In a ground-breaking experiment, researchers from the National Physical Laboratory, the Toronto Stock Exchange (TMX), and Z/Yen, timestamped financial stock trades with Co-ordinated Universal Time (UTC) generated from atomic clocks and recorded the trades directly on a distributed ledger. The results will be analysed by Strathclyde’s Centre of Financial Regulation and Innovation. The “Atomic Ledger” project recorded over 20 million transactions from three hours of trading to the ChainZy distributed ledger system.
Distributed ledger (aka blockchain) technology is one of the core technologies of the new Fintech movement. Distributed ledgers enable financial market counterparties to store financial assets in a shared ledger. The team created a timestamping engine using Z/Yen’s woven-broadcasting distributed ledger architecture to test the recording of high-frequency trading transactions.
Existing financial market "clock synchronization and time stamp requirements" mandate that both trading venues and market participants synchronize their clocks to Co-ordinated Universal Time (UTC). That said, different processing speeds, server capabilities and execution code can result in digitally programmed orders arriving at a market place at different times.
The Markets in Financial Instruments Directive (MiFID II) EU legislation comes into force on 3 January 2018 for firms who provide financial services. The directive mandates more accurate timestamping traceable to UTC to promote improved transparency and better deals for customers. Current regulatory guidance suggests that trades need to be recorded in microseconds (a millionth of a second).
The test used nanosecond resolution high-frequency data from the TMX located in Interxions’s London Data Centre with support from Hyperneph. The researchers timestamped digital orders of varying programing length written to execute a series of buy and sell instructions. These were either logged with NPLTime®, using the atomic clocks at NPL, or logged with UTC plus a randomly generated time lag. The orders were then sent to a central clearinghouse also operating on UTC and written onto a ChainZy distributed ledger.
Further research by NPL and Strathclyde Business School will analyse the importance of timing in how orders are ‘cleared’. The results will provide insights into the need for precision timestamping in financial transactions, preferably at the microsecond level. The conclusions will prove useful for regulatory and financial market participants. It is believed the results will provide a benchmark to incorporate the concept of timing into financial asset price discovery.
Leon Lobo, Strategic Business Development for Time and Quantum, National Physical Laboratory, observes that the application of precise, traceable and certified timestamps as applied to the nodes of a distributed ledger system, will enable a trusted approach to the transactions as having existed at that point in time, across all platforms. Secondly, as DLT develops for different applications, is the aspect of higher frequency updates to the ledgers and the increased importance for timestamping at a precision and accuracy an order of magnitude better than the update interval.
Professor Michael Mainelli, Executive Chairman, Z/Yen Group, commented, “We have been working with distributed ledger technology since 1995 and are delighted that our ChainZy architecture has been able to support these high-speed applications, with a capacity for some 25 billion transactions per day on this test rig, a trillion transactions per day is in sight commercially. Using NPL’s atomic clocks is a major step forward in adding authority to distributed ledgers for time-stamping.”
Daniel Broby, Director of the Centre for Financial Regulation and Innovation, Strathclyde Business School, said, "The role of distributed ledgers and precision timing is becoming ever more relevant as Fintech companies adopt blockchain as a financial transmission tool. This is an exciting trial that will have real world policy impact”.
