What is the cost of Tuesday’s Leap Second?
Leap seconds are added when the drift between atomic time and that based on the earth’s rotation approaches one second. While atomic time is fixed and precisely measured and monitored, the rotation of the earth is slowing by around two thousandths of a second a day.
The addition of a leap second in 2012 caused disruption with some internet search engines and social media sites suffering crashes, but more worryingly issues with the Linux operating system and programs coded in the Java language. These programming languages are not designed to cope with the addition of an extra second every few years and some simply failed. No matter how resilient these systems were, they couldn’t cope with a fault in the programing language, and this, unfortunately, is outside the control of operators. Airline check in systems failed leaving thousands stranded, but it would be more worrying if the leap second caused problems with aircraft navigation or safety systems – all of which are dependent on time measurement.
This year’s leap second is being added at the end of today, leaving capital markets trading firms open to serious risk. There is no guarantee that all capital markets participants will add the extra second at exactly the same time – or that they will get it right. Capital markets systems form a complex web, one system synchronising with another to create an interlinked auditable trail of trading information across the globe. Trading activity is conducted on a micro and millisecond basis and in this context one second is a huge amount of time – a thousand milliseconds or a million microseconds. The amount of trades that could go unaccounted for or mistakenly recorded is immense. What happens if a trade arrives at a counterparty before it was executed?
The chaos of unsynchronised computer clocks, a myriad of mismatched systems and possible failure of connectivity has the potential to cost the industry tens of millions of pounds.
There’s no obvious solution to this issue, but there are ways to mitigate any disruptions. Adding the second at the end of a month, and in the middle of a trading week, is close to being the worst possible time. Instead, why not add the second on a Saturday night? Trading floors are closed globally and there will be a full day to iron out any problems. The financial services industry operates in a closed loop so if other industries acknowledge that there will be a time gap for a couple of days then – if there is industry wide consensus – a weekend switchover would make the most sense. That consensus, however, may not be easy to reach.
Trading systems, market data feeds, compliance and reporting systems all rely on time. Market volatility, as a result of the crisis in Greece, is already threatening to cast a shadow over the industry like a dark cloud. The leap second will always add time, but where possible, it should not add to the problem. The industry should act now to avoid any disruption of global trading and colossal loss of money in the future.
One suggestion has been that the leap second should be “dropped”, but over time this would lead to celestial bodies (the sun, moon and stars) becoming dislocated in time, leading to issues with navigation and mankind’s relationship with sunrise, sunset, the seasons and the phases of the moon.
So it’s likely that the additional second will continue to be added when required, and the industry must agree on how this managed – i.e., should the closing or opening of the markets be adjusted so it doesn’t affect trading in North America or Asia, or should markets be closed and trading paused for thirty minutes? And thought could be given to moving the event to a less risky time? And it cannot be too much to ask that the producers of operating systems, network control software and programming languages introduce coping mechanisms in their next release, given that the leap second is probably here to stay. In any event, it is imperative that the industry must collectively consider the implications and mitigations now if they want to avoid the pain of future disasters.