For high-frequency traders, the expression ‘time is money’ holds a literal truth.
Firms that use algorithmic trading strategies must time-stamp transactions to the nearest fraction of a millisecond. This requires internal systems capable of staying in near-perfect sync.
A UK government initiative is aiming to develop technology that delivers a more reliable and accurate indicator of time than existing satellites. The scheme could be an important step in enabling high-frequency trading (HFT) firms to adopt the next-gen quantum computers that are capable of trading at super-speeds.
Roger McKinlay, director in quantum technologies at UK Research and Innovation, a government agency, says: “A new generation of lower-cost atomic clocks may well start featuring in the time-stamping and regulation of transactions. Placed alongside the ability for quantum computations to run much faster, it means algorithmic trading might well start exploiting quantum computing.”
The UK government has earmarked around £170 million ($240 million) to invest in quantum technologies applicable to the financial sector. The funds are part of a £1 billion nationwide push to develop quantum tech, which was first announced in 2014. Part of the programme will specifically address quantum clocks for time-stamping transactions, says UKRI, which is responsible for allocating funds to research projects nationally.
Similar initiatives are under way in other countries, such as the European Union’s €1 billion ($1.2 billion) Quantum Flagship programme, which started in 2016, and a $1 billion investment in quantum and artificial intelligence hubs in the US, announced in 2020.
Banks currently depend on satellite technology to receive time readings and to set internal clocks. But some complain the technology is unreliable and prone to interference – both accidental and deliberate.
The head of electronic trading at a London bank that uses the industry-standard precision time protocol (PTP) to synchronise clocks throughout its computer network, says: “PTP relies on satellites and dishes on roofs. But it does go wrong. The computers get out of sync.”
The head adds: “If there was a way that just gave you guaranteed correct time all the time, without having to go through that palaver, I would tell the IT guys to buy that. But it depends how much it costs.”
Among the alternatives to satellite that technologists are developing, one is delivered via fibre-optic cable and another uses radio waves. Each method claims improved accuracy and reliability over satellite, but the technology is in its infancy. Work is needed to make them more widely usable for banks and buy-side firms.
Traders – particularly those that operate across borders – would also require multiple countries to adopt the alternatives. Having high-spec time delivery in, say, Tokyo, but a less efficient system in New York, could create worrying divergences in time-stamping.
Regulators are also keen for the industry to tighten up its timekeeping. In part, this would help firms demonstrate best execution for their clients. More accurate time stamps would also give financial authorities a better overview of HFT and its attendant risks.
Leon Lobo, head of the national timing centre at the UK’s metrology institute, the National Physical Laboratory, says: “One of the things we are discussing with regulators is how to provision a common clock across the sector, so that you get maximum benefit as the UK regulator from a market clarity perspective.”
The question of who would pay for the new service is also open. Lobo believes new methods of time delivery may not be based on subscription services – “or if it is, maybe it could be paid for by government for all of the sector to use”.
Quantum computing is seen as an area of rich promise for the financial industry, even if some of the early optimism has given way to a more measured sense of the technology’s potential.
In classical computers, a bit can be in one of two states: a one or a zero. In quantum computing, a qubit can exist in both states simultaneously. This means quantum computers can handle a vast number of calculations at lightning speeds. The use of quantum technology among HFT firms is already happening to an extent, although firms are for now limited to running quantum-inspired strategies on conventional chips.
A leap forward in the speed of trades would require similar advances in the ability of trading systems to keep time. Currently, firms are required to time-stamp financial transactions with an accuracy of milliseconds to microseconds under the European Union’s Mifid II financial markets legislation.
Lobo says regulators are interested in seeing improvements in geographical time synchronisation between trading venues. HFT firms can trade millions of times per second, he argues, while Mifid II’s accuracy requirement is only 100 microseconds from Co-ordinated Universal Time (UTC).
“You still have a big grey area where you’ve got a whole number of trades where you don’t know which ones happen when, especially when you’re looking at data from different platforms. The organisations that have most visibility of these discrepancies are the regulators when they collect and assess order books,” he says.
UK asset managers previously raised concerns over anomalies in time-stamping for foreign exchange transactions. But there are fears that Covid disruption may have crowded out an embryonic industry push to improve standardisation of these time-stamp procedures.
The regulatory drive for greater oversight of markets could benefit from the UK government’s work to explore new technologies for delivering atomic-clock accuracy of time, experts believe.
McKinlay says: “At the moment, financial institutions are pretty well reliant on satellites to time-stamp trading. But there is a government push, at a very senior level, to remove our dependence on satellite navigation because it’s far too easily interfered with.”
Both satellites and their signals are inherently weak and vulnerable to interference, exposed, for example, to the effects of ‘space weather’ caused by solar activity. McKinlay likens the strength of a satellite signal received on the ground to a car headlight beamed to the Earth from the moon. Ground-based receivers retrieve signals through a correlation process that can be tampered with.
In 2018, the UK government said it was concerned about the vulnerabilities of satellites to both natural and malicious interference, including from hackers. McKinlay notes causes of interference vary, recalling one London bank had a “perpetual problem of not being able to get time”. It turned out that a similar system mounted on the roof of an adjacent building had a fault that jammed systems within a radius of several hundred metres.
In a funding competition that closed on June 9, the UK government is looking for new ideas to disseminate time that would enable innovation in industries including finance. Transmitting more accurate time in geographically distributed locations would also help with the synchronisation of autonomous vehicles, for example.
Even when satellite systems are running smoothly, they pinpoint geospatial position to the nearest five metres, which equates to accuracy of about plus or minus 50 nanoseconds from true time, says Alastair Richardson, business development manager at technology company Xilinx. A nanosecond is one thousandth of a microsecond.
Based on that level of accuracy, time stamps on two trades could be 100 nanoseconds out, he says: “Using a super-fast computer chip, a trader can do tick-to-trade in 21.8 nanoseconds. So you could get four or five trades all in the same time set.”
The UK is not alone in reconsidering its use of satellite technology. The US government last year also made moves to strengthen its timing resilience, through Executive Order 13905. In the US, an industry alliance has been set up to reduce reliance on satellites by delivering alternative forms of positioning, navigation and timing.
But the government-backed move to explore alternatives to satellite technology may not win universal favour within the financial industry.
Stéphane Tyč, co-founder of McKay Brothers, an operator of low-latency wireless networks, thinks satellite signals are generally reliable. He says the main issue for HFT firms is syncing with absolute time, adding: “As for accuracy, I’m not sure we need a ton more than what is currently doable and actually easy – better than one microsecond absolute precision.”
The National Physical Laboratory’s Lobo agrees that algo traders would like to see better time synchronisation between geographically distributed venues. But he suggests that high-frequency traders are likely happy with the current granularity of time provision in local markets because it suits them that other trading firms mark time less accurately than HFT traders are able to.
“HFTs do not publicly push for any particular time accuracy requirement, because that’s what keeps them ahead of the game to a large extent,” he says. “But if an HFT firm has infrastructure at the London Stock Exchange, as well as Deutsche Börse in Frankfurt, how closely they are synchronised is going to be pretty critical to maximise performance.”
Yet exchanges themselves may also need convincing of the need to synchronise with other venues.
Xilinx’s Richardson says: “Different exchanges aren’t necessarily going to synchronise their times. It’s something that’s very difficult to start correcting, because you need all of the individual governments to work together.”
Deutsche Börse, for example, says syncing with peers abroad on a nanosecond level is not a top priority for the firm. The German exchange’s head of trading IT, Wolfgang Eholzer, says: “Our main focus is on the local environment, really ensuring consistency within the data centre. It’s less a focus to be super-precise on the global level.”
Deutsche Börse currently receives its time from satellite as well as a longwave signal from Germany’s national metrology institute.
Banks, though, are keen to see improvement in time delivery, and think it will lead to more use of quantum computing in trading – as well as helping improve regulatory oversight.
Jezri Mohideen, global chief digital officer for Nomura’s wholesale business, says: “Hyper-fast financial market trading makes the task of tracking activities particularly difficult for regulators, and time-stamp accuracy needs to improve significantly.”
He believes more accurate time services and quantum computers “will eventually be key technologies in finance”.
One of the areas of development for delivery of time is using fibre-optic cable. Richardson says dedicated fibre linked to a national time service offers “significantly better performance” compared with satellites.
In the UK, the National Physical Laboratory presently partners with Intercontinental Exchange to deliver a paid-for time service over fibre accurate to one microsecond, satisfying Mifid II requirements. It is distributed to “several tens” of investment banks and exchanges.
Other experts argue, however, that for time accuracy to be improved via fibre, much smoother lines would be required. Current fibre links tend to have boxes of electronics and switches along their routes that introduce noise and degrade timing signal performance.
Technologies are emerging that enable accuracy measured in picoseconds over fibre, although they are not widely adopted. A picosecond is equal to one trillionth of a second. Scientists from Switzerland’s Cern laboratory – birthplace of the World Wide Web – are working on a project known as White Rabbit, in tandem with Seven Solutions, a Spanish telecommunications company. White Rabbit uses specialist kit and algorithms to ensure sub-nanosecond synchronisation between devices – albeit limited to a distance measured in tens of kilometres.
Carlos Valenzuela, field application engineer at Seven Solutions, says quantum computing would go hand in hand with improved time synchronisation: “[Quantum computing] is a good fit for our technology. If the speed of trading technology is improved, it is going to need more and more accuracy. The higher time distribution on a quantum computer will mean you are going to need a higher level of time synchronisation, down to picoseconds.”
Deutsche Börse is the only major exchange to have installed White Rabbit. The firm says it wants to provide a “level playing field” for time synchronisation in its co-location network locally, for around two dozen clients for which that level of precision matters.
It is also considering taking a dedicated fibre link from a third source.
Proprietary trading firm Optiver also uses White Rabbit, says head of the data infrastructure team, Zuotian Tatum. In Optiver’s fastest system, a signal currently gets from the front of the exchange to a trading decision in less than 100 nanoseconds.
With White Rabbit, events on Optiver’s network level can be time-stamped in picosecond scale, but Tatum agrees with others that synchronisation is essential not just between devices in the same location, but also between devices in different geographies.
A second terrestrial alternative to satellites is ‘enhanced Loran’. Known as eLoran, it is based on long-range navigation systems that use terrestrial towers, with improved accuracy and resilience compared with satellites. Its radio waves could be picked up inside buildings without the need for a roof-mounted dish.
Charles Curry, managing director of timing solutions firm Chronos Technology, says eLoran has greater accuracy than satellites, with a margin for error as low as 20 nanoseconds.
He adds that eLoran could be useful as a backup to satellite technology for firms including HFT traders: “They are basically reliant on satellites – so, within 50 nanoseconds accuracy. Ideally, they need that made more resilient and strengthened with an eLoran signal, because if satellites go wrong, then their time-stamping goes wrong.”
For eLoran to provide an alternative means to synchronise time across geographies, international agreement would be needed to establish transmitters across a range of countries to provide the necessary coverage.
With new technologies in the pipeline, Mohideen at Nomura warns that the sell side must be prepared to make investments into quantum hardware, if they don’t want other market participants gaining an edge over them: “Within sell-side firms, as well as the ones who are involved in HFT, they will need to look into it because otherwise they will get disrupted. If you don’t move with it, you will get left behind.”
Editing by Alex Krohn
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