Time Equals Risk

10 November 2026. Figures and sources are as of the dates stated in the text.

Interest disclosure: T-OpenAI and T-Kalshi are tokenized loan participation rights providing economic exposure linked to those companies' pre-IPO valuations, each issued through a dedicated issuing subsidiary. T-SpaceX, issued through its own dedicated issuing subsidiary, provides economic exposure linked to SpaceX; following the SpaceX listing, the investment underlying T-SpaceX is being divested. Redemption opens only once a Redemption Start Date is announced, and as of 10 November 2026 none has been. T-Tokens settle on a public blockchain, and the argument here favors settlement on shared ledgers, so Tessera has a commercial interest in it being right, although the measured evidence comes from conventional settlement reforms, and the ledger evidence from systems built for and run among institutions, not open public chains. Tessera has no arrangement with DTCC, Broadridge, BNY, JPMorgan or the Canton Network, issues no product referencing any of them, and none is planned. It has no arrangement with CLS, LCH, UBS or Citibank. Tessera's founder worked at JPMorgan and Credit Suisse earlier in his career, and this piece discusses both. Tessera, and entities under its control, hold related exposures. Read what follows with that in mind.

The market did not know, in the week Lehman Brothers failed, how much of the firm's reported liquidity was actually available. Over 2008 Lehman had handed its clearing banks approximately $15 billion to $21 billion of collateral, in cash and securities, and had gone on counting it in its reported liquidity pool. The bankruptcy examiner's account of September is direct: "much of Lehman's reported liquidity was locked up with its clearing banks, and yet this fact remained undisclosed to the market prior to Lehman's bankruptcy." He then tied that to the outcome: "The inadequacy of Lehman's liquidity pool is directly connected to Lehman's bankruptcy filing." (Examiner's Report, Anton Valukas, March 2010.)

The clearing banks had reasons of their own. In tri-party repo they lent to dealers during the day, and the Financial Crisis Inquiry Commission described what that exposed them to: "A risk that was little appreciated before 2007 was that JP Morgan and BNY Mellon could face large losses if a counterparty such as Bear defaulted during the day." (Financial Crisis Inquiry Commission, January 2011.) Their demands still drained the pool. "The demands for collateral by Lehman's Lenders had direct impact on Lehman's liquidity pool; Lehman's available liquidity is central to the question of why Lehman failed," the examiner wrote. He concluded that there may be a colorable common-law claim against one clearing bank, JPMorgan, arising from those demands, and that there were a limited number of colorable claims for avoidance actions against JPMorgan and Citibank. On whether JPMorgan's September 2008 collateral requests were excessive, he found evidence that may support a colorable, but not a strong, claim; a trier of fact would also have to weigh evidence that the requests were reasonable and that Lehman waived any claim by complying.

The collateral was not the examiner's explanation of the collapse. "Lehman failed because it was unable to retain the confidence of its lenders and counterparties and because it did not have sufficient liquidity to meet its current obligations," he wrote, and he traced the lost confidence to business decisions that had left the firm with heavy concentrations of illiquid assets whose values were falling, such as residential and commercial real estate. This piece concerns that difference, between what starts a crisis and what decides how fast it spreads.

Plumbing in the Episodes We Reviewed

Settlement and collateral plumbing was rarely the first cause in the episodes we looked at. It was, repeatedly, where a loss became a run, either because exposure sat unsettled for too long or because nobody could see who owed what. The selection has a bias that should be stated plainly: we chose these episodes because plumbing featured in them, so they show how it behaves when it matters and cannot show how often it matters.

Back offices could not keep pace with trading volume in the late 1960s. Fails to deliver at New York Stock Exchange member firms went from about $850 million at the end of 1966 to $4.1 billion at the end of 1968, and the SEC later recorded the result: "Operational conditions deteriorated so severely that securities markets were required to cease trading one day each week at one point, and later to limit daily trading hours." (SEC, Study of Unsafe and Unsound Practices of Brokers and Dealers, December 1971.) This was one episode in which plumbing was also a cause, since, in the study's words, "a number of brokerage firm failures are directly attributable to conversions to A.D.P. systems which were not properly planned or implemented."

Herstatt supplied the textbook case of settlement risk. German regulators closed Bankhaus Herstatt during the banking day on 26 June 1974, after several of its counterparties had paid Deutsche Mark through the German payments system. The dollars they were waiting for in New York never came. The risk outlived the bank: two decades later the BIS reported that most banks did not measure their FX settlement exposure properly, if at all (Committee on Payment and Settlement Systems, BIS, March 1996).

The 1987 crash followed warnings that the market had become overvalued, as Mark Carlson's history records, and Carlson adds: "There were two program trading strategies that have often been tied to the stock market crash." Portfolio insurance was the first of them (Mark Carlson, Federal Reserve Board staff paper, 2007). Settlement mostly held up. SEC staff found that most equity trades settled within the normal cycle and that clearing agencies handled potential member defaults well, though the strain showed the need for better trade processing and default safeguards (SEC staff report on clearing agencies, October 2020, describing the staff's 1988 report). Margin and payments carried the sharpest danger: "The withdrawal of liquidity was the single greatest risk on October 20, 1987." (Bachmann Task Force, report to the SEC, May 1992.)

Leverage is the word the official post-mortem on Long-Term Capital Management chose in 1999: "The principal policy issue arising out of the events surrounding the near collapse of LTCM is how to constrain excessive leverage." The same report found that LTCM's counterparties were not necessarily aware of the depth of its liquidity problems and that the financial statements it gave them said little about its risk profile. It also said that, had LTCM defaulted, losses could have been more severe without closeout, netting and collateral provisions (President's Working Group on Financial Markets, April 1999).

Mortgage losses, leverage and short-term funding started the crisis of 2008. Plumbing then helped to spread it. The Financial Crisis Inquiry Commission found that millions of derivatives contracts between systemically important financial institutions, hidden from view in an unregulated market, "added to uncertainty and escalated panic, helping to precipitate government assistance to those institutions."

Why the Tail Is Hard to Price

The difficulty, in our view, is structural. Risk models draw mostly on history, and even hypothetical stress scenarios are chosen by people who have seen only history. In a crisis correlations jump, hedges move together, and the tail proves far fatter than history suggested. That conditional non-normality is very hard to model in advance. The President's Working Group concluded of LTCM that "it is clear that LTCM's models underestimated the risk they were taking and the effect of their own positions in markets." (President's Working Group, April 1999.) The Bank of England said much the same of the UK gilt market in September 2022: "the scale and speed of repricing leading up to Wednesday 28 September far exceeded historical moves, and therefore exceeded price moves that are likely to have been part of risk management practices or regulatory stress tests." (Bank of England, letter to the Treasury Committee, 5 October 2022.)

Time enters at this point. In moving US equities to T+1, the SEC described a clearing house's risk as rising with the value of trades not yet settled, their volatility and the time to settlement (Release 34-96930, February 2023). The underlying point needs no model. The SEC has argued since 1993 that "reducing the total volume and value of outstanding obligations in the settlement pipeline at any point in time will better insulate the financial sector from the potential systemic consequences of serious market disruptions." (SEC, T+2 release, March 2017, restating its 1993 rationale.) A shorter cycle shrinks the stock of unsettled trades whatever shape the tail takes. How much risk that removes is the part a model has to guess.

This piece therefore makes no claim that settlement risk can be priced better. The tail cannot be priced reliably, and one dependable defense, alongside capital, limits on leverage and a lender of last resort, is to be exposed to it for less time, with a clearer view of where everything is. That defense has two forms. Trades waiting to settle can settle sooner. Exposures that last beyond settlement, such as swaps and the life of a repo, where LTCM, much of Lehman's book and Archegos sat, call for margining. Tokenized settlement reaches only the first.

What the Measured Reforms Delivered

Where this defense has been measured, it has cut exposure, and the largest market move modeled in these sources was the worst in a three-year sample, which falls short of the tail itself. The Bachmann task force put its own slogan to the test: "The concept that 'time equals risk', or 'shorter is safer', appears to be a logical, perhaps intuitive, assumption." Its clearing-house model showed one component of market risk falling by 58% on the move from T+5 to T+3 "in the event of the failure of an average large member in a normal market …", and by 55% in the worst market move in its sample. The task force attached a warning: "While these figures in themselves are significant, it is important to emphasize that the actual worst-case scenario could involve far greater exposures." T+3 took effect in 1995 and T+2 in 2017 (SEC, release of March 2017).

Design did more than speed to reduce Herstatt's risk. CLS, launched in 2002, "provides a payment-versus-payment (PVP) service that virtually eliminates the principal risk associated with settling FX trades." The share of surveyed FX obligations settled in the old, risky way fell from an estimated 85% in 1997 to 32%, or $1.2 trillion, in 2006, a reduction that "primarily reflects the increasing use of CLS." Those exposures "remain significant." (CPSS, BIS, July 2007.)

Tri-party repo changed after 2008. Clearing banks' intraday credit to dealers fell from 100% of volume as recently as 2012 to an average of 3 to 5% (Federal Reserve Bank of New York, 24 June 2015). The same statement recorded what was still missing: "But as yet, no mechanism exists to address the challenge of coordinating sales of collateral by the creditors of a defaulted dealer in an orderly manner."

Central clearing showed what margin and default management are worth. Lehman's interest rate swaps cleared in London, "66,390 trades, $9 trillion notional", were unwound using "about a third of the margin held, so that neither the CCP nor its members sustained any losses". The same review goes on: "Yet 10 years later, a single trader with a much smaller portfolio presented a CCP with a much greater challenge." (BIS Quarterly Review, December 2018.)

The most recent measurement comes from T+1. After the move in May 2024, the collateral that the model of the National Securities Clearing Corporation required of its members fell by $2.4 billion to $3.0 billion, or 20% to 23% depending on the baseline, in a before-and-after comparison that does not adjust for market conditions (SIFMA, ICI and DTCC, which led the move, September 2024).

None of these sources measured volatility. According to the SEC, reduced liquidity risk from a shorter cycle "may also reduce the volatility of securities markets by reducing liquidity demands in times of adverse market conditions …" (Release 34-96930). It may. We found no study that shows it.

Where Earlier Writing Was Too Broad

Writing on LinkedIn on 29 July, in Going Public by Degrees, Chan Ahn said: "Settlement speed is the most-cited benefit and the least important one. Nobody's life changes because a trade clears in seconds instead of days." For the person holding the asset, he still thinks that is right. As a statement about the system it was too broad, because the day that changes nothing for a holder is, for a clearing house in a stress week, a day of exposure to the move the models understated.

The same article said: "Institutions already have allocation access and settlement infrastructure; for them, tokenisation is incrementally better plumbing." That holds for daily operations. In a stress week, increments of that kind (less time unsettled, less intraday credit, payment versus payment) are where the measured gains in this record sit, though those gains came from earlier reforms rather than from tokenization.

Count Holders, Not Dollars, first published on 12 August (republished here on 5 September), and Re-Plumbed, first published on 26 October (republished here on 27 October), each named the beneficiary of re-plumbing as the institution that already held the asset. The system is a beneficiary too, and both pieces left it out. That does not change who tokenization newly reaches, and we still think that is where its largest gain lies. The system's gain is of a different kind.

What Tokenized Settlement Could Add

Tokenized atomic settlement carries the same logic to its limit. When the asset and the payment settle as one indivisible event, the gap Herstatt fell into closes: "Such atomic settlement can significantly speed up settlement and mitigate counterparty risk." (BIS, Annual Economic Report, June 2022.) It could also reach trades that payment-versus-payment does not, since "existing PvP arrangements are at times unavailable, unsuitable for some trades or deemed too costly by market participants." (BIS, Annual Economic Report, June 2023.)

A shared ledger can record whether collateral is pledged as well as where it sits, and can give supervisors a seat on it. At Lehman, however, the parties such a ledger would have informed already knew. To one JPMorgan executive, the examiner wrote, "Lehman's pledged assets seemed like encumbered assets." The New York Fed, with analysts on site, discounted Lehman's liquidity pool for the collateral at its clearing banks but did not ask Lehman to stop counting it (Examiner's Report, Vol 4). Whether participants see more than their own positions is a design choice. Whether the market learns any of it still depends on disclosure, and disclosure was Lehman's failure.

Ledger-based repo, not necessarily atomic, already runs at scale. Broadridge says its repo ledger "processed an average of $345 billion in daily repo transactions during October …" (Broadridge, 6 November 2026), on Canton, which its product page calls "a privacy-enabled blockchain network connecting financial institutions …" (read 9 November 2026). The same page lists "Cross-border atomic settlement" among its features, but Broadridge does not say how much of that volume settles atomically, and a ledger that settles a repo's two legs does not shorten the exposure in between.

What Atomic Settlement Costs

Every reform in this record kept netting. Instant atomic settlement gives it up, as current token arrangements "tend to" run it on "a gross basis" (BIS and CPMI, October 2024). A New York Fed post explains why: "For a trade to be instantly settled, all legs of the transaction must be "settle-able" at the moment the trade is executed, which makes netting of settlement obligations impossible." (Michael Lee, Antoine Martin and Benjamin Müller, Liberty Street Economics, New York Fed, November 2022.)

Netting saves a great deal. It cuts the US equity clearing house's daily settlement payment obligations by an average of 98%, from about $2.19 trillion cleared a day in the second quarter of 2022 to an implied $44 billion or so net (SEC, Release 34-96930, citing DTCC). Giving it up raises the liquidity demands through which, the SEC suggests, a shorter cycle might calm markets. Gross settlement has precedents, since some existing settlement systems run on real-time gross settlement, some with liquidity-saving mechanisms on top (BIS and CPMI, October 2024). The Financial Stability Board raises a further concern: "Liquidity pressures could also spread faster and wider through programmability and automation." (Financial Stability Board, October 2024.)

Lehman is a warning on this point too. Its liquidity pool included accounts its clearing bank emptied almost entirely every morning: the examiner found that "JPMorgan required almost all of the funds in those accounts each morning to unwind the previous day's triparty-repo trades." In effect Lehman was prefunding its clearing bank. Atomic settlement would not have spared it that demand, and would make such a demand the rule.

Margining, the other way to shorten exposure, is where recent spirals ran, because for some participants the calls in a tail move came larger and sooner than they had planned for. In March 2020 "some market participants may not have anticipated the size or timing of the increase in margin requirements …" (Financial Stability Board, November 2020.) Collateral spirals have also persisted where settlement already happens on public chains: "The automatic liquidation of collateral in smart contracts, which can be applied unevenly among participants depending on the protocol design, is a primary reason why deleveraging dynamics in DeFi can be especially disruptive." (Financial Stability Board, February 2023.) The evidence we found on settlement on public chains under stress is mostly of this kind.

The Case Against This Reading

No reform we found has been shown to reduce volatility, and we did not review the academic studies of markets that moved to shorter cycles. The measured cuts from shortening the cycle come from models of the kind this piece distrusts, while the observed gains, in FX and tri-party repo, came from changes of design. Visibility is insufficient on its own, though it was also missing. Credit Suisse's own inquiry found it likely that Archegos deceived the bank and obscured the true extent of its positions, but that the business and risk teams had ample information well before the week of 22 March 2021 that should have prompted them to at least partly mitigate the risk (report of the Credit Suisse Group Special Committee, prepared with Paul, Weiss, July 2021).

Central clearing concentrated risk as well as reducing it; the FSB's 2017 review describes steps "designed to help prevent CCPs from becoming a new, concentrated source of too-big-to-fail risk". And in 1987, 2020 and 2022, credit and central-bank action stopped the spiral, where shorter settlement did not (Carlson; FSB, November 2020; Bank of England, October 2022).

What Tokenized Settlement Would Leave Open

We would not say that tokenized settlement makes settlement-driven panics a thing of the past. Where it is built to, it can remove one recurring amplifier, the doubt over whether trades have settled. A ledger can also record where collateral sits, but at Lehman the clearing bank and the supervisor already knew, and the market would have learned only through disclosure, which a ledger does not supply. The measured gains against that amplifier were real. They came from fixes that kept netting, and the markets that do settle atomically under stress, in decentralized finance, have not yet shown comparable gains. What it leaves is liquidity: when everything settles at once, someone has to have the cash at once. Whether the system ends up calmer depends on who provides it.

Where Tessera Sits

Tessera has an interest in this argument. T-Tokens are tokenized loan participation rights providing economic exposure, settled on a public chain. They do not provide equity ownership, voting rights or direct shareholder status, they are not part of the institutional systems described here, and settling a T-Token transfer on-chain does not shorten a holder's exposure to the issuer. T-Tokens are not redeemable before a Liquidity Event. After one, a holder can redeem only during a 90-day Redemption Period that starts on a Redemption Start Date announced by Tessera Works Foundation; if tokens are not redeemed by its end, the issuer is discharged and the holder has no further claim. A holder's recourse is limited to the proceeds of the issuer's investment that the issuer actually receives (Tessera Terms and Conditions, revised 29 October 2026). Tessera's terms exclude persons in the US and other Excluded Jurisdictions, as well as U.S. persons as those terms define them, and T-Tokens are not available to them on any venue.

Sources: SEC, Study of Unsafe and Unsound Practices of Brokers and Dealers, H. Doc. 92-231, December 1971; SEC Division of Trading and Markets and Office of Compliance Inspections and Examinations, Staff Report on the Regulation of Clearing Agencies, 1 October 2020; Committee on Payment and Settlement Systems, Settlement risk in foreign exchange transactions, BIS, March 1996, and Progress in reducing foreign exchange settlement risk, consultative report, BIS, July 2007; M. Carlson, A Brief History of the 1987 Stock Market Crash with a Discussion of the Federal Reserve Response, Federal Reserve Board FEDS 2007-13; Report of the Bachmann Task Force on Clearance and Settlement Reform in U.S. Securities Markets, 26 May 1992; SEC, Securities Transaction Settlement Cycle, Release No. 34-80295, 82 FR 15564, 29 March 2017; President's Working Group on Financial Markets, Hedge Funds, Leverage, and the Lessons of Long-Term Capital Management, April 1999; Report of Anton R. Valukas, Examiner, In re Lehman Brothers Holdings Inc., March 2010, Volumes 1 and 4; Financial Crisis Inquiry Commission, Final Report, January 2011; Federal Reserve Bank of New York, statement on tri-party repo reform, 24 June 2015; BIS Quarterly Review, December 2018; Financial Stability Board, Review of OTC derivatives market reforms, 29 June 2017, Holistic Review of the March Market Turmoil, 17 November 2020, The Financial Stability Risks of Decentralised Finance, 16 February 2023, and The Financial Stability Implications of Tokenisation, 22 October 2024; Bank of England, letter from Sir Jon Cunliffe to the Treasury Committee, 5 October 2022; Credit Suisse Group Special Committee of the Board of Directors, Report on Archegos Capital Management (prepared with Paul, Weiss), 29 July 2021; SEC, Release No. 34-96930, 15 February 2023; SIFMA, ICI and DTCC, T+1 After Action Report, September 2024; BIS, Annual Economic Report, June 2022 and June 2023, chapter III; BIS and CPMI, Tokenisation in the context of money and other assets: concepts and implications for central banks, October 2024; M. Lee, A. Martin and B. Müller, "What Is Atomic Settlement?", Liberty Street Economics, Federal Reserve Bank of New York, 7 November 2022; Broadridge, press release, 6 November 2026, and Distributed Ledger Repo product page, read 9 November 2026; Tessera Terms and Conditions, terms.tessera.pe, Date Last Revised 29 October 2026, read 6 November 2026. Chan Ahn, "Going Public by Degrees," LinkedIn, 29 July 2026, quoted from that original (the Tessera version republished at blog.tessera.pe on 30 July 2026 is worded differently). Tessera, "Count Holders, Not Dollars" (first published 12 August 2026, republished at blog.tessera.pe on 5 September 2026) and "Re-Plumbed" (first published 26 October 2026, republished at blog.tessera.pe on 27 October 2026).

This is market commentary, not investment advice. It is not a recommendation to acquire, hold or redeem any Tessera product, to use any platform mentioned, or to take or avoid exposure to any asset mentioned.

T-Tokens are tokenized loan participation rights, not equity. High risk. DYOR. Not financial advice. Not available in the US or other restricted territories. tessera.pe/terms