The company responsible for clearing and settling most stock trades on Wednesday said it had launched a service letting institutions turn about $30 trillion in securities into tokens. The launch could kick off a major shift on Wall Street.
Major financial institutions for years have experimented with bringing the "blockchain" technology that powers crypto trading to traditional assets. The effort has little to do with speculative cryptocurrencies themselves but instead is an attempt to bring some of the technology's advantages, like near-instant transfers and settlement, to assets like stocks and exchange-traded funds, whose trades can take a business-day to settle.
The service launched by the Depository Trust & Clearing Corp. lets institutions convert certain securities into tokens and back again. The company said the service at launch includes 34 securities and that firms with agreements to use the service include Bank of America, JPMorgan Chase, Morgan Stanley and State Street, among others.
At least for now, the changes don't mean that retail investors will soon be trading stock tokens. Under the DTCC program, investors' trades execute and settle the traditional way, but participants can opt to receive a tokenized version of their shares and move them onto a blockchain. Then the tokenized stocks can transfer between holders instantly on a 24/7 basis.
While the service doesn't touch traders directly, the ability to transfer assets instantly is a big deal for institutions.
Wall Street firms often keep excess collateral parked at various institutions because they don't know where they might experience a margin call and can't afford to wait the business-day it could take to transfer collateral between firms the traditional way. Nasdaq has estimated the largest financial institutions could collectively earn up to $340 million a year in additional interest by reducing that collateral and investing it elsewhere.
Unlike the DTCC, some other firms say they plan to launch venues that would allow retail traders to invest in stock tokens directly. The Securities and Exchange Commission in September said it would temporarily exempt such projects from many securities regulations, making the projects possible. However, the agency also required the proposed "tokenized securities venues" to give companies a chance to object to having their stocks tokenized. Those issuer objections are piling up.
Crypto firm OKX and New York Stock Exchange-owner Intercontinental Exchange earlier this month announced they would launch a tokenized securities venue with plans to tokenize 63 stocks. As of the latest update on Tuesday, the joint venture said it had received objections from 33 companies, including Intel Corp., Dell Technologies, Goldman Sachs and Google-owner Alphabet.
OKXICE Co-Chairman Andrew Cuomo, the former governor of New York, previously said that he expected there to be objections from issuers who wanted to see how the new venues would operate. An OKX spokesman pointed to Cuomo's previous comments.
The DTCC's service relies on a separate no-action letter from the SEC, meaning it doesn't face those hurdles and presumably can move to tokenize stocks much quicker.
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