SEC Tokenisation Exemption Puts Settlement, Not Trading Hours, to the Test

A five-year innovation exemption from the SEC, creating a regulated pathway for trading tokenised US-listed equities, has exposed the gap Wall Street has never closed: execution happens in fractions of a second, while the transfer of securities and cash still typically completes the following business day. Richard Baker, founder and CEO of Tokenovate, argues in a new analysis that the exemption sharpens this imbalance rather than resolving it.

The SEC's decision is an important development for tokenisation. It allows 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.

The arithmetic of that prospect is uncomfortable. If shares can change hands on a Sunday evening, the obligations created by that trade still need fulfilment: cash must reach the seller, ownership must transfer to the buyer, and the institutions involved must agree the transaction is complete. Today those steps involve multiple intermediaries, separate records and processes operating to different schedules.

The risk, in Baker's framing, is that Wall Street extends trading hours without making progress on settlement, leaving institutions to commit more capital to support transactions that cannot complete as quickly as they execute.

What did T+1 actually solve?

The US move to T+1 settlement in May 2024 (compression of the settlement cycle from two business days to one) showed how much progress the industry can make against 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 further. 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 becomes commercially material in this context. Automating the obligations a trade creates, and coordinating the movement of assets and payment, could reduce the time capital remains tied up before settlement completes.

One candidate mechanism is atomic settlement, where securities and payment transfers are linked so that neither completes without the other. But there is a catch. 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.

Who guarantees that a token means ownership?

A second structural risk is fragmentation. As exchanges, custodians and technology providers develop their own tokenised equity platforms, each may move assets efficiently within its own environment while transactions involving other institutions continue to hit inconsistent data, reconciliation and delays.

Securities markets depend on an extensive network of participants whose 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), a shared set of definitions for financial transactions and lifecycle events, can establish that consistency. 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 matters here, particularly as tokenised securities begin moving between different platforms and custodial arrangements.

What measures real progress?

The exemption gives the industry a live test of whether tokenised equities improve how securities markets operate. Baker's proposed yardstick is settlement efficiency, liquidity management and operational risk — more meaningful measures of progress than trading hours alone.

The calendar adds pressure. The UK, the EU and Switzerland move to T+1 in October 2027, and firms are increasingly considering T+0. Shorter settlement cycles leave less room for manual intervention and place greater demands on the systems and institutions responsible for completing transactions.

The stated priority is to modernise the processes connecting trading, payment and settlement rather than allowing each part of the market to develop in isolation — meaning 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 support more flexible trading and faster access to capital. Those benefits will be difficult to realise if investors can trade at any hour while institutions still wait for cash and securities to move.

The takeaway in plain words: extending trading hours may be the most visible change the exemption enables, but what happens after the trade will determine whether tokenisation delivers more efficient markets.