FINRA Reduces Clock Synchronization Tolerance

The Securities and Exchange Commission (SEC) approved a new clock synchronization standard of 50 milliseconds that is applicable to computer clocks that are used to record certain events in NMS securities or OTC equity securities.  The effective date is August 15, 2016; however, Financial Industry Regulatory Authority (“FINRA”) member firms have six months from the effective date (until February 20, 2017) to apply the new 50 millisecond standard to impacted system clocks that capture time in milliseconds.  Firms have eighteen months from the effective date (until February 19, 2018) to apply the new standard to impacted system clocks that do not capture time in milliseconds.

Current FINRA rules require that firms synchronize any business clock that is used for the purpose of recording the date and time of any event that must be recorded pursuant to the FINRA By-Laws or other FINRA rules.  Business clocks subject to the current requirement must be synchronized to within one second of the National Institute of Standards and Technology (NIST) atomic clock.

Under the rule change, computer clocks that are used to record events in NMS securities and OTC equity securities must be synchronized to within a 50 millisecond drift tolerance of the NIST atomic clock.  FINRA notes that the approved rule change only tightens the clock synchronization requirements already applicable to business clocks used to record events in NMS securities and OTC equity securities. FINRA is not making any other substantive changes to the scope or application of its existing synchronization requirement. For technical clarity, the approved change relocates FINRA’s clock synchronization rule from the OATS rule set to the generally applicable rule set for firm operations.

New FINRA Rule 4590 continues to require synchronization of business clocks that are used for the purpose of recording the date and time of any event that must be recorded pursuant to the FINRA By-Laws or other FINRA rules.  However, Rule 4590 would continue to apply a one-second synchronization standard to clocks not subject to the new 50 millisecond standard, such as mechanical time stamping devices or computer clocks that are used to record events for securities other than NMS securities or OTC equity securities.  Finally, Rule 4590 also continues to provide the same guidance in supplementary material on record-keeping for purposes of demonstrating clock synchronization compliance.

For more information, see Regulatory Notice 16-36.