Capital markets are at the threshold of one of the most profound structural transitions since the dematerialisation of securities. Traditional financial instruments – equities, bonds, and funds – are increasingly being represented as digital tokens on distributed ledgers, while entirely new classes of crypto-native assets are starting to emerge. The result is not a replacement of existing infrastructure, but an expanding hybrid ecosystem where traditional, digital, and tokenised assets must co-exist and interoperate.
Contributed by Giles Elliott, Head of Business Development, Capital Markets, TCS BaNCS
This change represents one of the most challenging transformations for custodians and CSDs at a time where other themes like accelerated settlements, cyber-security, and regulation are assuming greater importance.
At the centre of this transformation is custody, long viewed as a post-trade utility focused on safekeeping and record-keeping. However, now it’s emerging as a foundational layer of digital financial infrastructure, responsible not only for asset protection, but also for enabling interoperability, compliance, and trust across increasingly fragmented systems.
Why unified custody is an imperative
The concept of unified custody captures this shift and represents an integrated model capable of servicing traditional securities held in central securities depositories (CSDs), digital assets on blockchain-based systems, and tokenised representations of real-world assets. As tokenisation begins to scale, unified custody is not merely an operational enhancement – it is becoming the essential bridge between traditional market infrastructure and the programmable financial systems of the future.
The introduction of CSDs in the late twentieth century marked a junction in the capital market model, moving markets from physical certificates to electronic book-entry systems and establishing a single, authoritative record of ownership. Today, CSDs remain the “golden record” of capital markets, ensuring the integrity of securities issuance, ownership, and settlement across trillions of dollars in assets. They provide the legal certainty and operational discipline necessary for market stability; a role that has become even more critical in the context of financial globalisation and regulatory oversight.
Yet, the rise of digital assets has introduced an entirely new landscape. Custody is no longer limited to holding securities – it now includes the safekeeping of private cryptographic keys, interaction with smart contracts, and integration with distributed ledger networks. As markets evolve, custodians are increasingly expected to manage both on-chain and off-chain assets, support real-time, programmable transaction flows, provide secure interfaces to digital ecosystems, and maintain regulatory compliance across jurisdictions.
This transformation has elevated custody from a protective function to a gateway for participation in digital markets – with the ability to unlock liquidity, support innovation, and facilitate cross-platform interoperability.
Tokenisation, often presented as a technological innovation, actually represents a structural shift in how markets operate where tokenised assets can embed characteristics that include programmability, transparency of ownership, and potential settlement efficiency.
New platforms are enabling the issuance and servicing of tokenised bonds and funds with automated lifecycle management and near-real-time reconciliation, reducing reliance on traditional intermediaries and batch processing systems.
However, tokenisation introduces complexity alongside efficiency gains. Assets may exist simultaneously in traditional CSD environments and on distributed ledgers, creating duplication, fragmentation, and operational risks, if not managed cohesively. This is where unified custody becomes indispensable.
At its core, unified custody enables institutions to hold traditional securities, digital assets, and tokenised instruments within a single framework. It also provides seamless client access across asset classes, while applying consistent governance, risk management, and reporting standards. The challenge for custodians and CSDs is to provide integrated, interoperable custody layers that can support ‘one view of assets’ across multiple infrastructures.
Evolving role of the CSDs
Despite the transformative potential of blockchain technology, CSDs are not becoming obsolete. Instead, their role is evolving in response to tokenisation. CSDs have provided the definitive record of securities ownership, ensuring that trades settle with legal finality and systemic risks are contained within regulated market infrastructure. This role remains vital in a tokenised environment, where legal certainty is critical for institutional participation.
However, tokenisation introduces new dynamics. Assets represented as smart contracts carry embedded rules for issuance, settlement, and servicing, shifting part of the control logic from centralised systems to programmable code.
Rather than acting solely as a ledger, the CSD is emerging as a trusted orchestration layer – ensuring that tokenised assets behave as intended and comply with regulatory and market standards.
This evolution is already visible in the development of digital CSD platforms. Institutions such as Euroclear, SIX, Clearstream, and DTCC are working with regulated, blockchain-based infrastructures for issuing and managing digital securities, integrated with traditional CSD frameworks to ensure continuity and compliance.
The result is a hybrid model in which traditional and digital infrastructure co-exist, interconnected through shared governance and operational frameworks.
From connectivity to competitive edge
If unified custody is the operating model, and the CSD is the trust anchor, then the connectivity between custodians and CSD platforms becomes the critical enabler of tokenised markets.
In traditional markets, custodians rely on CSDs for settlement and record-keeping, maintaining client-level accounts while the CSD operates the central ledger. Tokenisation does not eliminate this relationship; it intensifies it.
Industry developments illustrate this shift. Strategic collaborations between custodians and digital CSD platforms are enabling integrated solutions for tokenisation, custody, and settlement.
These models point towards a new architecture in which custodians act as client-facing access points, while CSDs provide market-wide coordination and settlement finality.
Importantly, weak integration between these layers introduces systemic risk. Without synchronisation, tokenised markets risk creating fragmented liquidity pools, increased counterparty exposure, and operational inefficiencies – replicating the very problems tokenisation seeks to solve.
Tokenisation enables assets to move faster and more efficiently across markets. Unified custody allows institutions to manage these assets within a single framework, unlocking new opportunities for collateral optimisation and liquidity management under an integrated model with traditional assets.
By integrating smart contracts with custody platforms, processes such as settlement, income collection, and corporate actions can be automated, reducing manual intervention and operational risk. But this requires adjustment of traditional custody systems and embedding of rules that identify smart contracts in tokenised assets and can process these alongside their traditional twin.
Institutional adoption depends on trust. Unified custody ensures consistent risk management, regulatory compliance, and asset protection across all asset classes – meeting the stringent requirements of institutional investors.
In effect, unified custody transforms custody from a cost centre into a strategic enabler of market innovation and growth.
The requirements for custodian and CSD platforms to interoperate have never been more significant or important. The potential outlined can only be achieved by common development of custody and CSD technologies, to ensure a seamless, highly automated interface.
In the coming years, the environment will get more complex – and the future of capital markets will not be defined by the replacement of existing systems, but by their integration. Custodians and CSDs, working in concert, will form the trust layer of digital finance – ensuring that as markets evolve, they do so with the stability, resilience, and transparency that investors expect.
In this new world, the winners will not be those who build in isolation, but those who connect ecosystems – transforming fragmentation into integration, and innovation into institutional-scale reality.