Real-time trading, instant settlement, & direct exchange access using blockchain technology
Stock trading has greatly evolved over the last few decades. Gone are the movie-esque trading floor scenes with hordes of men in suits loudly executing trades.
In the 1980s, exchanges began replacing floor trading with automated trading systems and transactions started to be executed over the phone.
A decade later in the 1990s, those systems were replaced with electronic trading platforms, what most individual traders are used to today. Think TD Ameritrade, Robinhood, E* TRADE, etc.
Instead of having to call a broker to buy or sell a security, investors are able to trade shares through online brokerage accounts. There are hundreds of trading platforms that offer these bridges into stock exchanges.
The transition to electronic trading platforms showcased how technology could be used to cut out middlemen, increase accessibility, and empower the individual to take more direct control of their finances.
It is no surprise that a decade later, in the 2000s, these same ideas were explored further with the introduction and advancement of blockchain technology.
To date, the digital currencies built on top of blockchain technology have surpassed a market cap of $1.7 trillion¹. While there are cryptocurrency exchanges that trade digital currencies, trading platforms that offer traditional stock trading, and few that try to marry the two, there hasn’t been many use cases showing how blockchain technology could be used to revolutionize traditional stock trading.
We believe that the next evolution of stock exchanges will be driven by blockchain technology, starting with the launch of our upcoming digital stock exchange Upstream.
Here’s how we’re using blockchain technology to introduce the next generation of stock trading.
1. Direct access to the exchange
While the move to electronic trading gives investors more convenience to conduct trades on their own, investors are still going through middlemen to complete the transactions. First off, the trading apps offer windows into the exchanges, but aren’t exchanges themselves. Typically, when you place a market order on a trading app you are telling a broker to get the best price they can for the order. The broker then gives your trade to a market maker to execute the trade on your behalf and you’re charged an order flow fee.
On Upstream, investors are given direct access to the exchange through the Upstream trading app. Traders are empowered to control their securities directly on their phones and all transactions are biometrically protected. As an investor-driven market, Upstream differs from many of today’s markets where pricing relies on market makers and routing order flow.
2. Transparent orderbooks
Arguably one of the biggest advantages of blockchain technology is the ability to enhance transparency. Putting information on a blockchain inherently makes it immutable.
This is why Upstream features a transparent order book with best bids and offers transparently displayed on a public orderbook. The orders you see come from other investors in the community to maintain an accurate and fair marketplace.
3. Digital currency & fiat
On Upstream, traders from around the world can participate using both digital currency in the form of USDC stablecoin and traditional bank payments. Our advanced technology integrations make it possible for USDC traders to enjoy a streamlined USDC off-ramp back to popular cryptocurrency exchange platforms.
We think USDC will enable Upstream traders to transact using digital currency without having to worry about the intense highs and lows of Bitcoin or Ether, a reassurance that has proven valuable. For issuers, it also offers enhanced price discovery from traditional traders and the blockchain community.
4. T+0 settlement
For most trades on traditional exchanges, settlement is T+2, which means the actual transfer of ownership takes place two business days after the execution of the trade. The conversation around settlement times were last brought to the forefront during the GameStop stock frenzy.
With our integration of blockchain technology, Upstream offers real-time trades and T+0 settlement, which means that the trade and transfer of ownership takes place immediately.
We think it’s time for traditional stock exchanges to lean into the technological advances offered by blockchain technology. We are thrilled to marry blockchain and traditional finance to create a secure, fair, and accessible market for all on Upstream.
Upstream, a MERJ Exchange Market, is a fully regulated global stock exchange for digital securities. Powered by Horizon’s proprietary matching engine technology, the exchange will enable investors to trade shares in SPACs, high-growth startups, and other unique asset classes directly from the app. Interested issuers can reach the team at firstname.lastname@example.org.
MERJ Exchange operates Upstream as a fully regulated and licensed integrated securities exchange, clearing system, and depository for digital and non-digital securities. It is an affiliate of the World Federation of Exchanges, recognized by HM Revenue and Customs UK, a full member of the Association of National Numbering Agencies, and a Qualifying Foreign Exchange for OTC Markets in the US. MERJ is also a member of the Sustainable Stock Exchanges Initiative.
Horizon is a fintech company that builds and powers global securities exchanges with an integrated suite of software for compliant issuance, management, and secondary trading of securities. Our in-house solutions combine Wall Street and Silicon Valley to power the next generation of securities offerings and trading in the U.S. and globally: https://www.horizonfintex.com/.
+ USDC funds are custodied pursuant to the Liechtenstein Law on “Tokens and Trusted Technology Service Providers” as passed in Blockchain Act on October 3, 2019 and/or MERJ Depository and Registry Limited: Licensed securities facility (License No. SF001).
THIS BLOG SHALL NOT CONSTITUTE AN OFFER TO SELL SECURITIES OR THE SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION IS NOT PERMITTED. US INVESTORS ARE NOT PERMITTED TO TRADE IN UPSTREAM LISTED SECURITIES.