J.P. Morgan processes transaction settlement using tokenised MMFs as collateral
26 May 2022 US
Image: AdobeStock/denisismagilov
J.P. Morgan has settled its first transaction using tokenised money market funds (MMFs) as collateral.
To support this collateralised trade, J.P. Morgan has released a new application on its Onyx Digital Assets blockchain, enabling trading participants to transfer tokenised MMF shares on blockchain as collateral.
Both collateral provider and collateral receiver must be present on this blockchain-based application, which is known as the Tokenised Collateral Network (TCN).
This facility enables participants to transfer ownership of the collateral without the need to transfer the underlying asset (in this case the MMF securities).
A J.P. Morgan spokesperson told SFT that international asset manager BlackRock has been centrally involved in the development of this tokenised collateral initiative since its early stages. However, BlackRock was not a counterparty in this initial transaction, which J.P. Morgan believes to be the first globally to use tokenised MMF shares as collateral in a blockchain-based transaction.
The TCN is now live and participants can transfer tokenised MMFs shares as collateral from today.
Following this successful execution of a collateralised trade using tokenised MMF shares, J.P. Morgan plans to expand this model to enable transfers of tokenised equities, fixed income securities and other assets as collateral.
鈥淥ur plan is for this [MMF] transaction, and the development of our tokenised collateral application, to act as a blueprint for the future,鈥� says the spokesperson.
The US-based bank has integrated its blockchain technology with traditional transfer agency and collateral systems, enabling institutional investors and asset managers to post a wider range of assets as collateral.
This release follows the development of J.P. Morgan鈥檚 intraday repo service on Onyx blockchain that completed its first live transaction between its broker-dealer and banking entities in December 2020. This has now processed more than US$300 billion of repo transactions since its release, according to J.P. Morgan.
Onyx, J.P. Morgan鈥檚 suite of ethereum-based blockchain solutions, was launched in 2020, providing a new business unit to scale and commercialise blockchain innovation. Shortly afterwards, the company launched a new digital asset platform, Onyx Digital Assets, that enables tokenisation of traditional assets and delivery-versus-payment (DvP) or free of payment (FoP) transactions to be conducted with these assets.
The tokenised collateral application was developed jointly between J.P. Morgan鈥檚 Collateral Services team and Onyx.
Commenting on the project, J.P. Morgan global head of trading services Ben Challice says: 鈥淭he collateral ecosystem is becoming ever more complicated, and mobilisation of collateral throughout the ecosystem is of critical importance. Across the industry, physically settling assets in order to meet collateral obligations using ageing infrastructure has become intensive from a financial and human capital perspective. We can now offer participants the option to transfer money market fund units as collateral in tokenised form, increasing the liquidity of this asset class.
鈥淭his is a big moment for the collateral industry as it demonstrates that the technology works with an asset class that has been hard to transfer historically, and we look forward to expanding the tokenised asset pool rapidly.鈥�
Tyrone Lobban, head of blockchain and Onyx Digital Assets (ODA), comments:
鈥淭he launch of the tokenised money market fund solution is a breakthrough moment for the industry. Not only does it once again highlight the value that blockchain and tokenisation can bring through moving assets at the speed of email, but it shows the flexibility, scale and diversity of the Onyx Digital Assets platform.
"The first application on 鈥淥DA'' focused on providing innovative intraday financing solutions through repo agreements. This second application opens up the universe of assets that can be posted as collateral, reduces cost and improves settlement. This is a step-change for dealers, asset managers and the broader collateral market.鈥�
J.P. Morgan says that tokenising traditional assets has the potential to substantially reduce settlement fails, to provide near real-time change of ownership, and to release trapped assets to help participants to maximise utilisation across their asset holdings.
Ben Challice talks to Bob Currie about the development horizon for J.P. Morgan securities finance and collateral services in SFT Issue 300.
To support this collateralised trade, J.P. Morgan has released a new application on its Onyx Digital Assets blockchain, enabling trading participants to transfer tokenised MMF shares on blockchain as collateral.
Both collateral provider and collateral receiver must be present on this blockchain-based application, which is known as the Tokenised Collateral Network (TCN).
This facility enables participants to transfer ownership of the collateral without the need to transfer the underlying asset (in this case the MMF securities).
A J.P. Morgan spokesperson told SFT that international asset manager BlackRock has been centrally involved in the development of this tokenised collateral initiative since its early stages. However, BlackRock was not a counterparty in this initial transaction, which J.P. Morgan believes to be the first globally to use tokenised MMF shares as collateral in a blockchain-based transaction.
The TCN is now live and participants can transfer tokenised MMFs shares as collateral from today.
Following this successful execution of a collateralised trade using tokenised MMF shares, J.P. Morgan plans to expand this model to enable transfers of tokenised equities, fixed income securities and other assets as collateral.
鈥淥ur plan is for this [MMF] transaction, and the development of our tokenised collateral application, to act as a blueprint for the future,鈥� says the spokesperson.
The US-based bank has integrated its blockchain technology with traditional transfer agency and collateral systems, enabling institutional investors and asset managers to post a wider range of assets as collateral.
This release follows the development of J.P. Morgan鈥檚 intraday repo service on Onyx blockchain that completed its first live transaction between its broker-dealer and banking entities in December 2020. This has now processed more than US$300 billion of repo transactions since its release, according to J.P. Morgan.
Onyx, J.P. Morgan鈥檚 suite of ethereum-based blockchain solutions, was launched in 2020, providing a new business unit to scale and commercialise blockchain innovation. Shortly afterwards, the company launched a new digital asset platform, Onyx Digital Assets, that enables tokenisation of traditional assets and delivery-versus-payment (DvP) or free of payment (FoP) transactions to be conducted with these assets.
The tokenised collateral application was developed jointly between J.P. Morgan鈥檚 Collateral Services team and Onyx.
Commenting on the project, J.P. Morgan global head of trading services Ben Challice says: 鈥淭he collateral ecosystem is becoming ever more complicated, and mobilisation of collateral throughout the ecosystem is of critical importance. Across the industry, physically settling assets in order to meet collateral obligations using ageing infrastructure has become intensive from a financial and human capital perspective. We can now offer participants the option to transfer money market fund units as collateral in tokenised form, increasing the liquidity of this asset class.
鈥淭his is a big moment for the collateral industry as it demonstrates that the technology works with an asset class that has been hard to transfer historically, and we look forward to expanding the tokenised asset pool rapidly.鈥�
Tyrone Lobban, head of blockchain and Onyx Digital Assets (ODA), comments:
鈥淭he launch of the tokenised money market fund solution is a breakthrough moment for the industry. Not only does it once again highlight the value that blockchain and tokenisation can bring through moving assets at the speed of email, but it shows the flexibility, scale and diversity of the Onyx Digital Assets platform.
"The first application on 鈥淥DA'' focused on providing innovative intraday financing solutions through repo agreements. This second application opens up the universe of assets that can be posted as collateral, reduces cost and improves settlement. This is a step-change for dealers, asset managers and the broader collateral market.鈥�
J.P. Morgan says that tokenising traditional assets has the potential to substantially reduce settlement fails, to provide near real-time change of ownership, and to release trapped assets to help participants to maximise utilisation across their asset holdings.
Ben Challice talks to Bob Currie about the development horizon for J.P. Morgan securities finance and collateral services in SFT Issue 300.
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