Blockchain—the technology that made crypto-currency mainstream—is now entering the U.S. stock market. In November, the U.S. Securities and Exchange Commission approved a pilot project to use blockchain to settle trades in about 140 of Wall Street's most stable stocks, including General Electric Co. and AT&T Inc.
Blockchain startup Paxos is behind the pilot. If successful, it could demonstrate that there's a faster, cheaper way to process stock trades—potentially disrupting the world of clearing and settlement.
“There has been so much innovation in the way trading happens over the past 20 years, with people trading in microseconds, but there hasn't really been innovation in clearing or settlement,” Charles Cascarilla, Paxos chief executive, told The Wall Street Journal.
As it stands, the standard settlement time for a stock trade is two days. If blockchain succeeds, it could cut that time in half by allowing banks to exchange digital representations of cash and securities to settle trades with each other, ultimately reducing costs for banks and investors. Long term, blockchain initiatives could revolutionize a legacy system that has been in place since the 1970s. But early pilot projects will first provide a blueprint for a new approach to clearing and settlement.