{"id":2596,"date":"2023-04-06T10:54:26","date_gmt":"2023-04-06T08:54:26","guid":{"rendered":"https:\/\/www.jauch.com\/blog\/?p=2596"},"modified":"2023-04-06T13:19:55","modified_gmt":"2023-04-06T11:19:55","slug":"stratum-layers-an-example-for-their-necessity","status":"publish","type":"post","link":"https:\/\/www.jauch.com\/blog\/en\/stratum-layers-an-example-for-their-necessity\/","title":{"rendered":"Stratum layers: an example for their necessity"},"content":{"rendered":"\n

It is\nMonday morning at 9:30 am. A selling order is placed on the exchange.\nImmediately after, two buying orders arrive for it. But there can only be one\nbuyer. Who was faster and is eligible? How is fairness assured, and guaranteed without\nany risk of collision?<\/p>\n\n\n\n

The trading\nof shares determines the actions on the stock market. The recording of trading\nevents follows strict rules. The compliance of MiFID II organized by ESMA has\ncreated these to regulate the functionality of timestamps and therefore full integrity\nin trading. <\/p>\n\n\n\n

Figure 1 shows the scenario described above with simplified figures. According to this, the selling order was made at a specific time, and it will normalize other points of time for relative events. Buying order 1 came at time 100 ms later and buying order 2 came at time 110 ms later. 10 ms seconds separate the two potential buyers. We see: Milliseconds play an extremely important role here. <\/p>\n\n\n\n

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Fig. 1: Example of a selling order.<\/figcaption><\/figure><\/div>\n\n\n\n

Accurate clocks are needed to ensure the correct sequence of purchases. With a difference of 10 ms from two buying orders and a possible error of +\/-5 ms due to the uncertainty of clocks, in the “worst” case we end up with a purchase time of 105 ms each. Now so-called timestamps come into play. These are used to assign a unique time to an event. So, there would be an injustice if the error of the timestamps is longer than +\/- 5 ms. However, according to MiFID II, the clocks of the devices involved in the trading venues, that will deal with the transaction of high-frequency algorithmic trading, must be synchronized to UTC time with a divergence less than 100 microseconds, and the granularity be 1 microsecond or better. <\/p>\n\n\n\n

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Fig. 2: Time stamps ensure the correct sequence of purchases.<\/figcaption><\/figure><\/div>\n\n\n\n

This leads\nus to the question:<\/p>\n\n\n\n

How can timing errors be minimized in a system?<\/strong><\/h2>\n\n\n\n

Figure 3 shows an exemplified timing signal route in an ideal case: the UTC clock is the starting point. The signal from this clock is sent to the Grand Master Clock via GNSS satellites. From here, the signal goes to Boundary Clocks and then to various hosts with Transparent Clocks. Inside a host machine, a basic causality relationship of processing an event among tasks should be satisfied. \u00a0From the figure, we know:<\/p>\n\n\n\n