Overstock.com aims to upend Wall Street with a new trading system
January 14, 2016 02:48 PM
(Bloomberg)—Overstock.com Inc., which aims to radically change how stocks and bonds are bought and sold, is close to unveiling the first securities-trading system using the blockchain technology that makes bitcoin possible.
The company, best known as a discount retailer, will issue a digital version of its own stock that can then be traded on Pro Securities LLC, an alternative trading system Overstock invested in in 2014, CEO Patrick Byrne said in an interview. Because it’s bypassing traditional exchanges like the Nasdaq Stock Market and New York Stock Exchange, the trades will clear nearly instantaneously instead of taking several days. Overstock is No. 31 in the Internet Retailer 2015 Top 500 Guide.
“We’re ready to start a crypto Wall Street,” Byrne said. “Like Jonas Salk injecting himself with polio, our first client is going to be ourselves.”
The firm is completing its regulatory approval process with the U.S. Securities and Exchange Commission, Byrne said. At first, only the new type of Overstock equity will be available to trade via blockchain, but Byrne is hoping other companies follow suit. Pro Securities will also be available to list the shares of private companies and bonds, he said.
Nasdaq Inc. is swimming in similar waters. At the end of December, the exchange operator said it used blockchain technology to complete and record a private securities transaction for the first time. Chain.com became the first user of Nasdaq’s Linq blockchain when it issued shares to a private investor.
After more than a year of enthusiastic talk about how the blockchain, or distributed ledgers, can transform how Wall Street trades and settles financial products, 2016 looks to be the year where those ideas are put to the test. Firms such as ItBit and Symbiont are seeking to release applications this year that use digital ledger technology to improve how a range of assets are traded and settled.
Wall Street firms see the technology as a way to reduce costs and increase efficiency as they face stricter regulatory requirements following the 2008 financial crisis. Other firms such as Ripple are already allowing customers to move money internationally in minutes rather than days by utilizing a distributed ledger system.
A distributed ledger allows transactions to be processed so quickly because all the users are connected through its network. As long as banks or exchanges, all of whom are known to each other, verify that one company has the funds or assets to transact with another company, the settlement and clearing time is reduced to seconds. That contrasts with the current banking system with firms that are walled off from each other and connected through decades-old payment services, causing rather simple processes to take several days to complete.
Overstock can now issue as much as $500 million in stock and other securities through a digital system, according to a November filing with the SEC. In June, Overstock issued corporate bonds through the blockchain, which didn’t require SEC approval.