Bank of America partners with stablecoin operator Paxos to support same-day stock trade settlement

Bank of America, the second-largest bank in the United States, is now reportedly using blockchain technology to settle stock trades.

Bank of America has joined Paxos Settlement Service, a platform that uses blockchain technology to settle stock trades on the same day, Bloomberg reported on Monday. Kevin McCarthy, head of financing and clearing at Bank of America, said the bank has been "working on this internally for the past few months" and will offer the service to Bank of America's clients once Paxos is approved as a clearing firm.

The move will reportedly allow for a “more flexible and faster” system for settling stock trades than if U.S. banks participated directly with the Depository Trust & Clearing Corporation, or DTCC. While DTCC’s settlement time is around two days, Paxos’ service is able to settle some stock trades in minutes.

“We can determine that the settlement cycle is T+0, and then we can release the collateral that had to be released overnight,” McCarthy said. “The return on assets in that business will increase, and that’s the challenge.”

After receiving a no-action letter from the U.S. Securities and Exchange Commission (SEC), Paxos officially launched its stock trade settlement service in 2019. Zurich-based financial institutions Credit Suisse and Instinet, the trading arm of Nomura Holdings, both participated in the pilot of the service, settling trades in their U.S.-listed stocks on the same day.

The stablecoin operator announced in April that it had applied for a clearing house license from the U.S. SEC. Paxos also recently completed a $300 million funding round, bringing its valuation to $2.4 billion.