Immediate, or “T+0” settlement of trades would reduce risks and costs and free up liquidity. But capital markets today remain stuck with legacy “T+2” settlements, moving too slowly to reduce it to T+1. UK fintech company Tokenovate has created a solution called the Novat Protocol, a real-time system ready to provide legal finality for settlement within existing regulatory frameworks.
Waiting an extra day or two for final settlement on trades is a problem that costs the financial industry billions. There is exposure risk, capital costs and extra operating costs from end-of-day “batch cycles”, having to fix trade breaks and reconcile entries manually.
Novat would integrate into existing trading systems “very simply and by design,” Tokenovate’s CEO Richard Baker told CoinGeek.
“In today’s T+2, or even T+1 world, money and assets sit idle for hours or days while trades are settled. The ‘trapped liquidity’ forces companies to keep billions locked up in margin, collateral and buffers, in case something goes wrong. With Novat’s T+0 (instant) settlement, the waiting time disappears.”
“T+X” refers to the initial deal plus the number of days it takes to settle final and legal. However, any delays are simply unnecessary with the technology available today. Tokenovate’s modeling shows that moving from T+2 settlements to T+0 can reduce exposure by 60-80%. This would free up nine-figure sums of capital otherwise sitting idle in unregulated deals.
Tokenizes the settlement, not the asset
The Novat protocol comes from Tokenovate’s work with the International Swaps and Derivatives Association (ISDA) and the Fintech Open Source Foundation (FINOS), and the result is a “CDM-based automation engine transforms market standards into executable logic, enabling settlement to occur deterministically and transparently.”
For all the technical details, Tokenovate has a white paper on Novat available here.
Novat is unlike others asset tokenization solutions we have heard about. That is, it does not symbolize the asset, but rather the settlement itself. It is based on the FINOS Common Domain Model (CDM), which is the financial industry’s shared data standard covering financial products and events. It adapts trade data, legal contracts and settlement workflows by creating a one-time digital token that is then “burned” once it has completed the task. Trades are atomic and legally enforceable, using processes that are automated and transparent.
Tokens reside in transaction data recorded on a UTXO-based blockchain, in this case BSV blockchain (although the potential exists for it to run on other similar blockchain networks where needed to prevent more fragmentation).
What is important to note is that Novat offers a legally enforceable synchronization layer for asset trading, not just a parallel infrastructure. This is not a case of “rip and replace” (ie having to completely remove the old system before replacing it with another). Novat works within current legal, operational and regulatory frameworks and integrates into existing trade, storage and payment system through APIs.
The term “synchronization layer” means that it aligns data, logic and legal records across the fragmented systems in use today.
Capital markets today are slowly making the transition from T+2 to T+1 settlements, due by 2027. Tokenovate says it is possible to eliminate delays all together, with minimal disruption.
“Novat does not replace existing systems but rather connects to them,” Baker added. “It’s built on the open standard CDM, which many large financial institutions recognize and use in their post-trade workflows. This means firms don’t have to rebuild their infrastructure or abandon custodians.”
“Novat integrates easily: it’s compliant, not disruptive. And its T+0 speed translates directly into freed-up liquidity, lower risk and measurable savings.”
Tokenovate expects that Novat’s combination of speed, familiar data standards and full interoperability with existing systems will make it an attractive option for anyone in the world’s capital markets. Digital networks have been making markets increasingly faster for generations now, but they must remain as secure and reliable as previous physical procedures. Far from the usual blockchain/digital hype of “disruption”, Novat’s promise to the capital markets is to disrupt nothing at all.
Watch: With blockchain, the tool becomes more and more important
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