(Sept 1): The London Stock Exchange (LSE) is planning to launch tokenised stocks, backed by shares of London-listed companies, as it looks to further embrace digital assets.

The bourse is partnering with financial infrastructure platform Payward — the parent company of crypto exchange Kraken — to roll out tokens on its overnight trading venue, according to a statement on Tuesday. The tokens are set to launch next year, pending regulatory approval. 

Many exchanges, banks and asset managers have turned to blockchain-enabled technology to speed up certain processes. Tokenisation — the process of issuing and transferring traditional assets like stocks and bonds on blockchain — is seen as a way to attract more investors and increase trading capabilities outside of regular market hours.

“We are at an important inflection point for global market structure,” Simon Mason, head of trading venues at the LSE, said in an interview. “You have a number of disruptive technologies being adopted: tokenisation and distributed ledger technology is one of them.” 

Payward runs xStocks, which offers tokenised securities backed by publicly traded shares and exchange-traded funds. Each token is backed by one share and can be traded across digital wallets and exchanges at any time of day, but gives holders only limited shareholder rights.

The LSE is also developing tokenised equities that will carry full shareholder rights, Mason said.

“We want to work with issuers to make them part of that process and that is when we will look to bring them to market as a true representation of the underlying equity,” Mason said. Part of the demand for tokenised stocks comes from crypto investors looking to diversify into asset classes, he added. 

The LSE’s announcement comes after it said in July it would launch a 24-hour trading venue, first offering exchange-traded products. The bourse has been looking for ways to increase liquidity and entice private companies preparing to go public. It has struggled with the latter in recent years and is losing a number of listers to take-privates. 

“A core part of the shift towards 24/7 is providing the ability for global retail investors to trade in time zones they want and in the underlying assets and markets they want to trade,” Mason said.

Earlier this year, the London Stock Exchange Group plc, which operates the exchange, unveiled a digital settlement service, designed to help participants settle foreign exchange and digital asset trades.

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