NYSE previews platform for tokenized stock trading

The New York Stock Exchange plans to launch a trading venue that will enable investors to buy and sell tokenized stocks.

The NYSE’s parent company, Intercontinental Exchange Inc., announced the initiative today.

A tokenized stock is a digital asset pegged to the share price of a publicly traded company. Tokenized stocks can also be tied to an investment vehicle known as an ETF, or exchange-traded fund. Such funds often own multiple assets such as a basket of stocks. The NYSE plans to support tokenized versions of both regular corporate shares and ETFs.

According to the exchange operator, its upcoming trading venue for tokenized assets will enable investors to buy and share assets around the clock. Standard equities can only change hands during working hours. Furthermore, NYSE expects to complete the often hours-long process of finalizing a trade almost instantaneously.

The exchange will enable investors to fund tokenized stock trades with stablecoins, digital assets pegged to a fiat currency. Owners of a tokenized stock will be eligible for dividends much like regular shareholders. Furthermore, they will have a say in corporate governance matters such as director appointments.

NYSE says its tokenized trading venue will be powered by a newly developed software platform. The platform is partly based on Pillar, an existing system that powers the exchange’s trading workflows. 

One of Pillar’s main functions is enabling institutional investors to connect their systems to the NYSE. It includes a mechanism that automatically cancels a trade if an investor’s connection is interrupted. Another module, Pillar Depth, provides customers with access to data about NYSE trading activity. 

NYSE’s new tokenized stock trading platform combines Pillar with “blockchain-based post-trade systems.” Those systems will enable the exchange to support multiple blockchains. They will also facilitate digital asset custody, an arrangement whereby investors entrust the task of managing their digital assets to a third party.

A stock exchange mainly functions as a marketplace that matches buyers with sellers. The administrative work involved in processing transactions is carried out by a different platform known as a cleaning house. Intercontinental Exchange, NYSE’s parent company, operates a half-dozen clearing houses. Those business units will also participate in its blockchain push.

Intercontinental Exchange is working with several banks to roll out support for tokenized deposits across its clearing houses. The feature will enable investors to to pay off margins obligations, or debt raised to finance trades, using their digital assets. Intercontinental Exchange is also exploring the possibility of enabling customers to use digital assets as loan collateral.

Several blockchain companies are planning to launch tokenized stock trading services or have already done so. Those services enable investors to make trades without going through an exchange such as the NYSE. Intercontinental Exchange’s push into tokenized stock trading should put it in a better position to address the competition.

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