The biggest US bank, JPMorgan Chase & Co tested a new blockchain platform for issuing financial instruments together with the National Bank of and other giant firms seeking to streamline origination, interest rate payments, settlement and many more processes.
The test involved issuance of $150 million of a one-year floating rate Yankee COD together with a “simulation” of the issuance on the blockchain as per the announcement. The Yankee COD allured other leading institutional investors which includes Goldman Sachs Asset Management (GSAM), a Legg Mason subsidiary Western Asset and Pharmaceutical giant Pfizer.
The new application is created and designed to execute all of the features associated with debt issuance across origination, execution, distribution and settlement plus interest rate and maturity payments and this would cut down the costs and the need for service providers that are paid bulk fees for clearing and settling.
The Quorum, JPMorgan’s owned blockchain technology was created in 2016 alongside Ethereum core developer Jeffrey Wilcke and this is an open source enterprise version of Ethereum that was designed for financial institutions.
In a press release of debt issuance, Christine Moy – JPMorgan’s Blockchain Program lead who recently replaced Amber Baldet said “This is an exciting example of how JPMorgan leverage our combined capabilities in capital markets and blockchain technology, delivering results to adverse set of clients. We look forward to exploring blockchain enabled capital markets applications and how working together on open source technology like Quorum can enable and accelerate this progress.”
Umar Farooq, said that the group was considering a spin-off of Quorum and this will mean forming a new company by selling the blockchain initiative given that it has activated and triggered so much outside interest.
He added that dealing with calls to solve problems has become time consuming though JPMorgan is still rigid to charge for assistance because blockchain support is not the company’s obligation considering that blockchain is still at immature stage but he has confidence in this technology. Umar is in charge of all blockchain initiatives at JPMorgan’s corporate and investment banking division.
“We have not really seen a lot of really large scale things go into production yet. There are few cases where blockchain can really shine,” Farooq said.
David Furlong, National Bank of Canada said “Blockchain related technologies have the potential to bring about major change in the financial services industry.”
David Fishman, GSAM, also said
“We are excited to have the opportunity to learn from this test and to help develop more efficient ways of trading – from providing more transparency, to streamlining processes and minimizing transaction costs.”
Nivaura, UK-based joined with Microsoft’s Azure cloud technology successfully issued a pair of structured notes to retail investors in both traditional way and on the Ethereum blockchain. This has influenced JPMorgan to continue with this initiative. Nivaura pointed to a retail investment firm which completed a bond issuance in 2017 where the expenses were reduced to GBP 50 from GBP 30,000 for the product’s duration and this gave a good example on how debt issuance on the blockchain can be reduced.