JPMorgan Chase & Co is using blockchain for collateral settlements, Wall Street’s latest experimentation with the technology in trading traditional financial assets.
The bank’s first such transaction occurred on May 20, when two of its entities transferred the token representation of BlackRock Inc. money market fund shares as collateral on its private blockchain. The effort will allow investors to pledge a broader range of assets as collateral and use them outside of market hours, according to New York-based JPMorgan.
“What we’ve achieved is frictionless transfer of collateral assets instantly,” Ben Challice, JPMorgan’s global head of trading services, said in an interview. While BlackRock was not a counterparty, “they have been very involved from day one and are exploring the use of this technology.”
Blockchain-based collateral settlement can be used for transactions such as derivatives and repos, as well as securities lending. In the coming months, the bank plans to expand tokenized collateral to include equities, fixed income and other types of assets, it said.
JPMorgan has been a proponent of blockchain technology and has increasingly embraced digital assets in recent years. Over time, its blockchain could be a bridge connecting institutional investors to decentralized finance platforms in the crypto economy, according to Tyrone Lobban, head of JPMorgan’s Blockchain Launch and Onyx Digital Assets.
As the cryptocurrency sector grows over time, “there will be a growing set of financial activities taking place on the public blockchain, so we want to make sure that we can not only support that, but also be ready to provide related services,” he said.
Since late 2020, the bank has used blockchain to make intraday repurchases, or repos, a type of short-term loan on fixed income. To date, more than $300 billion in repo transactions have been processed on the network, which counts Goldman Sachs Group Inc. and BNP Paribas SA among its participants.
For years, Wall Street institutions have been exploring the use of blockchain in their businesses, such as interbank payments, mortgage lending, and cross-border transactions. Vanguard and State Street Corp. have traded forward currency contracts using blockchain technology to reduce counterparty risks. Goldman and BlackRock are also working on tokenizing a variety of traditional asset classes.