Instantaneous settlement is possible. In fact, it's just the start.

The imminent new parameters from the Securities and Exchange Commission surrounding the time frame for trade settlement have revealed how unprepared many parts of the current financial system are for modern upgrades. The fact is, existing standards and technology already allow for near-instantaneous settlement of trades, plus many more additional benefits. It's time for the entire industry to embrace these frameworks because they fix more than settlement. They can fix the entire global economy as well.

Recently, the SEC announced that there would be changes to the official FINRA rules concerning the standards for trade settlement timelines. Previously, trades were expected to be settled two business days after execution, or T+2. With the new rule change being put into effect on May 28th, that time frame is being shortened to T+1, or next-day settlement.

This change came in light of the GameStop fiasco from 2021, which saw regular retail investors launch a united front against Wall Street hedge funds. Thanks to social media such as Reddit, as well as retail-focused trading apps like Robinhood, investors sparked a short squeeze in the market for video game retailer GameStop's stock. Doing so drove the company's stock price to new heights, before ultimately rebalancing and triggering congressional hearings as well as regulatory actions, including this update to the required settlement time period.

In the wake of the new settlement framework, firms such as CLS Group have stated they won't be able to meet this deadline and plan to continue their operations as they stand now, though they added they were open to revisiting the issue in the future. Other markets, such as Europe, have even warned about issues with failed trades and loss of liquidity if they followed in the footsteps of the SEC's decision.

Despite some of this pushback, the reality is that next-day settlement should not be seen as an actual hurdle, or even a "stepping stone." The standards and infrastructure for true T+0 trades already exist and are proven to provide robust and reliable same-day settlement of foreign exchange, equities and potentially any asset or instrument that is being actively traded. 

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How is this possible? Because the protocols for defining functional finance are already in play. In response to the 2008 financial crisis, standards were outlined by the Algorithmic Contract Types Universal Standards, or ACTUS, Research Foundation, a U.S.- based nonprofit that I lead. ACTUS was designed specifically to create clarity around the cash-flow patterns of financial instruments that were based on collateralization. This solution was built to be a 100% open-source standard, so that any business could use it to avoid future collapses due to illiquidity.

Standardization frameworks become even more impactful when paired with decentralized ledger, or blockchain technology. Blockchain offers a global network that boasts transaction times that can range from minutes to seconds, meaning that settlement is almost instantaneous. In fact, there has already been notable industry engagement with blockchain solutions. For example, major infrastructure provider Depository Trust & Clearing Corporation has announced the acquisition of Securrency Inc., which is a leading developer of institutional-grade digital asset solutions. 

In light of the new requirements to shorten settlement time, standardization stands to not only provide the means for all institutions to become compliant but also offers additional benefits that can stabilize the current economic landscape. 

If a given firm is fully aligned with ACTUS, then it becomes a relatively simple matter to provide accurate and up-to-date auditing of all assets under management. With blockchain technology in play, the situation gets even better. Tokenization has given us the ability to create decentralized, fully validated and ineffable ledgers. What this means is that it is now possible to create a complete, fully authenticated overview of not only current company holdings, but also project what a portfolio of assets will look like under virtually any broader market conditions. 

This is important because, in the future, we expect all financial assets, specifically financial contracts, to live in blockchain and distributed ledger technology-enabled environments. Tokenization offers us a chance to address the shortcomings of the current financial architecture, and create scalable, digital financial assets.

Asset tokenization, paired with standardization, introduces "smart financial contracts" that can read, and execute tokenized assets automatically and without error. As native financial digital assets, the tokens are machine-readable and executable for faster trading and settlement. Algorithmic logic is also tied to the underlying digital assets, not merely to the token, making it possible to analyze, organize and automate information about any aspect of the financial instrument — allowing tokens to be issued easier, and quicker.

Combining tokenization with clearly defined standards, like ACTUS, can bring a new level of efficiency, transparency and legitimacy to finance and businesses. 

Likewise, any trading desk could easily manage to settle transactions almost instantaneously, going beyond T+1 to true T+0. Additionally, such a system would make it impossible to commit financial fraud or even allow for human error to misrepresent available liquidity. Events like the 2008 financial crisis, and the more recent debacles, would inevitably become a thing of the past. 

This is the essence of what the current push to improve settlement time highlights. Combining robust standardization, and the powers bestowed by blockchain, there's no reason any financial institution couldn't come into compliance with a one day, or better, settlement period. Considering that such a system also provides the transparency and parameters to address institutional flaws that have been the basis for multiple financial crises only elevates how important it is that these standards are implemented. If handled properly, we could be looking at a much more efficient and equitable economy moving forward. Failing to do so, however, has greater implications than just failed trades. It could mean a struggling financial sector for years to come.