Backed by the Big Five UK banks! LSEG proposes tokenized settlement, set to disrupt the TradFi market in 2026

London Stock Exchange Group (LSEG) announced on Thursday that it will establish an on-chain settlement system for institutional investors, named LSEG Digital Securities Depository, connecting traditional securities markets with blockchain networks. The system will operate across multiple blockchains and remain compatible with existing settlement platforms used by banks and asset managers. The first deliverable is planned for 2026.

LSEG Digital Securities Depository: The Blockchain Revolution in Traditional Finance

London Stock Exchange Group stated on Thursday that it will build a new on-chain settlement system for institutional investors, called the London Stock Exchange Digital Securities Depository. This system will connect traditional securities markets with blockchain networks. Its goal is straightforward: large institutions will be able to trade and settle tokenized bonds, equities, and private market assets using blockchain technology, while maintaining links to existing infrastructure.

The system will run on multiple blockchain networks and be compatible with current settlement platforms used by banks and asset managers. This “multi-chain + compatibility” design is crucial. If the system only supported a single blockchain (such as Ethereum), its applicability and flexibility would be limited. Supporting multiple chains allows institutions to choose the most suitable blockchain based on asset class and regulatory requirements. Compatibility with existing systems ensures that institutions do not need to completely abandon decades of established infrastructure, enabling a gradual transition to blockchain settlement.

LSEG indicated that the first deliverable is scheduled for 2026, pending regulatory approval. The company currently operates a private equity fund blockchain platform based on Microsoft Azure. The launch of this new project will further expand its digital strategy. This phased blockchain adoption approach demonstrates that LSEG is not blindly following trends but is gradually expanding its application scope based on practical operational experience.

From a product positioning perspective, LSEG Digital Securities Depository targets institutional investors rather than retail users. This B2B (business-to-business) focus aligns with LSEG’s role as a provider of financial infrastructure. Tokenized bonds, equities, and private market assets are primarily held and traded by banks, asset managers, pension funds, and sovereign wealth funds. These institutions demand high standards for settlement speed, cost efficiency, and regulatory compliance, areas where blockchain technology can offer improvements.

The initiative has received support from major UK banks and financial groups. Barclays, Lloyds, NatWest, Standard Chartered, and Bank of Ireland have welcomed LSEG’s decision. Their collective endorsement is significant, as they are core participants in the UK and global financial systems. Their support is not just verbal; it indicates their willingness to migrate actual business to this new platform and become early users.

Three Key Features of LSEG Digital Securities Depository

Multi-chain Interoperability: Supports multiple blockchain networks, allowing flexible technology choices

Compatibility with Traditional Systems: Maintains compatibility with existing settlement platforms, reducing migration costs and risks

Institutional-Grade Security: Designed to meet the regulatory compliance and risk management needs of large institutions

The company plans to form a strategic partnership group to gather feedback from market participants during the development of the custody platform. Its goal is to create an ecosystem enabling institutions to trade across time zones using different payment methods between digital and traditional markets. Cross-time zone trading is a key advantage of blockchain, as traditional securities markets are limited by trading hours, while blockchain can facilitate 24/7 trading.

This new asset custody platform will deepen LSEG’s integration into blockchain-based settlement systems. It will connect tokenized assets with the existing financial ecosystem. If regulators approve, the first phase is expected to launch in 2026.

Elliott Management’s $76 Billion Push: Stock Price Plunges 35% Under Survival Pressure

When LSEG announced this initiative, it was under pressure from the activist hedge fund Elliott Management, which holds a significant stake in the company. Managed by billionaire Paul Singer, Elliott’s assets under management are approximately $76 billion. The fund has been engaging with LSEG and CEO David Schwimmer to push for improved financial performance.

Elliott Management is one of the most well-known activist investors globally, famous for actively intervening in the management of its portfolio companies. When Elliott perceives mismanagement or strategic errors, it acquires large shareholdings to gain influence and pressures the board and management for reforms. Strategies include demanding CEO changes, divesting non-core businesses, initiating large share buybacks, or pushing for company sales.

LSEG’s stock has fallen over 35% in the past year. The decline has been exacerbated by a broad sell-off in global data and software companies, amid concerns that new AI tools could threaten existing business models. On Thursday, the stock rose 0.9%, possibly reflecting market optimism about the blockchain settlement plan. Additionally, the company faces challenges from a weak UK listing market. In recent years, many companies have chosen to list in the US, reducing revenue for LSEG as a trading venue operator.

Elliott has encouraged LSEG to consider launching a multi-billion-pound share buyback after raising £1 billion in financing. Share buybacks involve the company repurchasing its own shares from the market, which can boost earnings per share, support the stock price, and signal management’s confidence in the company’s value. A “multi-billion-pound” buyback would be a substantial capital expenditure for LSEG, potentially requiring asset sales or significant cuts to other investments.

The hedge fund also wants the company to narrow its profit margin gap with competitors like Moody’s and CME Group. LSEG’s valuation multiples (such as P/E or EV/EBITDA) are lower than those of peers, indicating the market perceives its profitability or growth potential as weaker. Elliott is urging management to improve operational efficiency, cut costs, or accelerate growth to close this gap.

LSEG stated in a Wednesday release: “LSEG maintains an active and open dialogue with our investors while continuing to focus on executing our strategy.” This diplomatic language does not directly address Elliott’s specific demands, suggesting ongoing private negotiations. The blockchain settlement platform may be a strategic move by LSEG to demonstrate innovation and growth potential.

From Exchange to Data Provider: The Strategic Shift Post-Refinitiv Acquisition

Although many still primarily see LSEG as a securities exchange operator, its acquisition of Refinitiv in 2019 for £22 billion marked a major transformation. This deal shifted its focus toward becoming a financial data and analytics company. LSEG also holds about £10 billion worth of shares in electronic trading platform Tradeweb. This strategic shift is key to understanding LSEG’s current difficulties.

The £22 billion acquisition is the largest in LSEG’s history and a significant M&A in global financial infrastructure. Refinitiv, the successor to Thomson Reuters Financial & Risk, provides financial data, analytics, and trading platforms to clients worldwide. Post-acquisition, LSEG moved from relying mainly on trading fees to offering data subscriptions and software services.

The rationale is that exchange businesses are highly cyclical, driven by trading volumes, whereas data and software generate stable subscription revenues. However, this transition also presents challenges. LSEG has taken on substantial debt from the acquisition and entered a competitive fintech space alongside players like Bloomberg, Moody’s, and S&P Global. As AI tools threaten traditional financial data and analytics, LSEG’s valuation has been hit hard, with its stock plunging 35%.

In this context, launching blockchain settlement services could be a strategic move to find new growth engines. Successfully migrating global institutional securities settlement to its blockchain platform could unlock significant revenue streams. However, this transformation requires time to prove itself, and whether the first phase in 2026 will meet Elliott’s performance expectations remains uncertain.