The Future of Markets: Analyzing Atomic Settlement in Equities Markets

The SEC is working to integrate distributed ledger technology (DLT) and tokenization into the U.S. securities markets. SIFMA and its members support innovation in the securities markets and believe that these technologies can yield real benefits in how securities are issued, traded, and settled. In that spirit, we are launching a blog series examining where the greatest opportunities lie to improve efficiency, lower costs, and broaden access. Rather than treating these benefits as novel, the series starts from a simple premise: today’s securities markets already deliver efficiency, low cost, and broad access through hard-won structural features – in settlement, custody, liquidity, and price discovery, among others. Each post will examine how a given feature came to produce those gains, then ask what tokenization must do to replicate, preserve, or improve upon them at scale.

Key Takeaways:

• The future of settlement is diverse, not a single model. Investors and firms should be able to choose among complementary settlement models and cycles, including continued netted cycles, accelerated and intraday batch settlement, and on-chain atomic settlement, based on the product, workflow, and risk profile involved.

• While the intent behind atomic settlement is to minimize counterparty risk by reducing the time between execution and settlement, it is not the only way to manage counterparty risk.

• Multilateral netting significantly reduces the amount of cash and securities that must move at settlement, reducing required liquidity and margin. The alternative – settling every trade one-by-one at gross amounts – would increase funding needs and costs.

• Settlement design should be judged at a market-wide level, including liquidity use, day-to-day reliability, and scalability to support high trading volumes.

• New functionality offered by on-chain settlement – which can include atomic settlement as well as same-day settlement models which operate in batches – can increase efficiencies and be paired with hybrid approaches that preserve the features that make markets liquid and resilient.

Atomic Settlement Is One of Many Paths to Faster Settlement 

Settlement in U.S. securities markets is not a single design choice but a spectrum. Today’s T+1 netted settlement supports the high volumes traded in U.S. equity markets; accelerated and intraday batch models, including same-day services already offered by the Depository Trust and Clearing Corporation (“DTCC”), demonstrate that meaningful efficiency gains are achievable within existing infrastructure. On-chain models, including atomic settlement and on-chain batch settlement, point to additional options as tokenized markets develop. The right question is not whether any single model should displace the others, but how investors and firms can choose among complementary settlement options that best fit a given product, workflow, and risk profile. This blog examines atomic settlement in depth as one such option, including where it adds clear value and where its tradeoffs are most pronounced.

Atomic settlement is often cited as a key benefit from tokenization. The attraction is straightforward: reduce counterparty risk, or the risk that one party delivers while the other one fails to pay. Atomic settlement collapses the settlement cycle to zero, ensuring both cash and securities transfer as part of the same transaction and with finality, eliminating the possibility of partial or failed settlement. It also is a contrast with the current T+1 cycle for most securities transactions in the U.S. today, where when a security trades, the cash and security involved would be delivered the next day. Importantly, atomic settlement is only one way of achieving faster settlement times. There are other forms of faster settlement, both on-chain and off-chain, that can reduce the capital needed to support settlement and allow for greater speed of transactions. Settling a transaction on an intraday or atomic basis would allow the cash and securities involved to be used for other trades. For example, a broker could pledge Treasury securities as collateral for a short-term loan in the morning and then trade them later in the day.

The Benefits of Atomic Settlement Carry System-Level Tradeoffs 

The ability of a trade to settle on an atomic basis offers clear benefits. However, it must not be viewed in isolation but in the context of the broader trade lifecycle and settlement infrastructure. Settlement design must do more than reduce risk in a single trade; it must also support the way markets process large volumes, move liquidity through the system, and keep functioning in both normal and stressed conditions. Atomic settlement achieves certainty on a trade-by-trade basis by requiring that cash and securities be fully prefunded at the moment of settlement. Doing so forgoes the multilateral netting that enables settlement of the high volumes seen in today’s U.S. equity markets (ADV 19.7 billion year to date), with estimates showing that netting can reduce the cash that must actually change hands by 98%.ⁱ Modernization to support tokenization should build on what works in U.S. markets, not bypass it. The key questions then are where atomic settlement adds the most value, what it may cost in terms of liquidity, and how to capture the benefits without weakening the features that make existing markets efficient and resilient.

Netting Supports Liquidity and Scale 

Modern securities markets save liquidity by settling net obligations rather than paying and delivering for every trade separately. Netting is not simply a back-office detail, it is a core way the system reduces the volume of cash and securities that must move each day. By offsetting buys and sells across many transactions, netting lowers the total funding needed to complete settlement. This funding reduction is critical as it enables equity markets to trade billions of shares a day on average. Markets would not be able to function at this scale if participants were forced to set aside gross amounts of cash and securities for every trade.

The U.S. move from T+2 to T+1 in 2024 is a useful example. The industry shortened the settlement cycle through a coordinated effort led by SIFMA, DTCC, and the Investment Company Institute (“ICI”), with extensive planning across operations and funding processes. Importantly, this reduced the time trades remained unsettled while retaining core features that support scale, such as centralized clearing and netting. The move showed that faster settlement could reduce risk but also demonstrated the importance of respecting how markets fund activity and manage liquidity in practice. In short, settlement design is a balance: reducing timing risk is valuable, but liquidity efficiency matters at a market-wide level.

Atomic Settlement Comes with Liquidity Tradeoffs 

Atomic settlement can reduce counterparty risk, but it can also increase pressure on the market’s funding and liquidity resources. Market makers commit capital to provide liquidity and maintain continuous, two‑sided quotes throughout the trading day, holding inventory and absorbing order flow imbalances to do so. Settlement models that significantly increase intraday funding needs or tie up collateral on a transaction-by-transaction basis would reduce efficiencies and increase costs of providing these services. In other words, settlement design matters.

While some DLT systems may make it easier to move and reuse collateral, it is unclear if those gains can fully offset the higher liquidity needs of trade-by-trade settlement at scale. Ultimately, there is a balance between these benefits and potential impacts on liquidity.

In tokenized markets, where instant settlement is easy to implement on a shared ledger, atomic settlement can appear to be the default design choice. But faster is not always better, particularly if it requires market makers to warehouse more inventory or constrains their balance-sheet capacity for market making activity.

A related consideration is how different settlement models behave during periods of market stress. In stressed events, trading volumes can spike, funding markets can tighten, and the demand for immediacy – or the speed and certainty of execution – often increases rather than declines. Settlement designs that rely on gross, trade‑by‑trade funding may place additional strain on market participants precisely when liquidity is most constrained. By contrast, systems that incorporate netting and coordinated settlement cycles can absorb shocks by reducing gross funding movements and smoothing liquidity demands across participants.

Certain Key Market Features Cannot be Supported on an Atomic Basis 

It is critical not to take a myopic view of a single trade, but the broader range of products, services, and functions which it is connected to. Many key services of the U.S. capital markets require some lag time between trade time and settlement to arrange interactions between the two immediate counterparties to the trade and the other firms that support them. Critically, securities lending allows market makers to finance the inventory they must hold to provide continuous liquidity. The timelines for lending and returning borrowed securities in many cases can’t be executed on a same-day basis, let alone on an atomic basis. Similarly, the role of prime brokers in supporting certain institutional securities transactions requires a gap between trade and settlement times, as does the work of asset managers in allocating trades. When SIFMA was coordinating industry planning for the move to T+1 settlement, it was clear that these and other critical market functions could not currently be handled on a same-day basis. While on-chain operating models offer the promise of new means of handling these functions, including potentially through programmable assets and smart contracts, these services are either still being developed or only operating on a limited basis.

The Right Settlement Model Will Vary Across Products and Markets 

Market participants and policymakers should avoid seeing atomic settlement either as the answer for every market or asset class, or assuming it must be avoided altogether. Instead, the goal should be to apply it thoughtfully, based on how it affects liquidity, risk, and day-to-day market functioning. The key lens to approach on-chain settlement models should be the building to best drive value, efficiency, and resiliency of securities markets, not building them around the maximum functionality offered by DLT. There are settings where tighter “pay and deliver together” settlement could be a good fit – for example, in lower-volume products, or more limited participant groups. It may also be useful for specific workflows inside a broader market structure.

Importantly, hybrid approaches should not be understood as a return to slower or less secure market practices. Centralized clearing, delivery‑versus‑payment mechanisms, and net settlement already combine strong risk management with liquidity efficiency in today’s markets. Tokenization and DLT can further improve transparency, coordination, and operational resilience within these models. The policy question is how to evolve settlement infrastructure in a way that strengthens both safety and liquidity, rather than optimizing for one at the expense of the other.

The lessons of this approach were seen in SIFMA’s work coordinating the Regulated Settlement Network (RSN), an industry exploration of the potential for on-chain securities and cash settlement. SIFMA and the members participating in the project approached the RSN operating model from the perspective of what would drive real business value and operational efficiency, and in many of the use cases explored found that intraday settlement in batches, not atomic settlement, offered the best combination of operational efficiency and capital efficiency.

Similarly, it is important to recognize that opportunities for fast settlement exist today even using established processes and infrastructure, such as the same-day settlement services for certain types of trades (e.g. broker to broker and bilateral trades) offered by DTCC for its participants.

Conclusion 

Atomic settlement can reduce certain settlement exposures in tokenized securities markets by aligning payment and delivery. But trade-by-trade safety is only one part of the design problem. Market infrastructure also must support liquidity, intermediation, and reliable performance in real-world conditions. The better objective is to identify where atomic settlement works best, where the tradeoffs are biggest, and how to combine new technology with the features that help markets conserve liquidity and absorb shocks. Tokenization can modernize infrastructure, but it does not remove the basic economics of funding and liquidity that markets rely on.

With thanks to Charles DeSimone and Katie Kolchin, CFA, for sharing their insights and contributions to this post.