Could Blockchain Push Markets Beyond T+1 and Simplify Settlements?
A recent depository glitch showed how many steps still come between a trade and real ownership. Some market leaders believe blockchain could remove those layers and make settlements faster.
Those who invest in stocks would know that when you buy a share on your broker’s mobile app or web platform, it shows up on your dashboard at once. But the real transfer of shares does not happen instantly.
Brokers, clearing firms, and banks do a lot of work in the background. Each party keeps its own record of the transaction. Later, those records are matched, and that’s when the credit and debit of shares happen. That is how India’s T+1, or trade-plus-one, settlement cycle works.
The blueprint for much of the core software the global financial system runs on was written decades ago. The system works, no doubt, but it can be called slow in this time and age of 10-minute delivery. And sometimes, this system breaks, resulting in even more delay.
That’s what happened at the start of this month. In the first week of February, there was a big technical problem at one of the share depositories.
As a result, normal T+1 settlements did not happen on time, and many trades got stuck. Zerodha founder Nithin Kamath even posted about the whole issue on X.
Shares were not moved properly between demat accounts, so some people could not see or sell what they had bought. The backlog was cleared later, but it caused worry for traders and brokers.
A Common Record
To deal with these problems of slow trade settlements, high fees, multiple intermediaries, and scattered records, financial veterans are now arguing in favour of blockchain.
Recently, BlackRock CEO Larry Fink also said that updating the financial system to run on blockchain technology is “necessary,” because it not only reduces costs but also boosts accessibility for investors.
Blockchain changes how we keep our records. Instead of many separate systems, there is one common ledger, where the transaction history is visible to everyone.
Currently, an equity transaction appears complete the moment it executes on the exchange, but the legal transfer of ownership happens a day or two later. This delay exists because each institution maintains its own system.
A system built on blockchain removes that separation. Therefore, the trade itself would update the ownership in the same action that confirms payment or funds transfer. In short, everything would happen almost instantaneously.
That is the shift Fink has been arguing for. Instead of parallel books maintained by different entities and reconciled after the event, there would be one record used across the system.
In January this year, the New York Stock Exchange announced that it is preparing a market built around this idea, with trades settling instantly and running beyond market hours.
Its new digital platform, subject to regulatory approvals, will enable tokenised trading experiences, including 24/7 operations, instant settlement, orders sized in dollar amounts, and stablecoin-based funding.
Outage-Proof System?
Now, the question arises is that if our systems were already on blockchain and stocks were tokenised, would an outage like the one we saw earlier this month have been avoidable?
The answer is both yes and no.
Blockchain would not stop a technical failure from happening. That could happen to any platform.
But it would stop the type of settlement jam that followed, because blockchain would reduce dependency on one database. The transaction record at the brokers’ end would in itself be proof of ownership.
This series is brought to you in partnership with Algorand.
