Wall Street is rushing toward tokenized stocks and 24/7 trading, but many institutional investors are wary of the instant settlement model.
Tokenization refers to the representation of traditional assets, such as stocks, on blockchain networks. In theory, the approach could modernize decades-old market infrastructure, allowing securities to be moved and settled instantly and 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 cryptocurrency exchanges, with the goal of bringing tokenized stocks to the market.
But for many institutional traders, the change raises practical concerns about liquidity, funding and how markets function on a day-to-day basis.
“Institutional investors generally don’t like instant settlement,” said Reid Noch, vice president of U.S. equity market structure at TD Securities. While technology could streamline the back end of markets, he said, forcing trades to settle immediately would create new friction for professional investors.
The current US system settles stock trades one business day after they are executed, known as T+1 settlement. That delay allows brokers and trading firms to net positions and manage financing throughout the day. Instant settlement, on the other hand, would require transactions to be fully funded before they occur.
“No one really wants to get early funding,” Noch said. If instant settlement became the standard across the market, trading firms would need to arrange funding throughout the day, which could increase costs and reduce liquidity at key times.
The impact could be especially visible during periods of intense activity, such as market closures, when large volumes of trades are executed simultaneously. Balance sheet restrictions could make those periods more expensive for investors, distributing liquidity more unevenly throughout the trading day.
However, retail traders can adopt tokenized markets more quickly. Many of the proposed benefits (such as holding stocks directly in digital wallets or trading outside of traditional market hours) are aimed at individual investors and not large institutions.
Retail trading already accounts for about 20% of US stock trading volume, although in certain stocks the share can rise to more than half of daily activity. In highly speculative “meme stocks,” retail participation has at times exceeded 90%.
Token trading venues could particularly appeal to international retail investors looking for access to U.S. stocks when U.S. markets are closed, Noch said. For those investors, opening accounts with crypto platforms may be easier than meeting the requirements of traditional brokers.
Over time, institutional investors may follow suit if liquidity moves to tokenized venues. “If retail liquidity migrates there and becomes significant, institutions will really have no choice but to participate,” Noch said.
Still, the transition carries risks. One concern is market fragmentation if multiple versions of the same stock exist on different blockchains or tokenized platforms. That could weaken the transparency and pricing that underpin the U.S. 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, that could create confusion about what investors actually own.”
Despite those concerns, industry momentum continues to build. Exchanges are already exploring longer trading hours, with some proposing near-24-hour markets in the coming years.
Ultimately, tokenization could become part of that shift: modernizing behind-the-scenes infrastructure while gradually reshaping the way investors access stocks. But for now, technology may advance faster among retail traders than the institutions that dominate today’s markets.
