By Richard Baker, Founder and CEO of Tokenovate

Wall Street has spent decades making it possible to buy and sell shares in fractions of a second, yet the transfer of securities and cash still typically takes until the following business day to complete. The SEC’s five-year innovation exemption, which creates a regulated pathway for trading tokenised US-listed equities, brings this imbalance into sharper focus.

The exemption marks an important development for tokenisation, allowing firms to explore new trading models while preserving established investor rights and involving issuers. It also brings the prospect of 24/7 equity markets closer, with consequences that reach well beyond exchanges and trading desks.

If shares can change hands on a Sunday evening, the obligations created by that trade still need to be fulfilled. Cash must reach the seller, ownership must transfer to the buyer and the institutions involved must agree that the transaction is complete. Today, those steps can involve multiple intermediaries, separate records and processes which operate to different schedules.

The risk is that Wall Street extends trading hours without making progress on settlement, leaving institutions having to commit more capital to support transactions that cannot be completed as quickly as they are executed. 

The cost of keeping markets open

The US move to T+1 settlement in May 2024 showed how much progress the industry can make when working towards a common deadline. Yet compressing settlement into one business day still leaves firms managing many of the same operational dependencies, with less time to resolve problems.

Round-the-clock trading takes this a step further, because transactions could accumulate during periods when payment systems, custodians or other essential services cannot complete the corresponding transfers.

For brokers and custodians, the inability to move securities and cash when required creates a funding challenge, potentially forcing firms to hold additional liquidity and collateral against outstanding transactions and tying up balance-sheet capacity that could otherwise support trading and investment.

Modernising post-trade processes becomes commercially important in this context, as automating the obligations created by a trade and coordinating the movement of assets and payment could reduce the time capital remains tied up before settlement is complete.

Atomic settlement, where securities and payment transfers are linked so that neither completes without the other, offers one way to achieve this. But the ability to transfer tokenised shares around the clock is of limited benefit if the corresponding cash cannot move at the same time. Institutions will need suitable payment arrangements, robust controls and mechanisms for handling failed or interrupted transactions.

One market, many different systems

There is another risk as exchanges, custodians and technology providers develop their own tokenised equity platforms. Each may be able to move assets efficiently within its own environment, while transactions involving other institutions continue to encounter inconsistent data, reconciliation and delays.

Securities markets depend on an extensive network of participants, and their systems must agree on what has happened to a trade, what obligations remain and who is responsible for completing them.

Common standards such as the FINOS Common Domain Model (CDM) can help establish this consistency by giving institutions shared definitions for financial transactions and lifecycle events. When those definitions are built into automated workflows, firms can process the same transaction across different systems without repeatedly interpreting or reconciling information.

The legal position must be equally clear. A token moving between digital records does not automatically establish that ownership has transferred or settlement is final. Those outcomes depend on enforceable rights, recognised records and the legal arrangements governing the transaction.

The SEC’s emphasis on preserving investor rights is therefore important, particularly as tokenised securities begin moving between different platforms and custodial arrangements.

Where the real opportunity lies

The SEC’s exemption gives the industry an opportunity to test whether tokenised equities can improve how securities markets operate, with settlement efficiency, liquidity management and operational risk providing more meaningful measures of progress than trading hours alone.

With the UK, the EU and Switzerland moving to T+1 in October 2027, and firms increasingly considering T+0, the pressure to coordinate cash, securities and the obligations between them is only likely to grow. Shorter settlement cycles leave less room for manual intervention and place greater demands on the systems and institutions responsible for completing transactions.

The priority should therefore be to modernise the processes connecting trading, payment and settlement, rather than allowing each part of the market to develop in isolation. That means more automation, consistent transaction data and closer coordination between trading venues, custodians, payment providers and other market infrastructure.

The attraction of tokenised equities is understandable, particularly if they can support more flexible trading and faster access to capital. But those benefits will be difficult to realise if investors can trade at any hour while institutions still have to wait for cash and securities to move.

Wall Street has become extraordinarily good at executing trades quickly. The SEC’s decision offers an opportunity to bring the rest of the transaction much closer to this standard. Extending trading hours may be the most visible change, but improving what happens after a trade will determine whether tokenisation delivers on its promise of more efficient markets.