Tokenized US Equities Trading Moves Forward with Multiple Models

Round-the-clock trading is inching closer in US equity markets. As U.S. exchanges prepare to extend their trading hours later this year to 23 hours-a-day, five-days a week, there is a race to offer tokenized versions of traditional stocks onto blockchain – potentially reshaping the infrastructure of trading, clearance, and settlement.

Nasdaq and the New York Stock Exchange are leading the effort, and both have announced aggressive plans to trade traditional stocks with tokenized equities based on blockchain, the same technology which underpins bitcoin and other crypto assets.

A shift to blockchain technology would allow exchanges and other venues to accelerate the transition to 24/7 trading, potentially enable instantaneous settlement, allow for programmability of certain functions such as dividends and corporate actions, and reduce costs from intermediaries.

For brokers and investors, it means they could have round-the-clock access to US stocks in a tokenized format and traditional stocks based on the same CUSIP number, with the same rights to dividends and proxy voting, according to the exchanges’ plans. These moves could enable brokers and market operators to appeal to a broader universe of retail investors already trading bitcoin and other crypto assets, who want to own tokenized stocks in a digital wallet.

Wall Street’s largest players are also reacting to competition from online brokers like Robinhood and digital asset exchanges, such as Coinbase, Kraken and Gemini, which offer wrapped versions of US stocks available to customers overseas as 24/7 exchanges.

But the wrapped tokens function more like derivatives or price trackers than direct ownership. Critics have said that wrapped versions could trade at different price points across venues, creating confusion for investors, and they may not have all the rights and privileges of owning the underlying stock.  

Exchanges see tokenization as a means of addressing concerns about governance and investor protections while expanding their global reach to issuers who want to raise capital in native digital issues.

However, while the two biggest exchanges are moving toward 24/7 trading, they are placing different bets on tokenization.

Nasdaq’s Plan Wins Regulatory Approvals

On March 18, the SEC approved Nasdaq’s proposal, which allows investors to trade either US shares or U.S. tokenized equities side-by-side in its main market during a three-year pilot program operated by the Depository Trust Compan, a subsidiary of Depository Trust and Clearing Corp. (DTCC), according to a filing.  

The DTC, which safeguards over $100 trillion in financial assets, received a no-action letter in December, granting regulatory relief under certain provisions of federal securities laws for a three-year period to offer a tokenization service.

Broker-dealers participating in Nasdaq’s pilot would be eligible to trade tokenized versions of highly liquid ​stocks limited to the Russell ⁠1000 Index, as well as exchange-traded funds tracking major benchmarks such as ​the S&P 500 and the Nasdaq ​100, ⁠the filing said.

“The industry doesn’t have to change a lot of plumbing,” said Harry Temkin, Chief Revenue Officer at DriveWealth, a which provides brokerage infrastructure to retail financial firms such as Revolut and CashApp.

Under Nasdaq’s plan, both traditional stocks and tokenized stocks will trade in the same order book, side by side, with the same order routing strategies. “Effectively, this will allow a broker to put a flag on a trade [through their order management system] and indicate how the client wants the trade to be settled,” said Temkin.

“The beauty of that is whether it’s a token or a traditional security, they’ve both effectively traded on the exchange, and have access to the NBBO [national best bid and offer], [and] all the same kind of Reg NMS rules that we have today. It’s just on the backside, [investors] will have choice of how they want the security to settle,” said Temkin.

In this model, the DTC mints and burns tokens on existing equities held in custody at DTCC, maintaining a one-to-one relationship between on-chain tokens and traditional securities.  Settlement occurs on a T+1 basis as it does in equities today.

NYSE’s Hybrid Tokenization Plan

The NYSE, by contrast, is pursuing a hybrid model that blends its traditional market structure with a blockchain-based trading platform. The Big Board announced plans in January to launch a separate, 24/7 platform, with an alternative trading system (ATS) which will integrate its existing high-speed Pillar matching engine, pending regulatory approval.

Gian Pastore, emerging technologies specialist at Loeb & Loeb, in a blog post, suggested that NYSE is raising the bar beyond extended trading hours. “By moving toward 24/7 trading for U.S. equities and ETFs, the NYSE is outpacing Nasdaq’s 23/5 proposal.” He wrote: “Eliminating the multi-day settlement lag reduces counterparty risk and frees up billions in capital that is currently tied up during the ‘waiting period’ of traditional trades.” In addition, Pastore cited fractional shares, and dollar-based order sizing for investors as features of the NYSE plan.

Second, NYSE unveiled another approach for tokenizing shares of listed companies and bringing them to market natively on chain.

An Issuer-led Model

In March, the Big Board said it teamed up with Securitize to develop the 24/7 tokenized securities trading platform, which can support native digital tokens, and settle instantaneously rather than days.  Since Securitize is a digital transfer agent, it works directly with corporate issuers and could create shares for stocks and ETFs represented as digital tokens on a blockchain.

In addition, Securitize’s broker-dealer (Securitize Markets) is going to connect to the NYSE’s tokenized securities platform, which is an ATS called Digital Trading Platform. Investors would also be able to use stablecoins – a type of cryptocurrency typically pegged to the U.S. dollar – to fund trades.

Unlike Nasdaq’s approach which relies on the DTCC for T+1 settlement for tokenized shares and traditional securities, “the NYSE’s plan is for tokenized stocks to be issued and settled directly on a blockchain without the DTCC,” reported the Wall Street Journal.

However, in April, the NYSE filed for a rule change, piggybacking Nasdaq’s language, to leverage the DTC no-action letter and participate in the pilot program. Under the proposed rule, an eligible security based on the same symbol and CUSIP, could trade on the NYSE in either traditional form or tokenized form. Upon order entry, the market participant would select a tokenization flag to instruct the DTC on a post-trade basis.

Also focusing on issuers and “always-on markets,” in early March Nasdaq said it will collaborate with Payward, the parent of crypto exchange Kraken, to tokenize public companies with issuers for distribution on its xStocks platform to customers in Europe and around the world. Nasdaq said this tokenization framework would launch in the first half of 2027.

Blue Ocean ATS Eyes Tokenized Shares

Exchanges are not the only ones preparing to trade tokenized equities. Alternative trading systems, which already operate outside of standard market hours, see tokenized equities trading as an extension of their own business.

“We are planning to tokenize NMS securities through the DTCC solution once it launches later this year, initially with a subset of NMS stocks. We will access DTCC via our clearing partner, RQD,” said Brian Hyndman, CEO of Blue Ocean Technologies, the parent of broker-dealer Blue Ocean, which operates the ATS.

 “It’s highly regulated and it’s going to attract the masses,” said Hyndman, whose Blue Ocean ATS operates during the overnight trading hours (8:00 pm to 4:00 a.m. EST) when the exchanges are not operating.

Hyndman said the highly regulated route is critical to broker-dealers. “The idea of tokenized equities appeals to subscribers because they want them to be in tokenized NMS stocks and not derivatives of them,” he added. “They want to trade a Microsoft or a Tesla token with the same CUSIP number as the stock. This is not some derivative. That is not going to satisfy a retail customer.”

Under Blue Ocean’s model, traders would trade NMS stocks as they do today, but at the time of order entry, a broker will indicate if they prefer to settle the traditional way or via the tokenized format. DTCC would still clear and settle the trades on a T+1 basis.

“The trade gets executed, it clears and settles and then becomes tokenized and is held in a special digital wallet on the blockchain (at DTC),” Hyndman explained. DTCC would continue to do all the anti-money laundering and KYC, he noted.

Trading Tokenized Stocks on the Weekend

One of the benefits of tokenization is that a trader “could potentially buy or assets over the weekend,” said Hyndman. He pointed to geopolitical events that happen unexpectedly outside of market hours. “When the US and Israel went to war with Iran, it was a Saturday morning,” he recalled. With the ATS closed over the weekend, there was pent up demand until Sunday night when volume exploded. If weekend access becomes available, that volume would smooth out, he said.

Hyndman said Blue Ocean intends to proceed with tokenization in line with DTCC’s readiness.  “It remains unclear whether this will occur ahead of the exchanges or concurrently,” he noted. “The exchanges will require the SIP (securities information processor) to be operational in order to support overnight trading,” said Hyndman. Exchanges, which provide transparency to retail investors, cannot operate without the consolidated market data feed.

One area that needs more details is how money will move over the weekend, said Hyndman. That is where stable coins will come in since the banking system remains closed over the weekend, he added. Addressing that issue, the NYSE said its parent company, Intercontinental Exchange, is partnering with BNY and Citi to use tokenized deposits for margin and funding outside traditional banking hours.

Institutional Skepticism

While the demand for overnight and 24-hour trading in US equities is driven by retail investors in Europe and Asia, institutional investors have been skeptical due to concerns over less liquidity and wider spreads, so it remains to be seen how institutions will react to these various tokenization proposals.

On the other hand, asset managers such as Blackrock launched its first tokenized money market fund (BUIDL) in 2024, working with Securitize, which operates on the Etherium blockchain. The fund is meant for institutional investors for a minimum investment of $5 million.

Meanwhile, exchanges are serious about the race to tokenize US equities and ETFs to trade on their regulated platforms, as they bridge the transition to blockchain and look to integrate digitally native products.

On a recent “Inside the ICE House podcast,” Michael Blaugrund, VP of Strategic Initiatives at NYSEs parent Intercontinental Exchange (ICE), said: “We’re going to trade tokenized equities – whether those are stocks listed today on NYSE or new issues that are brought to market and issued natively on chain –  and we’ll trade those against stable coins which are also tokens but they represent dollars, not securities.”