In response to Brown’s questions, Piwowar said moving to instant settlement of securities trades would be “a bridge too far.” Halving settlement times to one day would be the better solution, he said.
“As we shorten the trade settlement cycle, we reduce risks, like market risk, liquidity risk, and systemic risk, but we also … have the challenge of increasing operational risk,” he said. “In order for real-time settlement to work, everything has to work perfectly all the time.”
That includes ensuring cash is instantly available, which would involve updates to banking and payment systems. Foreign exchange settlements would also have to work perfectly in the case of cross-border transactions. Right now, that’s too heavy a lift, Piwowar said.
Piwowar, in response to questions from Toomey, R-Pa., said blockchain technology, which some have put forward as a possible solution for real-time settlement, isn’t a viable option yet.
“We may get to a point where blockchain technology or digital ledger technology gets us to a point where we can achieve real-time settlement, but I don’t think we’re there just yet,” he said.