Wall Street is racing toward tokenized equities 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 large partnerships with native crypto exchanges, aimed at bringing tokenized stocks to market.
But for many institutional traders, the shift raises practical concerns about liquidity, financing and how markets function day to day.
“Institutional investors generally do not like instant settlement,” 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 U.S. system settles stock trades one business day after execution, known as T+1 settlement. That delay allows brokers and trading firms to net positions and manage funding throughout the day. Instant settlement, by contrast, would require transactions to be fully funded before they occur.
“No one really wants to be prefunded,” Noch said. If instant settlement became the standard across the market, trading firms would need to arrange financing throughout the day, potentially increasing costs and reducing liquidity at key moments.
The impact could be especially visible during periods of heavy activity, such as the market close when large volumes of trades are executed simultaneously. Balance sheet constraints could make those periods more expensive for investors, spreading liquidity more unevenly throughout the trading day.
Retail traders, however, may embrace tokenized markets more quickly. Many of the proposed benefits — such as holding shares directly in digital wallets or trading outside traditional market hours — are aimed at individual investors rather than large institutions.
Retail already accounts for roughly 20% of U.S. equity trading volume, though 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%.
Tokenized trading venues could particularly appeal to international retail investors seeking access to U.S. stocks when American markets are closed, Noch said. For those investors, opening accounts with crypto platforms may be easier than navigating the requirements of traditional brokers.
Over time, institutional investors may 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 carries risks. One concern is market fragmentation if multiple versions of the same stock exist across different blockchains or tokenized platforms. That could weaken the transparency and price discovery that underpin the U.S. equity market.
“Generally, most companies only have one stock,” Noch said. “If suddenly there are 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 nearly round-the-clock markets within the next few years.
Tokenization could ultimately become part of that shift — modernizing infrastructure behind the scenes while gradually reshaping how investors access stocks. But for now, the technology may advance faster among retail traders than the institutions that dominate today’s markets.
