While time has always been important in trading, tracking it to within that last nanosecond is now more important than ever.
I recently stumbled across traceable-time-as-a-service (TTaaS) and found it fascinating, especially as time is purely an invented concept. However, in financial markets – which we also invented – time is a critical factor, particularly in trading and investments. That is why proximate colocation data centres have become a big thing for investment banks over the past two decades.
While on the one hand this led to a number of flash trading disasters, on the other it enabled JPMorgan to move from a lagger to a leader. Today, it’s the number one investment bank in the world, after being close to dropping out of the top five just over a decade ago. This impressive rise is because JPMorgan invested massively in its trading technology stack and in positioning its data centres physically closest to the market platforms, as did Goldman Sachs. Time makes a difference.
In fact, this is the reason why the use of proximate data centres – where investment banks place their servers as geographically close to the trading platforms and exchanges as possible – became key. The bank that gets the trade a nanosecond earlier than the next wins. That’s why TTaaS is a critical factor – it enables you to prove that trades happened when you say they happened.
Trading on atoms
The core of what makes TTaaS work is the use of atomic clocks. Atomic clocks are a little bit different to the clock in your home or the watch on your wrist. This is because most normal clocks use quartz crystals, which vibrate at a precise frequency when voltage is applied to them. Atomic clocks, however, use the more stable vibrations of atoms to achieve greater accuracy. The result is that they can identify time to a very exact level.
As a practical example, Nasa uses atomic clocks to measure time and distance in space. Using such techniques and technologies, they can work out wherever a spacecraft is and its distance from the Earth to an incredible degree of accuracy.
This is why, in 2019, Nasa launched a programme called the Deep Space Atomic Clock. Four days after launch, the clock becomes accurate to within a nanosecond and will continue to maintain accurate readings for a long time to come — it will lose just one second after 10 million years.
Across the globe there aren’t many atomic clocks — a mere 400 or so — but by using them, you can accurately track and trace time at a micro level. And this is why they are now being used by banks.
Rather than buying one of the few clocks in existence, however, it is possible to take advantage of the atomic time-stamping offered by cloud-based service providers, of which there are several. That is why it is called traceable-time-as-a-service.
Multiple applications
The applications of TTaaS are interesting, as it is assumed that its main use within a bank would be to aid in regulatory reporting and compliance — but this is not the case. In practice, many banks, as well as other companies, are using TTaaS to improve business performance, as it allows them to measure latencies, optimise them, run bottleneck analyses to work out where things are moving slow, and so on.
This is key in banks, and can make a very big difference when everyone is trading at high speed. And, as mentioned, being able to get to the market fastest as information is released is vital to getting the best prices. So, it’s certainly not just regulatory compliance that is pushing TTaaS adoption.
It can, therefore, help improve the highest performance areas of the market, which is difficult if you don’t measure time within processes. After all, if you can’t measure it, you can’t improve it.
