(Bloomberg) -- JPMorgan Chase & Co is using blockchain for collateral settlements, the latest Wall Street experimentation with the technology in the trading of traditional financial assets.
The bank’s first such transaction came 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 wider range of assets as collateral and use them outside of market operating hours, according to New York-based JPMorgan.
“What we’ve achieved is the friction-less transfer of collateral assets on an instantaneous basis,” Ben Challice, JPMorgan’s global head of trading services, said in an interview. While BlackRock wasn’t a counterparty, “they have been heavily involved since Day One, and are exploring use of this technology.”
Blockchain-based collateral settlement can be used for transactions such as derivatives and repo trading, as well as securities lending. In the coming months, the bank plans to expand tokenized collaterals to include equities, fixed income and other asset types, it said.
JPMorgan has been a proponent of blockchain technology and, in recent years, increasingly embraced digital assets. Over time, its blockchain could potentially be a bridge that connects institutional investors with decentralized finance platforms in the crypto economy, according to Tyrone Lobban, head of JPMorgan’s Blockchain Launch and Onyx Digital Assets.
As the crypto sector grows over time, “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,” he said.
Since late 2020, the bank has used blockchain to conduct intraday repurchase, or repo, a type of short-term borrowing in fixed income. To date, more than $300 billion of 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 loans, and cross-border trades. Vanguard and State Street Corp. have traded foreign exchange forward contracts using blockchain technology to reduce counterparty risks. Goldman and BlackRock are also working on the tokenization of a range of traditional asset classes.
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