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JPMorgan trials private blockchain for collateral settlement

JPMorgan Chase & Co. trial its private blockchain for collateral settlement. The bank plans to allow investors to use several assets as collateral

By Shashank Bhardwaj

Published: May 27, 2022 03:06:19 PM IST

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JPMorgan Chase & Co. is reportedly trialing the use of private blockchain for collateral settlement. The multinational investment bank performed a pilot transaction where two of its entities transferred the tokenised representation of BlackRock Inc. (the world's largest asset manager) money market fund shares as collateral on its private blockchain on Friday, May 20. The initiative will allow investors to pledge and use a broader range of assets as collateral outside of market hours.

Ben Challice, the global head of trading services for JP Morgan, noted that the transaction mentioned above achieved “the friction-less transfer of collateral assets on an instantaneous basis.”

A money market fund is a mutual fund that invests in liquid and short-term assets such as cash, cash equivalents, and high-quality debt securities. It is regarded as a low-risk investment.

This news comes just days after it was revealed that the French bank BNP Paribas had joined the blockchain-powered network overseen by JPMorgan to use digital tokens for short-term trading in fixed income markets, thereby entering a $12 trillion market.

As a counterparty, Blackrock was not directly involved in the transaction. According to Ben Challice, JPMorgan's global head of trading services, Blackrock has been "heavily involved since day one and is exploring the use of this technology.” The bank added that it plans to expand its efforts to include equities, fixed income, and other asset types over the next few months.

JPMorgan has been involved in blockchain for several years and has developed a number of products. In October 2020, JPMorgan launched Onyx Digital Assets (ODA), which is a “blockchain-based network that enables the processing, recording, and Delivery-versus-Payment (DVP) exchange of digital assets across asset classes." BNP Paribus conducted its first trade with the help of the ODA earlier this week.

BNB Paribus Global Markets managing director and head of US repo trading and sales Christopher Korpi agreed on blockchain's significance in streamlining processes. He said, “Tokenized assets and Onyx Digital Assets will allow precise intraday liquidity management. As such, they could be foundational to adding velocity to collateral, security settlement and ultimately decreasing systemic risks by reducing intraday credit. Onyx Digital Assets will further reinforce the intraday fungibility of UST and USD Cash.”

While it is unclear whether JPMorgan used the ODA in this case, the network is readying itself for the exchange of cash for various types of tokenised collateral, allowing intraday liquidity and providing access to the bank's digital payment infrastructure and token JPM Coin.

Tyrone Lobban, head of JPMorgan's Blockchain Launch and the ODA, stated, "There will be a growing set of financial activities that happen on the public blockchain, so we want to make sure that we are able to not only support that but also be ready to provide related services."

The bank also stated that it plans to allow investors to submit various assets as collateral, which can also be used outside of regular market hours as a part of its broader vision for its private blockchain. The bank particularly mentioned equities and fixed income.

Shashank is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash