Today SingaporeāsĀ DBS BankĀ announced it had executed its first intraday repo transaction usingĀ JP Morganās OnyxĀ Digital Assets network powered by blockchain. Banks use repurchase agreements (repos) for short term funding by selling securities such as U.S. Treasuries, and agreeing to repurchase them later.
Repos are a massive market with more thanĀ $4 trillionĀ in U.S. dollar repos outstanding at any one time.
Since repos are intended for short term funding, the drawback is that settlement usually takes two days. Distributed ledger technology (DLT), with its instant settlement or delivery versus payment (DvP), makes it practical to have repo transactions that span a few hours rather than a day or more. Blockchain is powering other types of intraday funding, includingĀ swaps.
Andrew Ng, Head of Treasury and Markets at DBS, said that for repos, āinfrastructural and technical inefficiencies meant the minimum term has usually been one day. In the past, banks around the world had to explore alternative routes for intraday financing requirements. Through leveraging efficiencies of a blockchain-based solution, we are able to raise USD funding in compressed timeframes which are beneficial to our liquidity needs.ā
In the case of Onyx Digital Assets, in addition to tokenizing the repo security, the DLT repo solution also usesĀ JPM Coin, its blockchain-based bank account, to enable instant settlement.Ā
DBS BankĀ is the first Asian bank to use the repo solution. Other announced participants includeĀ Goldman SachsĀ andĀ BNP Paribas. When BNP Paribas joined in May, cumulative transactions had reached $300 billion since theĀ Ā December 2020 launch.
āThis is the first time that J.P. Morgan is acting as both Triparty Agent and Collateral Token Agent, which is an exciting development for the market,ā said Ed Bond, Head of Trading Services Asia Pacific at J.P. Morgan.
Unpacking Ed Bondās statement, typically, Triparty agents are custodians that help with the management ofĀ collateral, such as calculating margin requirements and settlement, including handing over securities when a transaction completes. The collateral would be the underlying security in the repo transaction, such as a U.S. Treasury.
Where the collateral is tokenized, it needs an independent party to take the real world collateral, immobilize it, and tokenize it. And vice versa if the security is moved off the DLT platform. That immobilization and tokenization is the role of the Collateral Token Agent.Ā Ā
Meanwhile, DBS Bank andĀ JP Morganās OnyxĀ unit have a close relationship. They are both backers ofĀ Partior, the Singapore-based blockchain payments network that is also backed by Temasek and Standard Chartered. And they are participating in the Monetary Authority of SingaporeāsĀ Projet GuardianĀ that explores DeFi for financial institutions.
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