribe to the offering. Finally, after many years of discussion around sync as a service (also in ATIS), it’s starting to happen. Some banks prefer to build these sync capabilities as part of their network infrastructure; others prefer to outsource sync as a service. Both options are viable. The barrier to enable sync as a service is Service Level Agreement (SLA), as with any other service since customers want to know for what they are paying and make sure that they get the right service. This was a show stopper for a very long time since there was no such in service tool that can monitor the sync SLA. I have heard service providers saying "how can we charge for a service if we cannot provide SLAs info to our customers?" I’ve heard customers saying "the sync service providers cannot provide me a tool to know what my sync SLA is, so why should I pay for this service?"

Today there is a solution to this issue, related to sync assurance. Basically, the requirement is to have a sync portal that allows the end customer or the bank to access the portal and see exactly what the accuracy is in every node of his network. Also, they can look into PTP Packet Delay Variation (PDV) or asymmetry SLA parameters, over the sync path as delivered by the service provider. With this tool, you can dive into any level of sync SLA information you want. Most of the customers just want the basics, e.g., "green is good, red is bad, yellow is half and half." They don’t want to get bogged down in the detail. If a service provider commits to within one microsecond of accuracy in the client server end point they want to know that it is one microsecond and not 10 or 100 microseconds.

When a service provider is selling Ethernet services today the customer has the ability to know what the packet loss is as well as the end-to-end delay and many other metrics as part of the SLA agreement for Ethernet services. This approach is not new. The customer knows what they are getting. Of course the metrics for sync as a service are different. The new PTP was originally defined in the IEEE 1588-2008 standard. The new version will go into effect in 2017 as IEEE 1588-2017. For the first time, it should also include an information model for PTP, which will allow us to provide sync SLA for a mix network of PTP vendors.

ATIS: Do you expect the field of sync as a service to grow?

Biran: Yes, we do expect it to grow significantly, but not just in the finance market. In the finance sector, the requirements are there and we are not expecting these requirements to be modified extensively over the next few years. However, if we look at the mobile sector, we know that the requirements for phase accuracy shift from 1.1 microsecond in 4G and 4.5G to the range of 100 to 200 nanosecond for 5G networks. At the December ITU-T meeting in Shanghai, the discussion for 5G was in the range of 65 to 230 nanoseconds, meaning 5 to 20 times more accurate than today. Imagine what this means. You haven’t yet deployed what is needed for one microsecond requirement and soon you will have to design for 0.1 microsecond. The best way to deal with this is to have someone else to do the work and obtain your synchronization by delivering sync as a service.

On the other hand, the fact that you might finish a one microsecond deployment yesterday has nothing to do with what you need to deploy in two to three years when you enable 5G and need to deliver 0.1 microsecond. This is the main motivation for sync as a service due to increasing need for phase accuracy, and this is coming from the mobile sector. In the finance sector, it also makes a lot of sense although the requirements are not as difficult as with the mobile sector. The fact that the same service provider can deliver sync as a service to multiple sectors makes their business case much more attractive and makes their business proposal to the customer more attractive, as he can share the infrastructure among many more customers and be more cost effective also to the end customer.

ATIS: What do you see as the main value proposition for finance industry professionals to attend the Time and Money Workshop?

Biran: With the new regulatory imperatives in the U.S. and Europe, it’s a critical year for the finance sector to become involved in time sync issues. This means that the timing for this event is excellent. Time and Money brings together the finance industry with key sync experts and vendors who can help them meet their network sync and timing challenges. The finance sector realizes that improving their timing and synchronization networks is needed, while the vendors and the sync experts know how to do it. My presentation at the event is about "Pragmatic Approaches for Sync Delivery in Finance Markets." Time and Money will deliver a great value by expanding on what I’ve covered here in this interview to show financial trading companies more about the most cost-effective way to meet upcoming sync regulatory requirements. Any company that needs to comply with SEC 613 and MiFID II will benefit from attending the conference.

About Time and Money: The ATIS Workshop on Time Sync in Financial Markets

ATIS gathers experts from the National Institute of Standards and Technology, the Securities and Exchange Commission, the Department of Homeland Security and many more organizations at the New York Stock Exchange this January 25 to discuss the latest developments precision time delivery, potential regulatory changes on the horizon, and what this all means for the financial industry’s future.

Registration is now open.