A part of the reason why the Automated Clearing House system was setup was the collapse of Herstatt, which was a settlement failure that led to the global push for RTGSes.
It is not that difficult to imagine another such storm. A heavily shorted stock, where retail traders "rally" to stick to the man and buy + hold on to the majority of the stock in circulation. And then the shares left in pools + the open market aren't enough to cover everyone's position. Creating a cascading failure.
I’ve been looking at settlement also and am particularly interested in overnight Interest rates. https://en.m.wikipedia.org/wiki/Overnight_indexed_swap
This past years changes at the Fed for Central Bank Interest Rate Swap Lines and 9 new banks, which included Sweden and others. https://www.federalreserve.gov/newsevents/pressreleases/mone...
The dollar is running the world right now. Lots of demand even as, or maybe why, the value has been weakening. https://www.marketwatch.com/investing/index/dxy
Curious when the dollar running the world will begin to change. The US dollar and CN Yuan are the only countries keeping us with positive, basically zero, interest rates globally (See IMF SDR) https://www.imf.org/external/np/fin/data/sdr_ir.aspx
Lastly, Power to the Players! Still looking for more short squeeze on the GME shorts, would like to see them get pushed down to a reasonable level of the float (5-20%?). I’m holding.
The firms that provided instantaneous-seeming settlement got the orders. And settlement failures were rare and correlated enough that avoiding them wasn't a differentiator. Then we got centralized clearinghouses and deposit insurance and the risk fell so far into the background that it's entirely novel to many market participants today.
> why these transactions aren't being netted and conducted as close to real-time as possible
It is technically difficult. It provides less room for correcting errors. And because real-time payment rails are fundamentally more expensive than batched rails, and if your payments aren't in sync with your settlement you've got a credit component somewhere.
> seems like a significant vulnerability
It does, but I don't think it is. Clearinghouses spread risk across a lot of people. They also help early identify daisy-chains, e.g. a single broker sold ten shares to ten brokers who then sold it to ten more fifty times and that single broker hasn't settled yet, and loops, e.g. I owe you and you owe Larry and Larry owes Bob and Bob owes me, of settlement risk. That's why Dodd-Frank moved many derivatives onto centralized clearinghouses.
That said, we've only had these since the 1970s. Counterfactual: we didn't have the technology to do this until the 1970s.