*** Big news for the future of Banking and Blockcahin*** JPMorgan, National Bank Test Blockchain in U.S. Debt Deal (1)
Goldman Asset Management, Pfizer also involved as investors
Test to allow National Bank to move from “theory to practice”By Doug Alexander and Maciej Onoszko
(Bloomberg) -- JPMorgan Chase & Co. and National Bank of Canada tested a U.S. debt deal over blockchain in what’s being heralded as a first for North America.
National Bank sold $150 million of one-year floating rate certificates of deposit on Wednesday and used blockchain in a parallel simulation of the transaction, the Montreal-based lender said Friday in a statement. The test mirrored the sale process through an application developed by JPMorgan that runs on its Quorum blockchain project.
“We’re going to be tracking it in parallel for the whole year, and this will allow us to move from theory to practice with respect to blockchain technology," National Bank Chief Executive Officer Louis Vachon said Friday at the bank’s annual investor meeting in Drummondville, Quebec.
Blockchain promises to vastly reduce time and costs in the financial industry for processes such as clearing and settlement, but the distributed ledger system has hurdles including convincing competitors to trust each other enough to benefit from being in the same network.
Asset Managers
Not only is the JPMorgan/National Bank test the first to use blockchain for a U.S. debt sale, it’s also the first time asset managers and corporate investors were involved, the banks said. Goldman Sachs Group Inc.’s asset management unit, Pfizer Inc. and Legg Mason Inc.’s Western Asset were among investors in the Yankee certificate. JPMorgan was the sole dealer on the debt issuance.
The project aims to test the technology and identify any potential legal and accounting issues, Vachon, 55, said later in an interview.
“We’re trying to figure out as much as we can on what will be the impact of blockchain technology on the business models for a fixed income market maker and fixed income underwriter like ourselves," Vachon said. It’s “too early" to determine cost savings or efficiency gains.
In Europe, Daimler AG issued the first security using blockchain in a 100 million euro ($79 million) deal in June. A German unit of Telefonica SA also sold bonds in euros using blockchain, a first for the phone carrier. Credit Suisse Group AG, U.S. Bancorp, Wells Fargo & Co. and Western Asset Management Co. in January successfully tested the distributed ledger technology as a way to standardize the data involved in securitized home loans and make it more transparent.
JPMorgan is in the early stages of weighing whether to spin out its Quorum blockchain project into a separate company. The software, created in 2016 and running on top of the Ethereum blockchain, aims to create a digital ledger tailored for use by private enterprise clients such as banks, manufacturers and corporations.
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