BlackRock and Barclays have gone live on JP Morgan’s Tokenized Collateral Network (TCN) with the platform facilitating a collateral settlement for an OTC derivative transaction for the first time.
TCN was first revealed in May 2022 following a landmark transaction using tokenised Money Market Fund (MMF) shares as collateral, meeting an industry-wide desire for mobilisation without the transfer of the underlying asset.
The platform is a private blockchain application which sits between a collateral receiver and a provider allowing the tokenised representation of the collateral assets to be transferred using blockchain technology.
Just over a year after it was revealed, the first transaction has now occurred with BlackRock tokenising the representation of shares in a Money Market Fund through TCN and transferring to Barclays to cover collateral requirements. JP Morgan noted that the underlying documentation was amended to support the delivery of MMF shares as collateral.
Tokenisation was said to have 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, JP Morgan and Barclays, where the shares in MMFs are used as collateral between bilateral derivatives counterparts.
“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 tokenised 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,” said Ed Bond, head of trading services, JP Morgan.
The development is significant for JP Morgan – which is furthering the use of blockchain technology in the securities industry – and the collateral industry alike. The asset servicer said it intends to extend of the application to equities, fixed income and a range of asset classes.
The ability to split the underlying asset and the ownership of that asset through the use of tokenisation provides the foundation for mobility and utility where previously this may not have existed.
In recent years, this notion has been widely touted as a major development for the securities industry and has come to the fore through the advent of tokenisation. Because of this, many players in the industry – including JP Morgan – have thrown their support and investment behind the HQLAx, a start-up which enables market participants to transfer ownership of securities across disparate collateral pools at precise moments in time through digital collateral tokens.
JP Morgan’s own endeavour has been built jointly between its collateral services team and Onyx – the underlying platform on which the bank launched its Intraday Repo application in 2020.
As well as its impact on the collateral space and acting as a “blueprint for the future” for JP Morgan, it could also benefit MMFs. JP Morgan noted that “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”.
Tyrone Lobban, head of Onyx Digital Assets, JP Morgan, said: “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 tokenised 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.”
Both BlackRock and Barclays also commented on the transaction with the latter noting this milestone as a “terrific example of driving innovation in post-trade settlement”.
Tom McGrath, deputy global COO of the cash management group at BlackRock, added: “The tokenisation 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.”