The London Stock Exchange (LSE) is going to transform traditional financial markets to blockchain-based infrastructure when it puts 100 stocks on blockchain-based infrastructure. In time it could allow these stocks to trade all day (and connect a vast portfolio of UK stocks to digital asset and crypto-like financial rails).
The development is a radical change in the way capital markets work. Traditionally stock exchanges have traded at fixed times: in the overnight hours, on weekends and holidays. Blockchain technology can support transactions continuously and can run 24/7.
The initiative is especially significant, as it involves some of the UK’s largest and most followed publicly traded companies. The top 100 stocks on the FTSE 100 form a significant part of Britain’s equity market, so blockchain integration at this level could have implications for investors, brokers, financial institutions and digital-asset platforms.
Tokenisation is the key to the move. Tokenised securities employ blockchain or distributed-ledger technology to create digital representations of traditional financial assets. As such, tokenisation can not only change the underlying ownership of a company, but also make the infrastructure to issue, transfer, settle and manage securities more resilient.
One of the biggest benefits is the opportunity of faster and more flexible settlement. In securities transactions, there are lots of intermediaries and a long history to settle and clear transactions. Blockchain-based infrastructure could automate part of that process and remove operational friction and make transactions more efficient.
International investors need 24/7 trading. London’s financial markets are filled with people from Europe, Asia, North America and the Middle East. If people can enter in 24/7 without waiting for the next regular trading session, continuous access can be provided to people from other time zones.
The project could also strengthen the link between traditional finance and the crypto ecosystem. Digital asset markets are already in place and blockchain provides the infrastructure for trading outside the banking hours. Putting regulated equities on similar technology rails might make digital securities more readily accessible.
But blockchain-based stock trading would not necessarily mean UK equities would be equivalent to cryptocurrencies. Listed shares would remain regulated financial securities subject to applicable securities laws, investor protection measures, market surveillance and other regulatory requirements.
And there are some hurdles to overcome before 24/7 blockchain trading becomes a reality. They are liquidity outside of the market context; accurate pricing; corporate actions; and proper settlement and custody.
But the move is also one of the best examples of a wider change in global finance (and financial markets) in general. Banks, exchanges and asset managers are increasingly using blockchain technology to tokenise bonds, funds, equities and other financial instruments.
For the London Stock Exchange, blockchain would be a technology experiment more than a technology project. It would become a new market infrastructure for the traditional securities to connect to the digital world of international finance.
The potential scale is enormous. On a global scale, it might be bringing nearly $3.5 trillion in UK equities closer to blockchain-based financial infrastructure, which would connect conventional capital markets with crypto-native technology.
If this idea is successful, continuous trading would also shift how investors react to breaking news. Big economic announcements, geopolitical developments and corporate events take place outside the traditional exchange hours. A 24/7 system might see a quicker response by the eligible market participants.
But for now, the project is still an important development in terms of technical and regulatory issues financial regulators and market participants need to address.
But the larger message is clear: blockchain is increasingly being brought into mainstream financial markets from the world of cryptocurrencies. If the LSE’s plans are implemented as expected, some of the UK’s biggest companies could eventually become accessible through a new generation of digital market infrastructure operating around the clock.
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