Quick Answer
Audit trail business clocks are synchronized to within fifty milliseconds of the National Institute of Standards and Technology atomic clock, except clocks used solely for manual order events or solely for allocation times, which take one second. The residual FINRA clock synchronization rule sets one second for every clock it reaches.
Two clock rules run side by side. One belongs to the consolidated audit trail. The other picks up everything the audit trail rule does not reach, and the same figure means different things in each.
What Is a Business Clock and Which Rule Applies?
A Business Clock means a clock used to record the date and time of any Reportable Event required to be reported under the consolidated audit trail (CAT) rules.
The clock synchronization rule, which is the residual of the two, reaches wider. It applies to a member's business clocks, including computer system clocks and mechanical time stamping devices, used for recording the date and time of any event that must be recorded under the FINRA By-Laws or other FINRA rules, with reference to a time source as designated by FINRA.
The member maintains that synchronization in conformity with the procedures FINRA prescribes.
Its supplementary material sets the boundary between the two rules: members must comply with the clock synchronization rule only to the extent that the CAT clock synchronization rule does not apply, and the example the rule gives is business clocks that record events in debt securities.
Exam Tip: Gotchas
- The clock synchronization rule yields to the CAT rule, not the other way round. A clock that records a reportable event is governed by the CAT standard, and the clock synchronization rule picks up what is left.
- Debt securities are the rule's own example of what is left. The audit trail covers national market system securities and over-the-counter equity securities, so a clock recording a debt trade falls to the clock synchronization rule.
What Tolerance Must a Business Clock Meet?
| Requirement | CAT clock synchronization rule | Clock synchronization rule (the residual) |
|---|---|---|
| Tolerance | At a minimum within a fifty millisecond tolerance of the time maintained by the National Institute of Standards and Technology (NIST) atomic clock, other than business clocks used solely for Manual Order Events or used solely for the time of allocation on Allocation Reports | Business clocks, including computer system clocks and manual time stamp machines, must record time in hours, minutes and seconds and must be synchronized to a source that is synchronized to within a one second tolerance of the NIST atomic clock |
| Relaxed uses | Clocks used solely for Manual Order Events, and clocks used solely for the time of allocation on Allocation Reports, at a minimum within a one second tolerance | None stated |
| Maintaining it | The member must maintain the synchronization | The member must maintain the synchronization in conformity with procedures FINRA prescribes |
Exam Tip: Gotchas
- The one second figure means opposite things in the two rules. In the clock synchronization rule it is the standard for every clock that rule reaches. In the CAT clock synchronization rule it is the relaxed standard for two clock uses only, with every other business clock held to fifty milliseconds.
- The word solely is load-bearing. A clock used for manual order events and for anything else is not a clock used solely for manual order events, so it takes the fifty millisecond tolerance.
What Does the Tolerance Include and How Often Is the Clock Synchronized?
Both rules build the tolerance out of three components, and the first is measured against a different clock in each.
- Under the CAT clock synchronization rule, the difference between the NIST atomic clock and the Industry Member's own Business Clock. Under the clock synchronization rule, the difference between the NIST standard and a time provider's clock, which is the source the member synchronizes to.
- The transmission delay from the source.
- The amount of drift of the member's own clock.
Both rules also set the same cadence, with one difference in what the clock is checked against.
| Rule | Cadence |
|---|---|
| CAT clock synchronization rule | Business Clocks must be synchronized every business day before market open to ensure that timestamps for Reportable Events are accurate, and must be checked against the NIST atomic clock and re-synchronized, as necessary, throughout the day |
| Clock synchronization rule | Computer system and mechanical clocks must be synchronized every business day before market open to ensure that recorded event timestamps are accurate, and clocks must be checked against the standard clock and re-synchronized, as necessary, throughout the day |
Exam Tip: Gotchas
- A tolerance that only measures the clock is understated. Transmission delay from the source and the clock's own drift are inside the same fifty millisecond or one second budget, not additions to it.
- Before market open is not the whole duty. Both rules also require checking and re-synchronizing as necessary throughout the day.
What Must the Firm Document, Certify and Report?
| Duty | CAT clock synchronization rule | Clock synchronization rule (the residual) |
|---|---|---|
| Procedures | Industry Members must document and maintain their synchronization procedures for Business Clocks | Members must document and maintain their clock synchronization procedures, and the rule introduces its list with the words "among other requirements" |
| Log | Must keep a log of the times when they synchronize their Business Clocks and the results of the synchronization process | Must keep a log of the times when they synchronize their clocks and the results of the synchronization process |
| Drift notice | The log should include notice of any time a Business Clock drifts more than the applicable tolerance | The log should include notice of any time the clock drifts more than the tolerance the rule specifies |
| Log retention | The log must include results for a period of not less than five years ending on the then current date, or for the entire period the member has been required to comply if less than five years | The log should be maintained for the period of time and accessibility the records retention rule specifies, in paper format or in a format that rule permits |
| Certification | Each Industry Member certifies to FINRA that its Business Clocks satisfy the synchronization requirements, periodically, in accordance with the certification schedule the Operating Committee establishes under the CAT NMS Plan | Neither certification nor violation reporting is stated |
| Violation reporting | Each Industry Member with Business Clocks must report violations of the synchronization requirements to the Plan Processor and FINRA, under the thresholds the Operating Committee sets under the CAT NMS Plan | Not stated |
Exam Tip: Gotchas
- Violation reports go to two recipients. The audit trail rule names the Plan Processor and FINRA, so a report to one of them alone is incomplete.
- The log retention duties differ in force and in length. The CAT clock synchronization rule says the log must include not less than five years of results, or the entire compliance period if that is shorter, while the clock synchronization rule says the log should be kept for the retention rule's period.
What Should You Check on Exam Day?
- Ask which rule governs the clock: a clock recording a reportable event takes the CAT standard, and the clock synchronization rule covers what is left, such as debt securities.
- Apply fifty milliseconds unless the clock is used solely for manual order events or solely for allocation times, which take one second.
- Count transmission delay and clock drift inside the tolerance rather than on top of it.
- Confirm the cadence is every business day before market open, plus checks and re-synchronization as necessary during the day.
- Send a synchronization violation, at the thresholds the Operating Committee sets, to both the Plan Processor and FINRA, and look for the periodic certification only in the CAT clock synchronization rule.