J.P. Morgan’s Tokenized Collateral Network (TCN) has facilitated a collateral settlement for a live client OTC derivative transaction for the first time.

BlackRock and Barclays are now live on TCN, an application which sits on J.P. Morgan’s Onyx Digital Assets platform, operating as a private blockchain which is used for tokenized asset movements including collateral settlements.

BlackRock have tokenized the representation of shares in a BlackRock Money Market Fund through TCN. The use of blockchain settlement technology to transfer the ownership of MMF shares will also bring additional utility to MMFs which has the potential to increase their resiliency.

Tokenization occurred within a matter of minutes through connectivity between the fund’s Transfer Agent and TCN. The transfer between Blackrock and Barclays was near instantaneous and represents a first for BlackRock, J.P. Morgan and Barclays, where the shares in MMFs are used as collateral between bi-lateral derivatives counterparts.

The tokenized representation of the MMF shares were transferred to Barclays to cover collateral requirements – the underlying documentation was amended to support the delivery of MMF shares as collateral.

MMFs typically are susceptible to redemptions when additional cash is required to be posted to derivative counterparts. The ability to post MMF shares as collateral directly without first redeeming to cash offers the prospect of greater efficiency and stability in times of market stress.

TCN is a private blockchain application which sits between a collateral receiver and a collateral provider, and allows the tokenised representation of the collateral assets to be transferred using blockchain technology. This means counterparties can transfer the ownership of the collateral assets on TCN. This achieves a frictionless transfer of assets on a near instantaneous basis.

J.P. Morgan sees this transaction acting as a blueprint for the future. TCN has started with the tokenisation of money market shares, with a view to expanding across equities, fixed income and a range of asset classes. The ability to tokenize assets and use them under both title transfer and pledge structures, outside of any limiting market operating hours has the potential to fundamentally change the collateral market.

TCN was built jointly between J.P. Morgan’s Collateral Services team and Onyx Digital Assets.

Ed Bond, Head of Trading Services, J.P. Morgan said, “The Tokenized Collateral Network is a significant investment in the future of collateral markets. This first transaction with BlackRock and Barclays demonstrates the power of tokenized assets, particularly in a collateral setting. MMFs can now be mobilised and utilised in a more efficient way, unlocking new pools of liquidity to be used for margining. We’re excited for the future as we plan to add participants and assets to the Tokenized Collateral Network in the coming months.”

Tyrone Lobban, Head of Onyx Digital Assets, J.P. Morgan, “We built Onyx Digital Assets (ODA) to be a global, multi-asset platform that can provide our clients with a variety of new products and solutions that don’t exist today.  ODA already enables clients to access intraday liquidity via repo transactions, and now with the launch of TCN, clients can benefit from additional utility from their MMF investments by posting tokenized MMF shares as collateral – a faster, more cost-effective way of meeting margin requirements. This is an industry first and we are proud to have worked with BlackRock and Barclays on this historic first transaction.”

Tom McGrath, Deputy Global COO of the Cash Management Group at BlackRock, said, “We believe that money market funds play an important role in providing liquidity to investors in times of high market volatility.  The tokenization of money market fund shares as collateral in clearing and margining transactions would dramatically reduce the operational friction in meeting margin calls when segments of the market face acute margin pressures. We’re excited to work with J.P. Morgan and Barclays to improve market efficiencies through this first trade.”

Matthew Collison, Head of Resource Management Group, Barclays said, “Barclays has a long history of helping clients navigate change to deliver results. We are therefore pleased to partner with Blackrock and JPM to execute this transfer, as this is a terrific example of driving innovation in post-trade settlement.”

Source: JP Morgan