Barrons Independent

The global financial system is on the edge of a major change, pushed by the growing need for instant settlement. For a long time, traditional systems where trades are finalized two business days after the transaction have been the standard.

But now, new advancements in artificial intelligence (AI), distributed ledger technology, and real-time processing systems are challenging these old ways of doing things. Moving to instant settlement could make markets more liquid, lower the risk of one party failing to pay or deliver, and make it easier for more people to access financial tools.

The Current State Of Settlement

To understand how instant settlement could work, it’s important to know how financial marketshandle transactions right now. As of April 2025, most big stock exchanges use a system called T+1 for settling trades. This means that when someone buys or sells stocks, the transaction is completed one business day after the trade happens.

In the U.S., this change to T+1 started on May 28, 2024, when they moved from a system called T+2, which took two business days. India has been using T+1 since 2002 (Charles Schwab). These systems are faster than older ones like T+3 or T+5, which took three or five business days, but they still involve waiting.

During this waiting time, there is still a risk involved - called counterparty risk. This is the chance that one side might not follow through with their part of the deal, such as not handing over the stocks or not making the payment. This risk becomes bigger when markets are unstable or changing quickly.

Also, while the trade is being settled, the money and stocks are tied up and can’t be used for other investmentsor to react to changes in the market. The process also involves a lot of manual work, like checking and fixing errors, which keeps operational costs high. All of this shows why there is a need for a better and more efficient way to handle settlements.

What Is Instant Settlement?

Instant settlement, also known as T+0, means that a financial trade is completed right away. In this process, the buyer gets the securities, and the seller receives the payment at the same time.

Unlike systems like T+1 or T+2, where there is a delay of one or two business days, instant settlement happens without any waiting period, making the transaction smooth and quick. This method removes the risk that one side might not fulfill their part of the deal, allows money and securities to be used immediately, and cuts down on the need for middlemen, which could change how financial markets work.

The advantages of instant settlement are significant. By completing trades instantly, the chance of one party failing to pay or deliver is greatly reduced, which helps make the market more stable. Investors can use the money they earn from selling right away or start using the securities they bought immediately, which makes it easier to move money around.

Using advanced technology to automate the process lowers costs and reduces mistakes. Also, faster settlement times could encourage more people to participate in trading, which could lead to an increase in the number of trades happening.

Technologies Powering Instant Settlement

The key to making instant settlement possible lies in technologies that allow transactions to be secure, clear, and completed right away. Two important technologies leading the way are blockchain and Distributed Ledger Technology (DLT). These systems use decentralized ledgers, which means they record transactions on a network of computers.

Everyone involved can see the same transaction history, which gets rid of delays caused by having to match records. Smart contracts, which are automatic agreements built into the blockchain, handle the transfer of assets as soon as payment is confirmed. This ensures that both the asset and the payment are exchanged at the same time, reducing risks.

A major development in 2025 involves Bitcoin and its layer-2 solution called the Lightning Network. Bitcoin’s decentralized security and unchangeable ledger provide a strong base for handling financial transactions. The Lightning Network makes it possible to process millions of transactions per second at a very low cost, making it perfect for fast-paced trading and tiny payments.

A big milestone was when Tether, a company that issues USDT, announced that it would operate on the Lightning Network. USDT is a stablecoin tied to the value of the U.S. dollar. This allows for quick, low-cost settlements with the stability of traditional money.

Stablecoins, which are digital currencies linked to real-world money like the U.S. dollar, are also very important. They provide the stability needed for reliable transactions and are useful in areas like paying employees, sending money across borders, and international trade.

The Taproot Assets protocol, created by Lightning Labs, has made it easier to use stablecoins on the Lightning Network, increasing its value for traditional financial markets. Beyond cryptocurrencies, traditional banks and institutions are also using DLT. For example, JPMorgan’s JPM Coin lets institutional clients make real-time payments in U.S. dollars.

Singapore’s Project Ubin III has shown how atomic settlement can work on distributed ledgers. Atomic settlement is when both sides of a trade are completed at the same time.

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Challenges To Implementation

Liquidity Concerns

Even though instant settlement has a lot of potential, it also faces big challenges. One major issue is liquidity. Instant settlement gets rid of netting, which is a process where multiple trades are balanced out to reduce the total amount of payments needed.

Without netting, institutions need to keep more cash and securities on hand, which puts pressure on their available funds. This can be especially difficult for large institutions during times when there is a high volume of trading (Moneycontrol).

Risk Of Transaction Failures

Another concern is the possibility of transaction failures. Real-time settlement requires everything to work perfectly, and any delay or mistake could cause problems for the entire system. This is especially important during busy trading times when the reliability of the system is critical.

Upgrading the current infrastructure to support instant settlement will require a lot of money and coordination between stock exchanges, clearinghouses, and depositories. The industry needs to make sure that systems are strong enough to handle real-time demands without losing security or breaking rules.

Regulatory Frameworks

Regulatory frameworks are another challenge. While SEBI in India is working to encourage instant settlement, other places may need to update their rules to allow real-time systems.

Meeting anti-money laundering (AML) and know-your-customer (KYC) requirements in a real-time environment adds extra complexity. These challenges show how important it is for financial institutions, technology providers, and regulators to work together to create systems that are both standardized and secure.

Impact On Market Dynamics And Participants

Liquidity And Capital Efficiency

Instant settlement makes it possible to use money that was previously stuck while waiting for trades to be completed. For day traders and hedge funds, this means they can take the money from selling assets and quickly use it to buy new ones.

This helps them make more money when markets are changing quickly. Retail investors, who make up 25% of U.S. stock trading, also benefit because they can get their money faster. This allows them to react more quickly to important news that affects the market.

However, institutional investors like pension funds and mutual funds face new challenges. These groups often spread out settlements to match the timing of when people add or withdraw money.

With instant settlement, they need to keep more cash ready to meet real-time demands. This could reduce the returns they earn on short-term investments, forcing them to rethink how they manage their cash.

Counterparty Risk And Systemic Stability

By speeding up settlement times from days to just milliseconds, the risk of one party failing to pay or deliver after a trade is greatly reduced. In older systems like T+2, if a buyer went bankrupt after a trade but before the settlement was complete, the seller could be left with nothing. Instant settlement avoids this by completing the transaction before anything unexpected, like a credit downgrade or a big market crash, can cause problems.

On the other hand, the speed of instant settlement can create new risks for the entire system. In traditional systems, there is time to fix mistakes, like wrong trade amounts or incorrect account numbers. With instant settlement, these errors cannot be undone once they happen. If an AI system doesn’t catch a mistake, it could lead to unintended trades or a sudden lack of available money.

Market Accessibility And Inclusion

Instant settlement makes it easier for regular people in developing countries to participate in financial markets. In places where banking and custodial services are not well-developed, real-time settlement through mobile platforms lets people directly access global stocks without needing traditional brokers.

For example, Kenya’s M-Pesa has tested small investment products that settle instantly through mobile wallets. Since 2023, this has attracted over 500,000 new retail traders, showing how technology can open doors for people who were previously excluded from global markets.

Bridging The Technology Gap

The "technology gap" is the difference between the current financial systems, many of which rely on centralized, manual processes, and the advanced technologies needed for instant settlement. Older systems are slow, prone to errors, and expensive, while blockchain and Distributed Ledger Technology (DLT) offer speed, security, and transparency. Closing this gap will require:

• Technological Innovation:Using blockchain, DLT, and solutions like the Lightning Network to replace old systems.
• Industry Collaboration:Financial institutions, stock exchanges, and technology providers need to work together to create systems that can work with each other.
• Regulatory Support:Clear rules, like the plan SEBI has for instant settlement, are necessary to ensure that everyone follows the rules and adopts the new systems.

The economic benefits could be huge. By making settlement processes simpler, instant settlement could save billions of dollars every year in operational costs, making markets more efficient and easier for everyone to use.

Global Case Studies And Industry Readiness

The shift toward faster and more efficient settlement systems is gaining momentum worldwide, driven by advancements in technology and the growing demand for real-time financial transactions. By examining case studies from India, China, the European Union (EU), and the United States (U.S.), we can better understand the progress made so far, the obstacles that remain, and the lessons learned along the way.

India’s T+1 Transition - A Blueprint For Scalability

In 2023, India moved to a T+1 settlement system, which means trades are completed one business day after they happen. This change cut the number of failed trades by 30% and freed up $12 billion in collateral that was previously stuck. The Securities and Exchange Board of India (SEBI) made this shift possible by requiring brokers to use modern tools like API-driven settlement systems.

These tools let brokers confirm trades automatically within 15 minutes of when the trade happens. However, the system still works in batches, with all settlements happening once a day at 3:00 PM IST. This is still far from the goal of real-time finality, where trades would be completed instantly as they happen.

China’s T+0 Experiment - Lessons In Risk Management

China’s Shanghai Stock Exchange has been testing T+0 settlement for exchange-traded funds (ETFs). This allows traders to buy and sell positions on the same day. Since this experiment began, trading volumes for ETFs have increased by 45% in 2024, showing that it has improved liquidity.

However, this faster trading also made markets more volatile, meaning prices changed quickly and unpredictably. To manage this, regulators introduced circuit breakers, which pause trading when prices move too sharply. This experiment shows how challenging it is to balance the benefits of speed with the need for stability.

EU And U.S. - Regulatory Hurdles And Fragmented Infrastructure

In the European Union (EU), the Central Securities Depositories Regulation (CSDR) imposes heavy fines for settlement failures. However, there is no single system in place to support instant settlement across the region.

In the United States, the situation is complicated by differences in how clearinghouses operate. For example, the New York Stock Exchange (NYSE) uses its Pillar platform to settle stock trades through the Depository Trust & Clearing Corporation (DTCC).

At the same time, cryptocurrency tradesrely on a mix of private blockchains. This lack of consistency makes cross-border trades even harder. Time zone differences and varying rules in different countries already cause delays, and the fragmented systems add to the challenges.

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Frequently Asked Questions

How Does Instant Settlement Impact Small Businesses?

Instant settlement allows small businesses to access funds faster, improving cash flow and enabling quicker reinvestment. However, they may face challenges in adapting to the technology and managing liquidity requirements.

Can Instant Settlement Handle High-value Transactions Like Real Estate?

Instant settlement can handle high-value transactions if supported by robust systems and regulatory frameworks. However, these systems must ensure security and scalability to manage such complex deals effectively.

How Might Instant Settlement Affect Traditional Banks?

Instant settlement could reduce banks' role as intermediaries, pressuring them to adopt new technologies. Banks may shift focus to offering value-added services like advisory and digital tools to stay competitive.

How Do Instant Settlement Systems Handle Time Zone Differences?

Instant settlement systems rely on synchronized global standards to manage time zone differences. However, inconsistencies in regional regulations and infrastructure can still cause delays in cross-border transactions.

Conclusion

The move toward instant settlement is both a major technological change and a test of how well the financial industry can adapt. Technologies like AI, blockchain, and real-time systems can make transactions much faster and more efficient. However, their success depends on teamwork and innovation.

Regulators need to create consistent rules for cross-border transactions, institutions must update their old systems, and technology experts have to address ethical concerns. For financial markets around the world, closing the technology gap is not just about making operations better. It is about rethinking the basic way finance works, to create a future where money moves as quickly as information does.