How Does the Time to Finality Affect the Liquidity of a Derivatives Market?

A longer time to finality reduces market liquidity. Traders are less willing to participate if their capital is locked up for extended periods waiting for transaction confirmation and settlement finality.

Fast finality, conversely, allows for rapid capital turnover and recycling, encouraging more trading activity and tightening the bid-ask spread. This is especially true for high-frequency strategies.