JPMorgan Chase & Co. is seeing interest from clients in the United States, Europe, and Japan on the potential for its prototype digital coin to speed up trading of securities such as bonds.
JPM Coin could enable “instant” delivery of bonds on a blockchain platform, said Umar Farooq, head of digital treasury services and blockchain at the U.S. bank. “We believe that a lot of securities over time, in 5 to 20 years, will increasingly become digital or get tokenized,” he said in an interview in Tokyo.
Unveiled in February, JPM Coin is pegged to the U.S. dollar and uses the bank's private blockchain. JPMorgan has been testing the token to enable institutional clients to transfer payments instantly, it said at the time.
The idea of using blockchain to speed up trading settlement isn't new: Stock exchanges from Hong Kong to Australia to Canada are among those exploring the possibility. The race to develop digital coins reached a new level earlier this month when Facebook Inc. announced plans for a cryptocurrency called Libra, which will be backed by assets including bank deposits.
For bond transactions, JPM Coin would allow traders to instantly deliver the securities in exchange for cash, according to Farooq. The buyer purchases JPM Coins in advance, putting them in their JPMorgan deposit account, while the seller's bonds are represented by tokens. Computer programs on a blockchain platform then complete the transaction.
The time savings could be significant. For now, it usually takes a seller of Japanese government bonds two days to electronically deliver them to the buyer in exchange for cash, said Shuichi Ohsaki, chief rates strategist at Bank of America Merrill Lynch in Tokyo.
JPMorgan will probably begin pilot testing JPM Coin with a few clients to see whether it helps to quickly transfer money between them, Farooq said. The testing could take place around the end of the year if relevant regulators approve it, he added.
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