Wall Street is racing toward tokenized stocks and 24/7 trading, but many institutional investors are wary of the instant settlement model.
Tokenization refers to representing traditional assets such as stocks on blockchain networks. In theory, the approach could modernize market infrastructure that dates back decades, allowing securities to move and settle instantly, while potentially enabling 24/7 trading.
That vision has gained momentum in recent months. Both ICE, the owner of the New York Stock Exchange, and Nasdaq have recently announced major partnerships with native crypto exchanges, with the aim of bringing tokenized shares to market.
But for many institutional traders, the switch raises practical concerns about liquidity, funding and how the markets work on a day-to-day basis.
“Institutional investors generally don’t like immediate liquidation,” said Reid Noch, vice president of U.S. equity market structure at TD Securities. While the technology could streamline the back end of markets, he said, forcing trades to settle immediately would create new frictions for professional investors.
The current US system settles stock trades one business day after execution, known as T+1 settlement. This delay allows brokers and trading firms to net positions and manage funding throughout the day. Instant settlement, on the other hand, will require transactions to be fully funded before they take place.
“No one really wants to be prepaid,” Noch said. If instant settlement became the standard across the market, trading firms would have to arrange intraday funding, potentially increasing costs and reducing liquidity at key times.
The effect can be particularly visible during periods of high activity, such as market closes, when large volumes of trades are executed simultaneously. Balance sheet restrictions can make these periods more expensive for investors and spread liquidity more unevenly over the trading day.
However, retailers can embrace tokenized markets faster. Many of the proposed benefits – such as holding shares directly in digital wallets or trading outside of traditional market hours – are aimed at individual investors rather than large institutions.
Retail already accounts for about 20% of U.S. stock trading, though the stock in certain stocks could rise to more than half of daily activity. In highly speculative “meme stocks”, retail participation has exceeded 90% at times.
Tokenized trading venues could especially appeal to international retail investors seeking access to U.S. stocks when U.S. markets are closed, Noch said. For these investors, opening accounts with crypto platforms may be easier than navigating the requirements of traditional brokers.
Over time, institutional investors can follow if liquidity shifts to tokenized venues. “If retail liquidity migrates there and becomes meaningful, institutions won’t really have a choice but to participate,” Noch said.
Still, the transition involves risks. One concern is market fragmentation if multiple versions of the same stock exist across different blockchains or tokenized platforms. It could weaken the transparency and price discovery that underpins the US stock market.
“In general, most companies only have one share,” Noch said. “If there are suddenly multiple tokenized versions with different rights or liquidity profiles, it could create confusion about what investors actually own.”
Despite these concerns, industry momentum continues to build. Exchanges are already exploring longer opening hours, with some proposing near-24-hour markets within the next few years.
Tokenization may ultimately become part of this shift — modernizing infrastructure behind the scenes while gradually reshaping how investors access stocks. But for now, technology may be moving faster among retailers than the institutions that dominate today’s markets.
