JP Morgan recently revealed that it had completed a live intraday repo transaction using blockchain technology. According to the announcement by the banking giant, they executed a transaction between the bank’s broker-dealer and another banking entity.
Details of The Transaction
The transaction took place via a blockchain application developed by the bank. Through the app, the bank was able to execute instantaneous settlement and maturity of the transaction. Using the Blockchain helped to slash the time it would normally take for such a transaction from days to hours. In the repo transaction, settlement of both the collateral and cash legs was done using the blockchain. In the cash leg, the JPM Coin was used.
Repo markets are often used in the financial sector for their secure financing characteristics. However, their current setup makes it impossible to use them extensively for financing intraday liquidity. With the blockchain, lenders and borrowers can cut down the time it takes to complete an intraday repo transaction. The result could be accessible to intraday liquidity.
JP Morgan plans to make the offering accessible to external counterparties in the US, some of which have already conducted simulated transactions via the app. The bank created the solution and has already conducted viability tests through transactions between two entities affiliated with the bank. Besides that, it has conducted simulated trades with other entities such as Goldman Sachs. In those transactions, BNY Mellon acted as the tri-party agent.
JP Morgan’s New Blockchain Unit
The bank recently revealed the launch of Onyx, which is a business unit within the bank designed to scale and commercialize innovative blockchain products. At the core of those products is the JPM Coin, which will be used to power various platforms, services, and products. The intraday repo app was deployed on a platform developed by Onyx. The JPM Coin powers the cash leg of each transaction.
JP Morgan Leadership Thoughts
According to Christine Moy, who led the development process at Onyx, the intraday repo app demonstrates how foundational technology built by Onyx could be leveraged to support new capabilities. She noted that the technology could be used to support capabilities such as atomic trade settlement, shorten the time to market, digitize ownership of securities, and reduce the effort required to create new products.
Mathew McDermott, the Global Head of Digital Assets at Goldman Sachs, also commented on the announcement by JP Morgan. He said,
“This is an exciting project which vividly highlights where enterprise blockchain can address a real-world problem in the financial system and we look forward to going live in early 2021.”
The CEO of BNY Mellon, Brian Ruane, also commented on the announcement. He said that BNY Mellon was pleased to leverage their expertise as a critical partner for the bank to provide their collateral services to those who wish to execute intraday repo transactions. Ruane added,
“The distributed ledger technology utilized ensures that clients are meeting their funding needs, and quickly.”
The use of blockchain technology to power applications that could potentially be used to transaction billions of dollars annually is a major win for the blockchain sector. It will help to raise awareness of the benefits of the technology and lead to increased adoption globally. It will be interesting to see how JPM Coin and Ripple compete. Through RippleNet, Ripple has already put together a network of 100+ financial institutions that are interested in leveraging their infrastructure for high-performance global payments. On the flip side, JP Morgan Chase is the largest bank in the United States and oversees $2.87+ trillion in assets. Financial institutions trust JP Morgan and it will be interesting to see how Ripple deflects a large player that is trying to solve similar issues within global payments. There have been some rumors regarding a JP Morgan Ripple partnership, but it seems as if JP Morgan could avoid this and bet big on their internal developments.
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