Big banks BNP Paribas and JPMorgan are using digital tokens in their short-term trading operations. Eva Szalay reports for the Financial Times:
JPMorgan’s blockchain allow banks to lend out US government bonds for a few hours as collateral, without the bonds leaving their balance sheets.
Post-crisis regulatory requirements demand that banks hold large amounts of liquid assets — which can be bought and sold easily even during times of market stress — such as Treasuries as a safety buffer. By tokenising these assets banks can temporarily turn them into collateral for a few hours, but without lowering their safety buffers, which are calculated at the end of each day.
The token represents a digital version of a Treasury and borrowers can exchange it for cash.
Details such as the length of the loan and settlement time are governed by a smart contract, which ensures that the cash is in the borrower’s account and that collateral locked up against loans is released at the end of the deal. More than $300bn worth of such short-term loans have taken place on JPMorgan’s blockchain technology platform Onyx Digital Assets since December 2020.
Joe Bonnaud, global markets chief operating officer and head of engineering at BNP Paribas, said the two main use cases for the bank were securities financing and intraday repo.
“This is not just proof of concept work, we see this as part of our efforts to utilise the technology for the whole trading and operations lifecycle as the market evolves,” he added.
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