JPMorgan Using Blockchain to Move Billions in Repo-Market Trades

(Bloomberg) -- JPMorgan Chase & Co. is using its custom blockchain to conduct intraday repurchase agreements totaling billions of dollars, an advance that’s helped persuade Goldman Sachs Group Inc. to join the new digital market early next year.

The repo trades swapped digitized U.S. Treasury bonds for JPM Coin, the blockchain-based representation of U.S. dollars held in the bank’s account.

“We’re at the point where we can offer this product to our customers,” Scott Lucas, head of markets for distributed-ledger technology at JPMorgan, said in an interview. Other banks and broker-dealers are expected to join Goldman in signing up for the JPMorgan market next year, according to Lucas.

Transactions in the $2.3 trillion repo market raise cash overnight or for a few days, but are difficult to arrange within the same trading day. The digitized upgrade provides that ability to JPMorgan, using so-called smart contracts on an Ethereum-based blockchain that allow cash and Treasuries to be returned instantaneously.

Wall Street’s experimentation with blockchain dates back about five years, and has seen its ups and downs. In addition to JPMorgan, which has been a blockchain pioneer among Wall Street banks, Paxos is using it to settle some equity trades in near-real time. And Arca is offering digital shares in a U.S. Treasury fund, showing that distributed-ledger technology can help streamline finance.

The first live trades JPMorgan conducted were between the bank’s broker-dealer and banking units, using the Onyx blockchain platform. In a test environment, JPMorgan has also traded with Goldman using Bank of New York Mellon Corp. as the triparty agent. Goldman is expecting to join Onyx for intraday repo trading as soon as next month.

Real-World Fix

“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,” Mathew McDermott, Goldman’s global head of digital assets, said in a statement Thursday.

Lucas said JPMorgan would move slowly in the early stages of its blockchain projects.

“It’s a question of gradually increasing risk appetite if you want market participants to put real money on the table,” Lucas said. “Then the next step will go further and the next step will go further.”

Still, it’s a far cry from the proof-of-concept stage. “This is billions,” Lucas said. “It’s real exposure.”

Christine Moy, who runs JPMorgan’s Onyx blockchain platform, said about 15 teams at the bank worked on the repo-trading project. They include Onyx, wholesale payments, markets and security services. The company built blockchain repo trading on top of the existing payment and securities operations, rather than creating a new operation from scratch, she said.

“Generally the repo market at best operates overnight or within days,” Moy said. “Now, we’re measuring in minutes and hours.”

Other blockchain projects will be coming now that the bank has shown how it can be done in the repo market, according to Moy. “It’s going to be a hockey stick of acceleration, going from idea to live,” she said.

©2020 Bloomberg L.P.