Understanding the Shift From Batch to Atomic Settlement
Batch settlement has for decades been the banking industry’s pact with time. It has allowed markets to trade at full speed while finality waited for cutoffs, netting cycles, correspondent windows, and often, the next business day. However, this arrangement did not eliminate exposure, it merely stored it. This longstanding pact is disrupted with the rise of tokenization. Once settlement becomes atomic, time no longer cushions the system. The ability to fund, collateralize and synchronize becomes the real gatekeeper of execution. This shift is reshaping the demands on bank treasury operations in ways most institutions aren’t yet prepared to handle. Here
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Exploring The Concept of Atomic Settlement
Atomic settlement is a precise term: Either every leg of a trade settles, or none does. The Bank for International Settlements (BIS) describes atomic settlement as the linking of two assets, so that a transfer occurs only if the other one does too. This eliminates principal risk in delivery-versus-payment and payment-versus-payment settlement structures because neither side can be left holding an unmatched obligation.
U.S. regulators have also recognized the value of atomic settlements. The FDIC specifically cites reduced loss exposure during the settlement window, particularly in cross-border or counterparty-unknown scenarios. But there’s a trade-off to instant settlement: it can raise liquidity needs relative to netted arrangements, and it makes liquidity management more complex. Atomicity replaces uncertainty about completion with uncertainty about funding sufficiency.
Atomic Settlement: A New Challenge for Banks
Batch settlement allowed settlement to look like an end-of-day accounting problem. Atomic settlement, in contrast, forces it to behave like a real-time balance-sheet constraint. Credit exposure created by lags can shrink, but liquidity risk becomes immediate, binary, and inseparable from execution. This rewrites accountability inside banks. Under atomic settlement, treasury policy, collateral mobility, and intraday funding capacity start deciding what the front office is permitted to execute.
Regulators have spent years emphasizing the importance of intraday liquidity. The Basel Committee on Banking Supervision’s monitoring tools were designed to help supervisors gauge intraday liquidity risk and a bank’s ability to meet payment and settlement obligations on time, under both normal and stressed conditions. Now, tokenization turns this supervisory ideal into an execution requirement.
The Implications of Always-On Environments
Always-on environments are becoming increasingly common. Clients are now parking cash buffers across regions, then using tokenized transfers to move funds 24/7/365, including during market closures and holidays. In an always-on environment, “intraday” stops being a subcategory. It becomes the operating condition.
However, the shift from batch to atomic settlements isn’t a simple one. The quiet power of batch settlement was netting. It reduced gross activity into smaller cash movements and made liquidity look cheaper than it was. Atomic settlement does not inherit that benefit automatically. If a market wants liquidity efficiency, it has to recreate netting explicitly through orchestration layers, liquidity-saving mechanisms, or pricing models that treat netting as a service instead of an assumption. Otherwise, the system may face higher liquidity needs and more complex liquidity management.
Preparing for the Future of Settlement
The financial industry is already testing what atomic settlement means in practical terms. The BIS and the Bank of England have tested synchronization, where funds move in real-time gross settlement (RTGS) only if a corresponding asset on another ledger moves at the same time. This was orchestrated by a synchronization operator. Subsequent phases tested synchronization across foreign exchange settlement between RTGS systems and explored atomic settlement for tokenized securities with programmable triggers for liquidity management.
Speed without resilience, however, is a liability. The FDIC has warned that instant settlement has the potential to increase the speed and intensity of runs. In a failure scenario, regulators may require an “off switch” to stop tokens moving immediately at the point of a bank failure. That warning should land with any bank thinking about always-on settlement. Operational resilience becomes settlement resilience, because an outage or a data error is not a delay anymore, it’s a finality problem.
Tokenization does not eliminate settlement risk. It moves it from delayed counterparty uncertainty into immediacy, funding precision, and system integrity. When time is removed as the buffer, liquidity becomes the shock absorber. And it must be engineered, priced, and governed accordingly. Banks that approach atomic settlement as “batch, but faster” will find it unforgiving. Structural advantage will accrue to institutions that can see positions as they form, mobilize collateral in real time, and embed funding constraints into execution instead of reconciliation.
Atomic settlement is not a technology upgrade. It is a redesign of how the balance sheet participates in markets. The banks that accept that early will define the next settlement standard.
