VIDEO | About a month ago, J.P Morgan executed its first trade on the Tokenized Collateral Network (TCN) on its Onyx blockchain platform, tokenising a BlackRock money market fund as collateral with Barclays in a derivatives contract. Coming to PostTrade 360° Helsinki 2023 rather fresh from that development, Tom Pikett, Product Manager of Trading Services at J.P. Morgan, took to the stage to talk about asset digitalisation.

This session was sponsored by J.P. Morgan Securities Services.

The abovementioned trade on TCN involved non-native tokenisation, which Tom Pikett believes will gain more traction than native tokenisation in the coming years. Tokenising exisiting assets could “release them from some sort of trapped infrastructure”, removing friction from the market, he explained.

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Money market funds are usually not used as collateral. But in the case of J.P. Morgan’s first trade on the TCN, BlackRock was able to leverage money funds as margin because J.P. Morgan created a token that represented ownership of the underlying asset, which was then delivered to Barclays, in lieu of the money fund.

Unlocking potential

“When the margin call was issued, it took a matter of seconds for that margin call to be filled by money market funds because those money funds were already in tokenised form,” Tom Pikett recalled. “They were a pool of assets that could be used as collateral and it was simply a case of moving the tokens from BlackRock to Barclays. The process took a matter of seconds – there was no settlement risk, no failure.”

The success of J.P. Morgan’s TCN could be interpreted as a reflection of an increase in interest in money funds in the market – consultation papers on making these funds eligible as collateral having been released in both the US and Europe, potentially paving the way for more of such trades in the future.

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