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Fidelity Intl tokenizes fund on JPM tokenized collateral network – Ledger Insights
After throwing his Tokenized collateral network (TCN) last year, JP Morgan’s Onyx revealed today International loyalty tokenized a money market fund on the network so it can be used as collateralas first reported by Coindesk.
One of the most fertile areas for blockchain in institutional finance is anything that needs intraday settlement. Typically, the collateral is deposited with a custodian and takes two days to transfer to Europe. However, trading collateral, particularly for derivatives, should ideally be liquidated much more quickly to reduce risks. If it is tokenized in a legally compliant manner, the transfer can be instantaneous.
So, last year BlackRock tokenized a money market fund on TCN, which Barclays used as collateral for a derivatives trade. TCN runs on JP Morgan’s private blockchain network.
Meanwhile, London-based Fidelity International was founded by Fidelity Investments but is now independent, although the founding family still has a major investment. Fidelity confirmed its involvement in the transaction to Ledger Insights.
It’s really no surprise that JP Morgan is promoting transactions like this in the UK. The SEC has imposed cumbersome accounting rules for the custody of cryptocurrencies and tokenized assets, making it prohibitive for bank custodians. Banks invariably provide custody of this type of collateral in wholesale markets. Unfortunately, the White House recently vetoed congressional resolutions aimed at reversing the accounting rule.
Sectors where intraday collateral transfers matter
A sector where collateral derivatives are particularly important. ISDA is an industry body has updated its framework contract for tokenized and recently revised collateral the legal treatment.
Other areas where intraday settlement is important include repurchase agreements, securities lending and FX swaps. JP Morgan also has one tokenized repository offer, and is an investor in the HQLAᵡ collateral platform. He is co-founder of Dividerwhich plans to launch FX swaps, although in the start-up phase Finteum could beat him to the punch.
As with any innovation, the key is product-market fit. Tokenization for collateral is an area that requires faster liquidation, so it should be a strong business case.