MiFID II and what it means for financial institutions
Achieving MiFID II Compliance with Meinberg Time Sync Solutions
This article on MiFID II compliance is courtesy of our friends at Meinberg, the world’s leading provider of time solutions. There’s also a great post from Heiko Gerstung from 2016 that covers more of the background.
iTkey is the certified partner for Meinberg in Australia and New Zealand. With MiFID II about to come into force, we can assist with compliant synchronisation and monitoring solutions for Australian financial institutions with operations in the European Union.
Introduction
On July 2nd, 2014, the “Markets in Financial Instruments Directive” (MiFID) in its revised and amended form, known as “MiFID II”, entered into force together with the Markets in Financial Instruments (MiFIR) regulation. It originally was scheduled to apply within EU Member States by January 3rd, 2017. In February 2016, the European Commission formally delayed the implementation date by 12 months, it is now scheduled to become applicable in January 2018.
On September 28, the European Securities and Markets Authority (ESMA) published a document called Regulatory Technical and Implementing Standards for MiFID II, which on 553 pages defines draft technical standards for implementing MiFID II (and MiFIR). Starting on page 501 of this document, the Regulatory Technical Standard 25 is defined which covers Clock Synchronisation for operators and participants/members of trading venues. This RTS requires all affected organizations to establish and maintain unprecedented levels of clock synchronisation and time-stamping accuracy in their mostly complex systems and networks.
As a leading expert in time synchronisation for computer systems and networks, Meinberg provides assistance and guidance to their customers affected by these new legislative and compliance requirements.
MiFID II Requirements for Time Synchronisation
The Regulatory Technical Standards document defines the time accuracy requirements for both market venues (exchanges) and market participants (traders) in RTS 25.
For both roles, the standard defines several “classes” or levels of time stamping accuracy (“maximum divergence to UTC”) and the timestamping resolution (“granularity”) that is required under MiFID II.
The most common requirements are either 1 millisecond or 100 microseconds of accuracy.
Compliance with MiFID II regulatory requirements
Time Accuracy
Obviously, time accuracy is only one small part of the MiFID II compliance requirements. However, it is a technical challenge to achieve the required accuracy in a distributed computer system like a stock exchange IT ecosystem or a trading infrastructure. Compliance with RTS 25 cannot be established by simply deploying highly accurate clocks like Meinberg’s IMS series, LANTIME M Series NTP appliances or SyncFire High Performance NTP servers.
The achievable accuracy is determined by three main factors:
- the quality and performance of the clock
- the quality and stability of the network
- the stability and performance of the hosts that require time synchronisation
Meinberg products are market leading in terms of clock accuracy, stability and reliability and therefore will cover the first point in a MiFID II compliant infrastructure. Depending on which accuracy class your organization is assigned to, you can use either Meinberg GNSS synchronized NTP appliances or Meinberg GNSS synchronized PTP Grandmaster clocks.
Our products can, in addition to GNSS satellite signals, use a large variety of other time sources as their main reference. The guidelines to RTS 25 issued by ESMA clearly state that GNSS is a valid and accepted source of UTC traceable time in the context of MiFID II. Using other time sources for your clocks is of course allowed, but you must make sure that these sources are traceable to UTC. One example would be NPLtime, which is available in London, UK and is operated by NPL.
Monitoring
The guidelines issued by ESMA clarify that you must put up reasonable effort to ensure that your servers and other hosts that require to be MiFID II compliant are operating within the accuracy class your organization falls into. The exact wording here is “relevant and proportionate monitoring”.
Meinberg’s NetSync Monitor solution offers the market’s best monitoring solution because it uses standard PTP message formats and a technology called “reverse PTP” to actually measure the accuracy of a PTP slave clock. It does not rely on self-reported accuracy like all other monitoring solutions and can also monitor NTP clients as well, using the standard NTP protocol to “read back” the time from your hosts.
As NetSync Monitor is the best in class monitoring solution available today, we believe it clearly fulfills the requirement for “relevant and proportionate monitoring” as mentioned in the guideline document.
Meinberg Compliance Statement
We therefore hereby state that our clock synchronization solutions, including our GNSS synchronized NTP servers and PTP Grandmaster Clocks, as well as our monitoring solution NetSync Monitor will be an important step on your way to gain MiFID II compliance.
References
The ESMA documents referenced in this document are listed below and should be consulted in any case as they are forming the official documentation body that is relevant for the MiFID II clock synchronization compliance.
Directive 2014/65/EU (MiFID II)
http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32014L0065&from=EN
Amendments to Directive 2014/65/EU (and consolidated version)
Regulation (EU) No 600/2014 (MiFIR)
http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32014R0600&from=EN
Amendments to Regulation EU) No 600/2014 (and consolidated version)
Regulatory technical and implementing standards – Annex I
Guidelines
Final Report on Guidelines
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