JP Morgan Tests Blockchain’s Capital Markets Potential
J.P. Morgan Chase & Co. is experimenting with the way blockchain could help cut costs and facilitate smoother transactions within capital markets, where securities are bought and sold.
The bank demonstrated a prototype of its blockchain-based platform for capital markets, called Dromaius, on May 16th at the Consensus 2018 conference. A team of employees will work this year on overcoming challenges related to integrating and scaling the technology before deploying it to customers, said Christine Moy, executive director and head of J.P. Morgan’s Blockchain Center of Excellence.
“We think the technology has the potential to be transformative,” she said.
Today, transacting within capital markets is an experience fraught with disparate systems and silos, where there are multiple different systems for the different stakeholders, ranging from issuers and asset managers to clearing houses and fund administrators, Ms. Moy said.
“The promise of natively issuing financial instruments on blockchain is that you can share that infrastructure,” she said. Instead of having different silos, there would be just one application that everyone could share and participate in, designed so that each entity can trust the application without necessarily trusting each other, she said.
Simplifying some of the legacy systems required to facilitate transactions within capital markets could also make the process cheaper.
“(Blockchain) should streamline operations, help with cost savings and overall make the experience of transacting or issuing a financial instrument like this more seamless and simplified,” Ms. Moy said.
J.P. Morgan and Santander are among a consortium of banks and tech giants that last year formed the Enterprise Ethereum Alliance, a nonprofit foundation that aims to connect enterprises with experts in the blockchain-based Ethereum network.
The company used the Ethereum network to build Dromaius.
Ms. Moy and her blockchain team of about 15 employees will work over the next year to overcome some of the challenges associated with deploying the blockchain-based platform for capital markets. “The technology is still in the early stages,” she said.
The challenges include building robust, enterprise-grade technology systems to support the blockchain infrastructure, and coordinating with multiple participants to agree on standards for the blockchain protocol. There might also be other challenges related to figuring out how this new technology integrates with legacy systems, Ms. Moy said. In addition, the company needs to think about risk monitoring or operational processes that might have to change to accommodate blockchain.
In tackling these endeavors, Ms. Moy and her blockchain team have the support of Lori Beer, global chief information officer for J.P. Morgan. Ms. Beer also has been bullish on other emerging technologies including quantum computing and its potential for solving computationally-intensive problems related to risk analysis and trading strategies.