The Role of Precision Timing in Stock Market Price Discovery when Trading through Distributed Ledgers

Abstract

This paper investigates the importance of “time of execution” and the relevance of “precision time” in order driven transactions done over distributed ledgers. We created a distributed market place using stock market price data from the TMX exchange. We then proceeded to test and measure the impact of timing of orders at the nanosecond level. Whilst price discovery in order driven markets is done instantaneously, with distributed markets, it is necessary to know which order to process first to avoid “frount-running”. We argue that a protocol for the time of order of receipt and execution should be subject to nanosecond stacking. Our approach incorporates both transitory and permanent price discovery components. It allows for the efficient processing of transactions and the order they are received by a market clearing distributed ledger.