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

Which of the following is a friction in traditional markets that arises from limited operating hours of settlement infrastructure rather than from the number of intermediaries?

Trades placed outside business hours or on holidays cannot settle until the settlement infrastructure reopens. This is a time-based friction from limited operating hours, distinct from intermediary count or duplicate records. Tokenized platforms operating around the clock aim to remove it.

  1. ATrades executed outside business hours or on holidays cannot settle until infrastructure reopensCorrect
  2. BDuplicate record keeping across custodians
  3. CFees charged by multiple custodians along the chain
  4. DLack of standardization of messaging between custodians

Explanation

Operating-hour limits mean settlement systems and payment rails are unavailable at night and on weekends, delaying settlement. The other options relate to intermediation chains, duplicated records and standards, not hours of operation.

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