In 2017, the SEC shortened the clearing and settlement period for equity capital markets from T+3 days to T+2, reflecting improvements in technology that save investment brokers time and money
Just two years later we’re already seeing T+0 transactions thanks to the blockchain, creating even more efficiencies for brokers and their clients
Security Token Offerings (STOs) / tokenized IPOs from Canadian FinTech Blockstation are at the forefront of this shift, moving capital markets into a blockchain-powered future. Schedule a demo with Blockstation
By: Jai Waterman, Chief Enterprise Architect
In 2017, the SEC shortened the clearing and settlement period for market transactions from T+3 days to T+2, reflecting improvements in technology. This was good news for broker-dealers, stock exchanges, issuers, regulators and traders, because… well, who doesn’t like when things get done faster and more reliably?
So yeah, T+2 is nice. But T+0 is better.
This is especially true for brokers, who are literally at the centre of processing, backstopping and finalizing trades, and managing the actual flow of funds. T+0, real-time transaction processing would be nothing short of an operational evolution, dramatically reducing the cost and risk of doing business.
There's got to be a better way. via GIPHY
Thanks to blockchain technology, T+0 is more than possible. It’s already happening, thanks to a process called tokenization. And at the forefront of this evolution is the Blockstation Security Token Offering (STO) / tokenized IPO.
The cost of doing business in a T+2 world
Brokers expend a lot of resources on back-end operations, including clearing and settlement.
Much of that expense is a large pool of cash set aside to backstop trades in case they fail, or even fund client accounts as quickly as possible before the trade officially clears.
This incurs another set of transactions, not only moving money in and out of client accounts but into and out of the contingency account.
In other words, brokers need to process at least two extra transactions for every one transaction their clients make, adding to their administrative costs and creating more opportunities for costly errors to occur. And this is on top of the huge pool of cash they keep in reserve instead of putting it towards more productive use.
Pictured above: not a productive use of money. via GIPHY
It adds up.
What STOs and T+0 mean for capital markets
In a T+0 world on the Blockstation platform, trades would be validated before they happen, for fiat currencies, securities, or digital currencies like Bitcoin and Ethereum alike.
The blockchain can verify that the buyer and seller actually have the funds and assets they say they do before submitting any trade, reducing or outright eliminating the risk of market abuse like naked short selling and failed trades.
As well, because money moves between client accounts in real time and there are fewer failed trades, STOs / tokenized IPOs can significantly reduce the burden on brokers to maintain a contingency fund, eliminating most of the extra transactions to and from that fund.
The key is Blockstation’s plug-and-play solution that connects brokers, investors, issuers, stock exchanges, regulators, and depositories in real time.
The result? Faster clearing and settlement, fewer redundant transactions, less overhead, less risk, all with full transparency on the blockchain.
A Blockstation STO / tokenized IPO connects stock exchanges - plus their broker, regulator, and depository partners - through a plug-and-play portal so they can list and trade security tokens as well as digital currencies like Bitcoin and Ethereum, with end-of-day settlement.
Does the future of capital markets belong to STOs / tokenized IPOs?
What do you think? Are STOs / tokenized IPOs the key to transforming back-end operations for brokers? Let us know on social media using the hashtag #BlockstationSTO.
Fill out the form below to schedule a Blockstation STO / tokenized IPO workshop: