While assets and trading venues are increasingly moving toward 24/7 availability, settlement, funding and collateral management remain largely organized around market opening hours, cut-off times and batch processes, according to Viv Diwaker, Head of the Canton Foundation. In an interview with Traders Magazine, he discusses where market infrastructure needs to evolve to support 24/7 trading, including the ability to move cash and collateral alongside assets.

What parts of today’s market infrastructure are least prepared for a shift to 24/7 trading and settlement?

The biggest gap is between the ability to trade around the clock and the infrastructure needed to support it. We’re increasingly seeing assets and trading venues move towards 24/7 availability, but settlement, funding and collateral management are still largely organised around market opening hours, cut-off times and batch processes.

Institutions also need the cash to settle the transaction and the collateral to finance or manage the risk around it. If those cannot move at the same speed as the asset, you have created a 24/7 execution layer sitting on top of infrastructure that still runs on a traditional trading day.

This is why the next phase of market modernisation will depend on whether cash, securities and collateral can move together across the different systems institutions already use. It is also why we think increasingly about connectivity across existing and emerging infrastructure, rather than 24/7 trading as an isolated challenge.

If assets can trade around the clock but cash and collateral cannot move as freely, where do the biggest risks or bottlenecks emerge?

Liquidity will be the most immediate issue. If an institution can execute a transaction at any time but the cash or collateral needed to support it is trapped in another system, jurisdiction or settlement window, it has to find another way to fund that position.

This can mean institutions having to pre-position liquidity or collateral across different systems and jurisdictions to ensure it is available when needed. This ties up assets in specific places, limiting their ability to deploy them wherever they are most valuable and reducing how efficiently liquidity and collateral can be used across the market.

Markets can move continuously, including overnight and across time zones, which creates risk if institutions cannot move liquidity or collateral quickly enough to respond. Institutions ultimately need collateral and liquidity to become as mobile as the assets themselves, so the rest of the market can keep pace with continuous trading.

As more institutions build tokenized markets and platforms, is there a risk that the industry simply recreates today’s fragmentation on digital rails?

Yes. Tokenising an asset does not automatically make the market around it more connected. As banks, exchanges and market infrastructures develop their own platforms, assets and liquidity could end up spread across separate networks that cannot easily interact.

We already know how inefficient that can be from traditional markets. Digital markets could develop the same kinds of silos, with different technical standards, liquidity pools, governance models and access frameworks making it difficult for assets to move between platforms. Recreating those boundaries onchain can carry many of the same limitations into tokenized markets.

Interoperability needs to be built into the infrastructure from the beginning, so institutions can operate their own applications and retain control over their governance and data while still connecting with other parts of the market. That potential for fragmentation is one of the reasons composability has been prioritised within Canton, with the aim of allowing independently governed applications to interact rather than developing as isolated environments.

What does genuine interoperability between trading, settlement, cash and collateral systems need to look like for 24/7 markets to work at scale?

Assets, cash and collateral need to be able to move together, even when they sit across different systems. There is limited value in connecting trading venues if institutions still have to rely on separate processes to fund a trade, settle it or move the collateral behind it.

This does not mean every institution needs to move onto the same platform. Banks, exchanges and market infrastructures will continue to operate their own systems, with their own governance and controls. The infrastructure needs to allow those systems to work together, so an asset in one environment can settle against cash in another or be used as collateral somewhere else.

For 24/7 markets to work at scale, this connectivity has to extend beyond the trade itself. Settlement, funding and collateral management all need to keep pace, so institutions can move liquidity where it is needed without waiting for another system or market to open. That principle also informs how we think about Canton; connectivity between applications without requiring every participant to operate on a single platform or under a single governance model.

How can institutions connect across different networks while preserving the privacy of positions, transactions and counterparty information?

Institutions need to be able to connect without making every transaction visible to everyone else on the network. A bank or asset manager cannot operate effectively if its positions, trading activity or counterparty relationships are exposed every time it moves an asset or collateral between applications.

Information therefore needs to be shared on a need-to-know basis. The parties to a transaction should see what they need to execute and settle it, and regulators should be able to receive the information they require for oversight. Other participants do not need access to commercially sensitive details simply because they use the same infrastructure.

This becomes even more important as markets become more connected. Institutions need to be able to move assets, cash and collateral between applications while keeping control over who can see the underlying activity. Privacy and interoperability have to work together if institutions are going to use this infrastructure at scale. This need-to-know approach to information sharing is also a core consideration in Canton’s design.

What needs to change in market infrastructure for 24/7 trading to move from individual use cases to broader institutional adoption?

The rest of the market infrastructure has to catch up with the trading layer. We can already see individual examples of tokenised assets, faster settlement and on-chain collateral movement, but institutions need those capabilities to work together before they can become part of everyday market activity.

A lot of the friction still comes from the way markets are organised today. Cash and securities can be held in different systems, collateral can be difficult to move outside certain windows, and institutions often have to reconcile activity across multiple platforms. Those constraints become much more obvious when trading itself is happening around the clock.

Broader adoption will come as those boundaries start to disappear. Institutions need to be able to trade, settle, fund positions and move collateral continuously across connected systems, while keeping the privacy, governance and controls they already rely on in regulated markets. For us, that is ultimately what Canton is designed to address, in creating the connectivity between independently governed applications that allows institutions to modernise market infrastructure without sacrificing the controls they need to operate in regulated markets.

The image for this article was generated using AI.