Capital markets News

Tokyo Stock Exchange owner to trial blockchain for securities post-trade

financial market capital

Last week, the Japan Exchange Group (JPX), owner of the Tokyo Stock Exchange, and the Japan Securities Depository Center said they are planning to pilot a blockchain platform for sharing securities post-trade information. NEC Corporation is the technology partner for the project. 

While the pilot participants have yet to be settled, the project will be run as part of a 44 member consortium. Alliance participants include many global brands such as BNP Paribas, Citigroup, HSBC, and Goldman Sachs. But the majority are Japanese institutions, including Daiwa, Nomura, Nikko, MUFG, SBI and SMBC.

The aim is to improve the accuracy and efficiency of post-trade processing, which includes approving the transaction, updating ownership records, payment, and delivery of the security. If a broker is also involved, it increases the chance of errors in the trade. 

Using blockchain, a majority of these problems could be mitigated by enabling a transparent view of the transaction for both parties. While reducing the time of clearing and settlement of a transaction, blockchain could also provide an auditable record of the trade. 

The JPX said the plan for the pilot is to share real-world data using distributed ledger technology (DLT). It has invited securities companies, asset management companies, trust banks, and service providers to participate in the project. 

This is one of the many trials from JPX for capital markets in the past few years, together with the blockchain consortium of Japanese financial institutions. Use cases tested so far include data standardization, trade matching processing, KYC and cross border securities trade.

This pilot was initiated under JPX’s “Proof of Concept Testing for Utilization of Blockchain/DLT in Capital Market Infrastructure” program. It will run from April to October 2020. 

Last year, Ledger Insights reported on a proof of concept conducted by Daiwa Securities and 26 other companies in which JPX participated. Meanwhile, back in 2017 consortium member NEC Corporation worked on a blockchain KYC project with SBI Holdings and SBI BITS, the fintech arm of SBI Group. 

NEC is a premier Hyperledger member but has its own modular blockchain solution which it says is capable of achieving more than 100,000 transactions per second.

In Japan, there are also multiple initiatives looking at tokenization, especially in the bond sector. Nomura and NRI have a joint venture BOOSTRY, and MUFG formed the Security Token Research Consortium.