DBS executes intraday repo transactions on JP Morgan blockchain – Ledger Insights

Today, Singapore’s DBS Bank announced that it had executed its first intraday repo transaction using JP Morgan’s Onyx Digital Assets network powered by blockchain. Banks use repurchase agreements (repos) for short-term financing by selling securities such as US Treasuries and agreeing to buy them back later.

Repos are a massive market with more than $4 trillion in US dollar repos outstanding at any given time.

Since repos are intended for short-term financing, the downside is that settlement usually takes two days. Distributed ledger technology (DLT), with its immediate settlement or delivery against payment (DvP), makes it practical to have repo transactions spanning a few hours instead of a day or more. Blockchain powers other types of intraday financing, including swaps.

Andrew Ng, head of finance and markets at DBS, said that for repos, “infrastructural and technical inefficiencies meant that the minimum period has typically been one day. Previously, banks around the world had to explore alternative routes for intraday funding requirements. By leveraging the efficiency of a blockchain-based solution, are we able to obtain USD funding in compressed timeframes that are beneficial to our liquidity needs.”

In the case of Onyx Digital Assets, in addition to tokenizing the repo collateral, the DLT repo solution also uses JPM Coin, its blockchain-based bank account, to enable instant settlement.

DBS Bank is the first Asian bank to adopt the repo solution. Other announced participants include Goldman Sachs and BNP Paribas. When BNP Paribas joined in May, cumulative transactions had reached $300 billion since its launch in December 2020.

“This is the first time JP Morgan has acted as both Triparty Agent and Collateral Token Agent, which is an exciting development for the market,” said Ed Bond, Head of Trading Services Asia Pacific at JP Morgan.

Unpacking Ed Bond’s statement, third-party agents are typically custodians who help with the handling of collateral, such as calculating margin requirements and settlement, including handing over securities when a transaction is completed. The security will be the underlying security in the repo transaction, for example a US Treasury.

Where the security is tokenized, it needs an independent party to take the real-world security, immobilize it, and tokenize it. And vice versa if the security is moved from the DLT platform. That immobilization and tokenization is the role of the Collateral Token Agent.

Meanwhile, DBS Bank and JP Morgan’s Onyx unit have a close relationship. They are both backers of Partior, the Singapore-based blockchain payment network that is also backed by Temasek and Standard Chartered. And they are participating in the Monetary Authority of Singapore’s Projet Guardian exploring DeFi for financial institutions.