Yesterday Bloomberg reported that JP Morgan Chase has developed a collateral management blockchain solution for traditional finance. Last week it executed its first transaction by tokenizing BlackRock money market fund shares and using them as collateral. This is the latest solution from its Onyx blockchain and digital assets division.
“What we’ve achieved is the frictionless transfer of collateral assets on an instantaneous basis,” said Ben Challice, JPMorgan’s global head of trading services. While the asset was a money market fund in this case, it plans to tokenize equities, fixed income and other asset types on its enterprise blockchain network. BlackRock wasn’t one of the counterparties but was heavily involved and is interested in the technology. It also enables collateral to be managed outside of normal trading house.
“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,” added Challice.
This is by no means the first use of blockchain for collateral management, but Challice’s comments suggest expanding use cases perhaps beyond purely interbank applications.
JP Morgan’s Onyx division has multiple applications in production, including JPM Coin, interbank payments, including its Partior joint venture, and repo trading.
JP Morgan’s blockchain collateral experience
The bank knows a fair bit about using blockchain for this collateral use case because it’s involved in at least two other projects. It’s an investor in a major European-based collateral platform HQLAX, alongside numerous international banks such as Goldman Sachs, Citi, BNP Paribas, BNY Mellon, ING, Commerzbank, UBS and Credit Suisse. The largest outside investor is the Deutsche Boerse which provides a core piece of functionality. In that case, the collateral and securities lending is used for banks to ensure they have the right mix of liquid assets as required by Basel III banking rules.
It was also a founding participant in the startup Baton System’s collateral management platform for foreign exchange derivative transactions. Core Collateral, the startup’s distributed ledger technology platform, processes several billion dollars in transactions daily and claims to handle more than 40% of the margins globally for cleared bank derivatives.
There are several other DLT-based collateral and securities lending projects, including from the Tel Aviv stock exchange, OCC securities, and the Spanish stock exchange, BME.