Leveraging Technology for Capital Markets Development

Every securities trade makes a promise that the law must keep alive until it is performed. Between agreement and delivery against payment lies an interval in which counterparties can fail, prices can move and machinery can break. At the OECD-SMU-ECGI conference on the future of capital markets in Singapore, I argued that technological innovation can serve as a catalyst for capital market development by enhancing the efficiency, accessibility and resilience of capital markets. Whether it delivers depends largely on what happens to that interval and to the law built around it.

Market technology is usually discussed as a cost-cutter, which undersells it. Resilience improves when supervisors observe markets in real time. Singapore's Project Apollo flags suspected manipulation as it occurs, and COSMIC lets banks alert one another to financial-crime red flags. Efficiency improves when disclosure becomes a living attribute of the security rather than a static document, an idea the European Union's blockchain pilot regime has tested since 2023 and ESMA now recommends making permanent. Accessibility becomes concrete when Singapore, under Project Guardian, approves its first tokenised retail fund with a US$20 minimum investment. Digital securities can carry their own rules on who may hold them, when trading pauses and what must be disclosed. Trust once produced by intermediaries and periodic filings is migrating into the market's infrastructure itself.

Carried to its end point, this transformation reaches the trade itself. Atomic settlement, the simultaneous and all-or-nothing exchange of securities and payment, already exists. Switzerland's licensed digital exchange has operated since 2021; J.P. Morgan's blockchain infrastructure has settled more than US$2 trillion. Securities law is, at its core, temporal risk-allocation law. Finality rules, close-out netting with its bankruptcy safe harbours, clearinghouses and margin requirements all govern the interval between trade and settlement. That interval has been shrinking for four decades, from five days in the 1980s to one day in the United States since May 2024, with the United Kingdom and the European Union following in October 2027. Atomic settlement takes it to zero. What should this body of law become when the very thing it was organised around disappears?

The promise is real. Without a settlement interval no counterparty can default mid-trade, so the deposits guarding every trade shrink. Compressing the US cycle by a single day reduced the main clearinghouse's margin pool by about US$3 billion, roughly 23 per cent. January 2021, when clearing deposits spiked overnight and brokers restricted purchases of GameStop, illustrated the stakes. Less waiting means less risk and less collateral standing idle.

Yet instant settlement is not a faster version of the same market. It is a different market, with different risks. New York Fed researchers point out that atomicity combines two distinct features, namely swapping at the same time, which is old and inexpensive, and swapping immediately, which is neither. Settling each trade instantly requires full funding at the moment of execution. Netting currently cancels around 98 per cent of gross obligations; only the difference moves. Simulations suggest that instant settlement can multiply the cash in motion roughly tenfold. Payment systems learned this in the 1990s, when real-time gross settlement had to reintroduce waiting to remain liquid. Pre-funding also disables familiar market plumbing; the IMF observes that conventional short selling ceases to function when borrowed shares must be settled before they can be sold. The technology also becomes a single point of failure; the Australian exchange wrote off A$250 million abandoning its blockchain rebuild.

The quieter peril is the legal one. The computer's finality is not the law's finality. A blockchain entry may be practically unalterable, but legal finality is the moment after which no court can unwind a transfer, and bankruptcy law reaches back in time. Immutability is ultimately a social convention; in 2016 the Ethereum community rolled back its own ledger to reverse a hack. Above all, the statutes that render settlement untouchable protect a list of designated systems, never a technology. Europe's Settlement Finality Directive dates from 1998 and has never been updated for the blockchain pilot. America's bankruptcy safe harbours presuppose intermediaries in the middle. Singapore's Guardian platforms operate through licences and contracts, outside the protected list. Only the United Kingdom's Digital Securities Sandbox lets regulators rewrite the finality rulebook alongside the technology. I call this the designation gap. The danger is not that atomic settlement fails, but that it succeeds without legal protection, settling billions that a court could later order unwound.

What, then, should the law do? In the paper behind my presentation, The Promise and Perils of Atomic Settlement in Capital Markets Law, I argue for settlement optionality. Netted, end-of-day settlement should be preserved where its economics prevail. The atomic alternative should be opened where users choose it. Both should receive equivalent finality, bankruptcy protection and supervision, so that the choice between them is driven by economics rather than legal fear or arbitrage. That approach, rather than mandated speed, is how technology becomes a catalyst for more efficient, more accessible and more resilient markets. Nor is this utopian; India already operates an optional same-day lane alongside its standard cycle. Two rulebooks cost more than one, but that is the price of transition, and it is cheaper than freezing progress or forcing migration. The settlement interval is closing. The doctrines built for it should be rewritten so that the choice of interval, at last, belongs to the market, under the protection of the law.

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Nydia Remolina Leon is an Assistant Professor of Law at Singapore Management University's Yong Pung How School of Law and Deputy Director of the Centre for Commercial Law in Asia (CCLA), and an ECGI Research Member.

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This blog is based on a discussion which took place at The Future of Capital Markets: Global and Asian Perspectives, a conference jointly organised by Singapore Management University, the OECD and ECGI. Visit the event page to explore more conference-related blogs.

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