The second concept we must understand is that timestamp accuracy is not the same as timestamp precision; a timestamp may be precise but not accurate. Precision means the minimum time increment that a timestamp can record. (Note: Precision is often used interchangeably with granularity.) Accuracy is a measure of whether the timestamp is correct or not. Precision is a necessary but not sufficient condition for accuracy. It is not possible to have a level of accuracy that exceeds a corresponding level of precision.
For us, this means that we need a level of timestamp precision that is at least as good as the level of accuracy we expect. From the above analysis, we can conclude that, for electronic trading in US equities, we need timestamp precision of at least 5 us. In practice, we need it to be 1 us or better. However, it is critical to understand that simply having precision timestamps associated with collected data is the easy part of the problem. The harder part is assuring the accuracy of the recorded timestamps such that, when we look to recreate the event timelines or determine the relative time between two events, we can do so with confidence and trust the results.
Deriving accurate time happens at two levels:
- Relative time accuracy
- Absolute time accuracy
Relative time accuracy implies that the timestamp is accurate relative to some other time event. For example, the latency between a market tick update and the placement of an order can be determined using relative time. We just need to know the time difference between events. Determining relative time does not require synchronization of all timestamps to a precision global time reference such as UTC (as defined by the NIST). However, absolute time accuracy does require synchronization of all timestamps to a global time reference. Absolute time accuracy is often preferred but harder to achieve, since everyone must be synchronized to the same reference time source.
Practically speaking for the levels of precision and accuracy we need, this means connecting to a master clock, most likely via a radio antenna to GPS, and then distributing the clock via Precision Time Protocol (PTP), the IEEE 1588 standard, to the actual trading machines. Accurate absolute time is the ideal, since it allows us to answer a greater variety of questions across all events that occur. This should be the goal.
In the case of US equities, we conclude that all buy-side, sell-side, and exchange trade data should be provided with less than or equal to one-microsecond precision timestamps and with absolute time accuracy of less than or equal to five microseconds to meet the needs of today's electronically traded US equities markets.
What happens if we don't do this and we continue with the currently proposed compromise between Wall Street and the SEC -- time accuracy in the low seconds range? As illustrated at the beginning of this paper, the cost of incomplete data or inaccurate time qualification is false conclusions on what happened, why it happened, and who is responsible. Lack of sufficiently accurate timestamps will likely cause innocent parties to be accused of financial mishap and potential wrongdoing. It will likely cause false explanations for critical market events. Finally, it will retard true understanding of market operational dynamics and the evolution of the US equities markets. This is not good for Wall Street, and it is not good for the SEC.
Why can't we get accurate timestamps for the trading data? Wall Street says such a requirement would introduce an excessively burdensome level of complexity and cost. All machines and software would have to be retrofitted with precision timestamping capabilities, and accurate time synchronization would have to be distributed via costly technologies (PTP) to all connected machines trading US equities. Yes, this is true if you follow this approach, but it's neither the easiest nor the least expensive way to achieve the goal.
It turns out that timestamping, time synchronization, and real-time data collection have come a long way over the past five years since the peak of high-frequency trading in 2009. First, it is not necessary to touch any software on any machines. One can do it all with timestamping of the network data; you can tap the network pipes that carry the electronic trading messages and timestamp the messages directly off the wire. In fact, this is superior for a variety of use cases, including risk mitigation and anomaly analysis. Nanosecond precision timestamping now comes standard in equipment from leading network vendors like Arista and Cisco.Donal Byrne is the CEO of Corvil, the leading real-time analytics company for monitoring and safeguarding the performance of the world's electronic trading networks. As CEO of Corvil, Donal has been at the forefront of technology innovation and its application to financial ... View Full Bio