MiFID2 and security – keeping track of the money

1024px-Quentin_Massys_001

A shorter version of this post is on the  FSMLabs web site.  MiFID2 is a new set of regulations for the financial services industry in Europe that includes a much more rigorous approach to timestamps.  Timestamps are in many ways the foundation for data integrity in modern processing systems – which are distributed, high speed, and generally gigantic. But when regulations or business or other constraints require timestamps to really work, the issues of fault tolerance and security come up. It doesn’t matter how precise your time distribution is if a mistake or a hacker can easily turn it off or control it.

TimeKeeper incorporates a defense-in-depth design to protect it from deliberate security attacks and errors due to equipment failure or misconfiguration. This engineering approach was born out of a conviction that precise time synchronization would become a business and regulatory imperative.KeystoneCops

  1. Recent disclosures of still more security problems in the NTPd implementation of NTP show how vulnerable time synchronization can be without proper attention to security. PTPd and related implementations of the PTP standard have similar vulnerabilities.
  2. Security and general failure tolerance should be on the minds of firms that are considering how to comply with the MiFID2 rules because time synchronization provides both a broad attack surface and a single point of failure unless properly implemented.

The first step towards time non-naive time synchronization is a skeptical attitude on the parts of IT managers and developers. Ask the right questions at acquisition and design time to prevent unpleasant surprises later.

One of the most dangerous aspects of the just disclosed NTPd exploit is that NTPd will accept a message from any random source telling it to stop synchronizing with its actual time sources. Remember, NTPd is an implementation of NTP, other implementations may not suffer from the same flaw. That d is easy to overlook, but it’s key. TimeKeeper’s NTP and PTP implementations will, for example, ignore commands that do not come from the associated time source and will apply analytical skepticism to commands that do appear to come from the source. TimeKeeper dismisses many of these types of attacks immediately and will start throwing off alerts to provoke automated and human counter-measures. The strongest protection TimeKeeper offers, however, comes from its multi-source capabilitiesthat allow it to compare multiple time sources in real-time and reject a primary source that has strayed.

Correct time travels a long, complex path from a source such as a GPS receiver or a feed like the one British Telecom is now providing. Among the questions system designers need to ask are the following two.

  1. Is the chain between source and client safeguarded comprehensively and instrumented end-to-end?
  2. Is there a way of cross-checking sources against other sources and rejecting bad sources?

Without positive answers to both of these questions, the time distribution technology is inherently fragile and robust MiFID2 timestamp compliance will be unavailable.

The painting is: “Quentin Massys 001” by Quentin Matsys (1456/1466–1530) – The Yorck Project: 10.000 Meisterwerke der Malerei. DVD-ROM, 2002. ISBN 3936122202. Distributed by DIRECTMEDIA Publishing GmbH.. Licensed under Public Domain via Commons – 

MiFID2 Timestamp regulations

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There are a number of places in the new guidelines that increase the rigor required for timestamping data. One key part covers SI’s (systematic internalizers) who operate kind-of like private exchanges. TimeKeeper’s ability to produce traceable audit and to use multiple sources is designed for precisely this kind of application.

Moreover, the inclusion of the timestamp in the pre-trade information published by the SI is a key information for the client to better analyse ex-post the quality of prices quoted by SIs, and in particular to assess with accuracy the responsiveness of the SI and the validity periods of quotes. Without a timestamp assigned by the SI itself, market participants would need to rely on the information potentially provided by data vendors, the timestamps of which would be less accurate, especially when quotes are published through a website as pointed out by some respondents to the question on access to the quotes of SIs

Image is by Hans Holbein the Younger (1497/