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FRM Part II · FRM Exam Part II · Tokenization and Financial Market Inefficiencies

A trading desk finances a EUR 50 million bond position through repo, rolled daily. Under the current set-up, cash and securities settle separately, and the desk must hold intraday liquidity buffers. On a tokenized platform with atomic delivery-versus-payment, which change in liquidity management is most plausible?

Atomic delivery-versus-payment moves cash and collateral at the same moment, so assets are not stuck in transit and can be reused sooner. This plausibly lowers intraday liquidity buffers. It does not lengthen settlement or automatically remove repo haircuts.

  1. AReduced need for intraday buffers because collateral and cash move simultaneously and can be reused soonerCorrect
  2. BHigher need for buffers because settlement now takes longer
  3. CNo change, since atomic settlement affects only equities
  4. DElimination of haircuts on all repo collateral by law

Explanation

With simultaneous exchange, collateral and cash are not left in transit, so funds and securities are freed faster and can be reused. This lowers the buffers needed to bridge settlement gaps. It does not lengthen settlement, is not equity specific, and does not legally remove haircuts.

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