U.S. financial institution JPMorgan records its first collateral settlement using the Blockchain The first settlement involves BlackRock, an investment asset manager, and Barclays, a British universal bank.
BlackRock used the JPMorgan Tokenized Collateral Network (TCN) to tokenize shares in one of its money market funds. Explaining further, Tyrone Lobban, head of Onyx Digital Assets at JPMorgan said the shares turned into digital tokens were used by Barclays as collateral for an OTC (over-the-counter) derivative trade.
Tyrone Lobban added that the collateral moved in a shorter period within 24 hours. “At scale, the technology would increase efficiency by freeing up locked capital so that it could be used as collateral in ongoing transactions,” he said.
Before the application launched its first live transaction, JPMorgan conducted internal testing in May. Now, it has a list of other clients and transactions and through the blockchain app developed by the bank, it plans to open up other assets like equities and fixed bonds to be used as collateral.
According to Ed Bond, head of trading services at JPMorgan, “institutions on the network can use a wider scope of assets to meet any collateral requirements they have on the back of trading.”
This presents financial institutions with an easier path to collateralize their shares in money-market funds, offering a faster transaction time with less operational friction especially when the market faces pressure.
BlackRock’s deputy global COO of the cash management group commented that “the tokenization of money market fund shares as collateral in clearing and margining transactions would dramatically reduce the operational friction in meeting margin calls when segments of the market face acute margin pressures.”
Aside from the newly launched system, JPMorgan runs a JPM Coin that enables wholesale clients to make payments in dollars and euros via the blockchain. Also, it runs a blockchain-based repo application and plans a digital deposit token for cross-border settlements.
Several major financial institutions, including Goldman Sachs, Banco Santander, and Societe Generale, are actively pursuing blockchain and digital asset initiatives, enabling clients to issue financial securities and digital bonds. Asset managers like Franklin Templeton are also exploring blockchain for more efficient fund transaction processing.
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