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    FINRA (NASD) OATS (Order Audit Trail System)
    The National Association of Securities Dealers (oritinally through NASD, now known as FINRA) established the Order Audit Trail System (OATS) "to create an audit trail of order, quote, and trade information for Nasdaq securities." The OATS regulations include requirements for the sychronization of clocks, which are summarized below.

    Rule 6953 (part of the "OATS Rules") specifies that:

    "Each member shall synchronize its business clocks that are used for purposes of recording the date and time of any event that must be recorded pursuant to the By-Laws or other rules of the Association, with reference to a time source as designated by the Association, and shall maintain the synchronization of such business clocks in conformity with such procedures as are prescribed by the Association."
    Specific OATS Time Synchronization Requirements
    The OATS Technical Reporting Specifications (dated November 19, 2007) is the document that includes the basic requirements for computer clock synchronization for NASD members under rule 6953.

    The specific requirements of Section 2 of that document regarding clock synchronization are:

    • 3-Second Tolerance
      All computer clocks and mechanical timestamping devices must be synchronized to within 3 seconds of the National Institute of Standards and Technology (NIST) atomic clock.

      The regulation allows for the use of any time source for the synchronization, as long as all clocks stay synchronized within a 3-second tolerance of the NIST clock. The tolerance is defined as including all of the following:

      1. difference between the NIST clock and a time provider's clock (referred to hereafter as Variance)
      2. transmission delay from the source (Latency)
      3. amount of drift of the member's clock (Drift)

      The total of all of the above for any clock must not exceed 3 seconds.

    • Regular synchronization
      Clocks must be synchronized every business day before market open, and then remain in sync throughout the day.

    • Audit Trail
      The following information must be collected and maintained for compliance review:
      • Documentation of clock synchronization procedures
      • Logs of every time a clock is synchronized and the results of that synchronization
      • The log should include notice of any time the clock drifts more than 3 seconds from NIST time.
      • Logs must be maintained and preserved for the period of time and accessibility specified in SEC Rule 17a-4(b)
      • Logs must be maintained in a format permitted under SEC Rule 17a-4(f) (this requirement is derived from Rule 17a-4(b) and included in NASD clarification letters)

    How to Use Domain Time II to comply with the OATS Requirements
    Domain Time II meets or exceeds all of the specific OATS requirements detailed above. Properly configured, Domain Time will allow you to easily comply with all of the computer clock sychronization requirements.

      Domain Time II is designed specifically to provide both accurate time synchronization and a complete history of that synchronization. Each Domain Time II time sync component (Servers and Clients) have the ability to keep detailed logs and statistics of their own activity - and, critically, to report that information automatically to monitoring and auditing systems when requested.

      This diagram shows the basic structure of the Domain Time II system, showing how time synchronization and audit data collection are handled.

      The Domain Time II System

      Configuring for compliance
      There are two basic steps necessary to use Domain Time II to achieve OATS compliance:

      • Configure Domain Time II to provide accurate time sychronization to all clocks
      • Configure Domain Time II to collect and maintain sync records in an audit trail

      • Configure Domain Time II to provide accurate time sync to all clocks

        Domain Time II, when installed according to the instructions found on the Recommended Configurations page of the Domain Time II documentation, will meet most of the NASD requirements for time synchronization. However, there are a few additional configuration considerations beyond the standard recommend installation instructions for OATS compliance. Let's consider each of the requirements and what is required to ensure Domain Time II fulfills them.

        • OATS Requirement: 3-Second Tolerance
          Solution: Use Domain Time II in its default configuration.

            By default, Domain Time II provides accuracy substantially greater than the OATS minimum requirement of 3 seconds tolerance from NIST time. Using the software's default settings, variance from the selected time source on any clock is kept well under 250 milliseconds, and in most cases substantially tighter than that. See the Domain Time II Accuracy Whitepapers for full information. No additional configuration is required to meet this requirement.

        • OATS Requirement: Regular synchronization
          Solution: Use Domain Time II in its default configuration.

            By default, Domain Time II ensures that all clocks remain continuously synchronized with their source, which makes periodic synchronization on a regular schedule "throughout the day" to maintain the 3-second tolerance unnecessary. No configuration changes to Domain Time II are necessary to comply with this requirement.

        • OATS Requirement: Synchronize every business day before Market Open
          Solution: Use Domain Time II Audit Server to schedule a sync at a specified time.

            Technically, since the clocks are continuously corrected to the current time as necessary, they are "synchronized" at all times, however, this rule imlies that a definite, logged sychronization of all clocks should occur before market open. This requires an adjustment to the default recommended configuration of Domain Time II.

            Recommended Solution: Use Domain Time II Audit Server
            The optimal way to address this regulation is to use Audit Server to schedule an audit run with triggered synchronization at the desired time before market open. This ensures that all machines are synchronized at the desired time, and still allows the Domain Time II system to ensure maximum accuracy on all systems automatically throughout the rest of the day. No other changes are required to Domain Time II components using this method.

            Required Configuration Change

            Enable sync trigger at audit time: On the Audit Server's Schedule tab page, set the desired days and times for the market open sync and be sure the Trigger sync of audited machines before auditing them checkbox is checked.

            Other Methods
            If Audit Server is not used, there are three other ways to make the "before market open" synchronization happen using Domain Time. Each has its own advantages and disadvantages, and none is quite as robust or simple to maintain as using Audit Server. However, you may choose one of these methods if you prefer.

            • Configure each Server and Client to synchronize on a fixed schedule.
              Advantages - ensures a sync always happens within a specified time frame (but not at an exact time)
              Disadvantages - requires a configuration change on all machines, possibly significant loss of accuracy as clocks drift between syncs
            • Configure only the Master to synchronize on a fixed schedule.
              Advantages - does not compromise overall network accuracy, all machines stay within their targeted range of accuracy
              Disadvantages - sync cannot be scheduled to an exact time
            • Externally trigger the Master to sync at a fixed time
              Advantages - can specify a sync at a specific time, does not compromise overall network accuracy
              Disadvantages - relies on scheduled job to run the exernal trigger program

            Explanation: Domain Time II components can be set either to automatically maintain a set level of accuracy with their source (each component automatically synchronizes itself often enough to maintain this target) or to sychronize on a fixed schedule. The first method is the default for Domain Time II and results in much higher accuracy than fixed schedule syncs. However, neither method absolutely guarantees that a sychronization check will occur at a specific time. However Domain Time does include a utility (dtcheck.exe) that can trigger a sync on demand. This allows a sync trigger to occur at a specific time using the built-in Windows Scheduler service.

            These are the instructions on how to set Domain Time II for each option:

            • Configure each Server and Client to synchronize on a fixed schedule.
              If you want to use a fixed schedule on each machine, the timings section of the time components must be changed from the defaults.

              A fixed schedule guarantees that a sync will happens regularly at the rate set. However, the the precise time of the sync is determined by when the time on the server was last set. If a manual sync trigger occurs, the schedule will be reset to start at the triggered time.

              Synchronizing once an hour will guarantee that a synchronization will occur within one hour before market open, but not exactly when that sync will occur. For example, if a manual sync of the Master occurs at 30 minutes after the hour, the regular synchronizations will occur every hour thereafter at 30 minutes past the hour. However, if another manual sync of the server happens, say at 10 minutes past the hour, the schedule will reset and syncs will now occur every hour at 10 minutes past the hour.

              If you have installed Domain Time II according to the recommendations, you will have a Domain Time II Master Server that sets the timing policy for the entire network. This greatly simplifies making the required timing adjustments. You need only make the following adjustments on the Master Server.

              If you do not have Domain Time II configured with Masters and Slaves, you will need to make the following adjustments on each Domain Time II Server on the network. Note that these settings can also be preset before installation or pushed out to all existing systems using the DOMTIME.INI file. See Resetting configurations on multiple machines instructions.

              Required Configuration Change for Fixed Schedule on all machines

              Use Manager to connect to the Master Domain Time II Server's Control Panel (or use the Control Panel from local machine) and change the settings on both the Server Timings and Client Timings tab pages from "As often as needed to maintain..." to "Only every.." and set the frequency to the schedule you wish. No changes are needed to the Slave Timings page.

            • Configure only the Master to synchronize on a fixed schedule.
              This option is similar to the Fixed Schedule option above, except that only the Master Domain Time II Server is set to a fixed schedule. The Master will lose some accuracy in tracking its own time source due to being on a fixed schedule, however all other Domain Time II components are left in their default state, allowing them to stay as accurate to their source as possible.

              When the time has changed on the Master server, it sends a cascade trigger to the rest of the network telling all components to sync Therefore, when the Master is set to a fixed schedule, it will first synchronize itself at the rate specified, and then send a cascade trigger causing all other machines to sync.

              Required Configuration Change for Fixed Schedule of Master only

              Use Manager to connect to the Master Domain Time II Server's Control Panel (or use the Control Panel from local machine) and change the settings on the the Server Timings tab page from "As often as needed to maintain..." to "Only every.." and set the frequency to the schedule you wish. No changes are needed to either the Slave Timings or Client Timings pages.
            • Externally trigger the Master to sync at a fixed time
              This option allows you to leave all Domain Time components in their default Recommended Configuration. Using the Windows Scheduler service, the external utility (DTCHECK.EXE) is set to trigger the Master to synchronize at specific times. Since the Master is in its default state, it will stay as accurate as possible to its time source, but it will also do a sync when it receives the special trigger from DTCHECK. As above, the Master will trigger all other machines to sync when it syncs. This way you get both targeted accuracy and a logged sync at a specific time.

              Required Configuration Change for external sync trigger

              Configure the Windows Scheduler service to run the DTCHECK.EXE utility at the desired time(s) with the following syntax:

                DTCHECK [machine] /sync

              where [machine] is the machine name or ip address of the Master Server.

        How to Configure Domain Time II to collect and maintain sync records in an audit trail
        The information below is based on meeting FINRA (NASD) OATS regulatory requirements, but gives a good overview of how Domain Time II can assist in creating and maintaining an audit trail of time synchronization.

        • FINRA (NASD) OATS Requirement: Documentation of clock synchronization procedures
          Solution: Use Domain Time II documentation as necessary to write your procedures.

            Domain Time II is thoroughly documented, and the behavior of the Domain Time II system and each time component and how it synchronizes is detailed in the Technical Information and Configuration and sections of the online documentation. These documents can be used to provide any level of detail of the system operation for compiling your documented procedures.

        • FINRA (NASD) OATS Requirement: Keep Logs of every time a clock is synchronized and the results of that synchronization
          Solution: Use Domain Time II Audit Server to collect sync logs.

            See the Audit Server documentation for details on configuring and using Audit Server.

            Domain Time II Audit Server is capable of collecting a log of time sync activity from Domain Time II components into a central location for easy analysis and archiving. Information retreived includes when a sync occurred and with whom the component synced, and amount the clock was corrected. Log retention is configurable to match archival schedules.

            Audit Server also keeps an audit record which can be used to demontrate on-demand that any particular machine was synchronized, with what source, and with what accuracy.

            Domain Time II Server and Full Client also keep a local log that includes not only time sync events, but all other events activity and events by the component. These logs can be manually collected and archived to meet the log retention requirements, however doing so is typically much more complex than using Audit Server to do so, and results in significantly larger log files to be archived. In most cases, using Audit Server to collect sync logs is optimal.

            Required Configuration Changes to Audit Server

            See Discovery documentation for details on these steps.

          • Add all broadcast subnets: If you want Audit Server to use broadcasts to discover machines to audit, enter the broadcast addresses for all subnets on your network where Domain Time II components are deployed to the Broadcast Addresses section of the Advanced tab page.

          • Collect Machine Lists from all Domain Time II Servers:
            If you want to automatically contact all machines that synchronize with Domain Time II Server, enable the and enter all Domain Time II Servers to be contacted to the Servers... dialog.

          • Manually Enter Other Machines:
            Use the Audit Server Audit List tab to manually enter any machines not automatically discovered by the methods above.

          • Enable Central Log Collection:
            Use the Discovery tab page of Domain Time II Audit Server to collect Time Synchronzation logs. Choose retention settings that correspond with your archival processes to ensure that all logs are transferred to archival storage before being deleted from the Audit Server.

        • FINRA (NASD) OATS Requirement: The log should include notice of any time the clock drifts more than 3 seconds from NIST time.
          Solution: Domain Time II Audit Server has the capability to generate alerts when any monitored system's variance from a reference clock exceeds a threshold you set. Warning entries of these events are also included in the logs.

            Reference Clock
            Audit Server can compare the sampled time of any audited machine to a reference clock. The reference clock's time is used to calculate certain variances and alerts. By default, Audit Server automatically locates the nearest Domain Time II Server to use as its reference clock. Since FINRA (NASD) OATS specifies that variances by shown in relation to NIST, the reference clock setting must be changed.

            Alert Thresholds
            Audit Server has the ability to generate an alert if the time variance on any system exceeds a particular threshold. The FINRA (NASD) OATS-specified requirement is that the log for any machine drifts outside 3 seconds from NIST time should include a notice to that effect. Audit Server will automatically add a warning to the log when any machine exceeds the Any machine time off by... setting on the Audit Server Alerts & Logs tab page.

            Required Configuration Changes to Audit Server

            Set the Reference Clock to NIST: Go to Audit Server's Advanced tab and change the Reference Clock setting to use one of the official NIST Servers (note, you must have the NTP port 123 UDP open on your firewall to allow Monitor to contact a NIST time server).

            Set the Alert Threshold: On Audit Server's Alerts & Logs, make sure the Any machine time off by setting is set to 3 seconds.


        • FINRA (NASD) OATS Requirement: Logs must be maintained and preserved for the period of time and with the accessibility specified in SEC Rule 17a-4(b)
          Solution: Use Domain Time II to collect audit logs and sync data and archive as necessary.

            The period currently specified for this type of record is 3 years, 2 years of which must be in an easily accessible location.

            The Domain Time II Audit Server automatically collects detailed time synchronization data from the network into local disk storage. You may choose to keep the records locally or archive them into offline storage.

        • FINRA (NASD) OATS Requirement: Logs must be maintained in a format permitted under SEC Rule 17a-4(f)
            Domain Time II does not directly address the specific provisions of this regulation (such as the use of optical storage for electronic data records), however it does provide the data in an easily collected and stored manner.

    References
    OATS Technical Reporting Specifications
    OATS Rule 6953. Synchronization of Member Business Clocks
    SEC Rule 17a-4. Records to Be Preserved by Certain Exchange Members, Brokers and Dealers

    Disclaimer
    This document is provided for informational and planning purposes only. The information using in compiling this document was obtained from publically available sources and no representation is made as to the accuracy of the information, nor as to the accuracy of any reading or interpretation thereof. No warranty is made or implied regarding the the usefulness,or suitability of this information for a particular purpose. Further, Greyware Automation Products, Inc. is not liable for any damages, real or consequential, arising from use of this information.

     

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