Economics of digital assets: how financial markets are accelerating and diversifying

  • Digitization offers post-trade market infrastructures an opportunity to help define a new market structure.
  • Accelerating trade settlement to trading day plus one is a major initiative underway.
  • By digitally collecting and organizing trading information, post-trade infrastructures help clients better understand the behavior of markets.

As digitalization transforms the global financial market, firms responsible for clearing and settling transactions have the opportunity to help define a new market structure that combines the traditional securities of today with the digital assets of tomorrow.

Digital Assets: Transforming Financial Marketplaces

The development and implementation of cutting-edge technologies, calls for greater efficiency and lower costs, the perpetual desire to innovate to increase customer value, force market infrastructures to keep one foot in the present and another in the future.

Every day, post-trade organizations fulfill their day-to-day mission – the seamless and seamless daily execution of global securities transactions – while identifying opportunities to reinvent processes and leverage technology to improve transparency, efficiency and risk management.

A significant example of this work is the move towards accelerating settlement in the United States from the current standard of trading day plus two (T+2), which the industry adopted in 2017, to trading day plus one (T+1). This shortened cycle would reduce market risk and margin requirements – an average of over $13.4 billion is held in margin each day to manage counterparty default risk in the system – and the reduction of a day would allow companies to use these resources in another way. The T+1 initiative has garnered support from many industry sectors and the United States Securities & Exchange Commission has proposed an implementation date for the first quarter of 2024, although the industry is somewhat suggesting later that year.

As with the transition to T+2 in 2017, the acceleration of settlement to T+1 will be complex and will require extensive coordination and communication between market participants, industry stakeholders and regulators to ensure a smooth transition. . As longtime advocates of change, the Securities Industry and Financial Markets Association (SIFMA), the Investment Company Institute (ICI), and the Depository Trust & Clearing Corporation (DTCC) are meeting with stakeholders and will issue a T+ this summer. 1 “playbook” that will outline the steps for organizing teams, eliminating or streamlining manual processes, thoroughly testing and implementing the broad T+1 solutions across a wide range of titles, products and services financial.

Accelerating settlement is a major improvement, but it’s only part of today’s post-trade story to create opportunity. For example, it is becoming increasingly clear that data – and the way operational data can be turned into innovative analytics – is redefining the relationships between front and back office operations and helping to transform markets.

While the trading of asset classes on global markets inherently leads to fragmentation between exchanges and competing platforms, post-trade market infrastructures, through the clearing and settlement process, play a critical role in collection and digital organization of this disparate information. And as the volume of data grows, front offices, hedge funds, brokers and others are leveraging it to better understand market behavior, recognize buying and selling patterns, and gain transparency about correlation. , contagion, risk and valuation.

The back office, armed with this empirical information, finds new opportunities to innovate with data assets, enabling them to become stronger partners to the front office. The importance of this information will continue to grow as market infrastructures extend the benefits of clearing to the buy side as well as to support securitized loans and treasury bills, while developing rules and mechanisms for clearing and settlement of new digital assets. These products and rules will be essential to create the sufficient level of transparency and integrity required to attract institutional participants.

Given the growth and potential reach of new digital assets, companies must be prepared to transition from the traditional model of exchanging securities for cash to a digital environment where clearinghouses become “facilitators of money transfer”. assets” managing a variety of “asset-to-asset” transactions. Market infrastructures must be extremely flexible and ready to pivot quickly as these future transactions may include traditional fiat currency, central bank digital currencies (CBDCs), non-fungible tokens, stablecoins, and digital or native tokens. It is likely that these and other assets will be used to pay for a traditional security or derivatives, or will serve as both the asset and the payment received. And as tangible assets ranging from gold to artwork and baseball cards are tokenized – and these digital assets will likely be used at some point to purchase physical goods as well as securities – investors and consumers must have confidence in the way the value of these assets is established, and in the standards of regulation, governance and risk management to protect investors and markets from digital scams.

In fact, the value of a digital asset or token depends only on the integrity of the location where that asset is stored. Market infrastructures, including DTCC, are investing to build platforms to support new models and mechanisms that will bring stability and security to digital markets in the same way they have protected cash markets for decades. And today, we’re using distributed ledger technology, application programming interfaces, and the cloud to varying degrees in projects ranging from a prototype to exploring how the CBDC could work in state clearing and settlement. States, to a digital securities management platform to create infrastructure and standards for the private sector. marketplaces, and the ION platform to accelerate settlement cycles while retaining the benefits of commercial clearing and guarantees. All of these efforts provide a foundation to support transactions involving the digitization and tokenization of assets, and to fulfill our responsibility to hold and protect these assets.

What is the World Economic Forum doing about digital trade?

The Fourth Industrial Revolution, driven by rapid technological change and digitalization, has already had a profound impact on global trade, economic growth and social progress. Cross-border e-commerce has generated trillions of dollars of economic activity that continues to accelerate and the ability of data to cross borders underpins new business models, increasing global GDP by 10% over the past decade only.


The application of emerging technologies in trade aims to increase the efficiency and inclusiveness of global trade by enabling more small and medium-sized enterprises (SMEs) to replicate its benefits and bridging the economic gap between developed and developing countries.

However, barriers to digital trade, including outdated regulations and fragmented governance of emerging technologies, could potentially impede these gains. We lead the charge of applying 4IR technologies to make international trade more inclusive and efficient, ranging from enabling e-commerce and digital payments to designing trade standards and policies around emerging technologies (“TradeTech”) .

Improving efficiency, reducing costs and mitigating risk are essential today and will remain so in the future. Even if we keep one foot in the present and another in the future, the mission of market infrastructures will not change: our role is to hold and protect any representation of an asset, digital or otherwise, to provide certainty and to ensure the safety and security of global financial markets.