Tokenized Cash: Hidden Risks Show in Derivatives

What to Know:

• NYSE’s parent company, ICE, is developing a platform for tokenized US equities and ETFs.
• The platform aims to offer 24/7 trading and instant settlement using stablecoins.
• This initiative reflects a broader trend toward integrating blockchain technology into traditional financial infrastructure.

Intercontinental Exchange (ICE), the owner of the New York Stock Exchange (NYSE), is planning a new trading platform for tokenized US-listed equities and exchange-traded funds. This initiative signals a significant shift in market infrastructure, focusing on faster settlement times and continuous operation. The move leverages stablecoins and blockchain to create a more efficient trading environment.

The proposed platform will operate separately from the core NYSE exchange, offering 24/7 trading and immediate settlement through tokenized capital, as well as support for fractional share trading. This development represents a strategic move by ICE to compete on market uptime and settlement efficiency, addressing the growing demand for nonstop access to US equities. Stablecoins are emerging as a practical solution for the cash leg of this always-on financial system.

The platform’s architecture combines the NYSE’s existing Pillar matching engine with blockchain-based post-trade systems. This hybrid approach supports orders sized in dollar amounts and accommodates multiple blockchains for settlement and custody. The primary goal is to compress the time between a trade and the exchange of assets, reducing counterparty risk.

ICE is collaborating with major financial institutions like BNY and Citi to support tokenized deposits across ICE clearinghouses. This collaboration aims to enable members to manage funds outside traditional banking hours, meeting margin and funding requirements across time zones. This aligns with a broader trend among custodian banks, such as BNY Mellon’s on-chain mirrored representation of client deposit balances on its Digital Assets platform.

The Depository Trust & Clearing Corporation (DTCC) is also moving toward tokenization, with its subsidiary, DTC, receiving a No-Action Letter from the SEC for a tokenization service. This service will initially include Russell 1000 securities, major index ETFs, and US Treasuries, indicating a deliberate adoption sequence starting with highly liquid collateral. This regulatory support provides a clear path for integrating tokenized assets into the existing financial system.

ICE’s initiative to develop a trading platform for tokenized assets marks a significant step toward integrating blockchain technology into mainstream finance. As the industry watches for regulatory approvals, the scaling of tokenized deposits, and DTCC’s interoperability, the NYSE venue may redefine financial markets around the ability to trade, fund, and settle transactions continuously.

Related: Crypto Derivatives Data Shows Negative Funding

Source: Original article