The Securities and Exchange Commission (SEC) has approved a new clock synchronization standard for computer clocks used to record events in NMS securities and OTC equity securities. The current FINRA standard is a one-second tolerance. The new standard – new FINRA Rule 4590 – reduces that tolerance to 50 milliseconds.
The new synchronization rule will go into effect on August 15, 2016. From that date, firms have six months (until February 20, 2017) to apply the 50 millisecond standard to clocks that capture time in milliseconds. Firms have 18 months from the effective date (until February 19, 2018) to apply the 50 millisecond standard to all other computer clocks used to record events in NMS securities and OTC equity securities.
This change only applies to computer clocks used to record events in NMS securities and OTC equity securities. Mechanical time stamping devices are excluded, as well as computer clocks used to record events in securities other than NMS securities or OTC equity securities. Said devices are instead still held to the current FINRA standard.
Currently, firms must synchronize any business clock used to record the date and time of events that are required to be recorded by FINRA rules or by-laws. These clocks must be synchronized to within one second of the atomic clock used by the National Institute of Standards and Technology (NIST). The required one-second drift tolerance includes:
- the difference between the NIST atomic clock and a time provider’s clock,
- the transmission delay from the source,
- and the amount of drift in the member firm’s clock.
The new 50 millisecond drift tolerance will include the same provisions, but within the shortened synchronization standard.
Again, the rule change only tightens current clock synchronization requirements. And only for computer clocks used to record events in NMS securities and OTC equity securities. The scope and application of the rule has not changed, except for the adoption of this 50 millisecond standard. FINRA is not making any other substantive changes to its existing synchronization requirement.
For more information, please consult FINRA Regulatory Notice 16-23.