#14: The Consequences of Atomic Settlement

16 Nov

6th December 2023

With:

| Dirk Bullmann (CLS)

In Session #14, Dirk Bullmann explores the practical realities behind the "atomic" hype. The term—derived from the Greek atomos (indivisible)—describes a transaction that either succeeds completely or fails entirely across multiple ledgers. While this "all-or-nothing" certainty is the "holy grail" for eliminating principal risk, Dirk warns that moving to a pure T+0, real-time gross settlement (RTGS) model could inadvertently create a Liquidity Trap.

The discussion introduces the concept of Molecular Settlement, a framework proposed in FNA’s research to solve the liquidity-speed paradox. By using an intermediate layer to "bundle" atomic transactions into logical sets (molecules), financial market infrastructures (FMIs) can achieve the risk-mitigation benefits of atomicity without sacrificing the massive capital efficiencies provided by traditional multilateral netting.

Key Discussion Points:

Defining Atomicity: Moving beyond buzzwords to define atomic settlement as the technical synchronization of assets (DvP/PvP) rather than just "fast" payments.
The Liquidity Trap: Why instant settlement requires 100% pre-funding, potentially draining billions in capital from the global financial system.
Molecular Settlement: A deep dive into FNA’s proposal for an intermediate layer that uses smart algorithms to net atomic transactions before final settlement.
The Netting Efficiency Loss: Quantifying the "cost of speed" and why traditional T+2 cycles are often a deliberate choice for capital optimization.
Interoperability & Governance: Why "Atomic" doesn't mean "Interoperable"—addressing the legal and jurisdictional hurdles of linking disparate ledgers.
The Future of Wholesale FX: How CLS envisions evolving its $7 trillion-a-day system to support faster cycles without breaking the netting model.

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