The immense potential of blockchain has rendered it to be hailed as the technological paradigm shift which will drive humanity towards Industrial Revolution 4.0. However, notwithstanding the hype surrounding blockchain, the technology has also faced its share of doubts and criticisms from naysayers who have questioned blockchain’s ability to deliver on its promises. 

In order to provide a balanced perspective on the state of development of blockchain, JP Morgan, which is the world’s largest bank by market capitalization with total assets amounting to US$2.687 trillion, has on 21 February 2020 released its report titled “Blockchain, Digital Currency and Cryptocurrency: Moving into the Mainstream?” (hereinafter referred to as “the Report”), one week after launching its stablecoin i.e. the JPM Coin. 

In this first chapter of our three-part series review of the Report, we will be exploring the discussions of the Report pertaining to the transition of blockchain into a mainstream technology in the financial services and capital markets sectors before undertaking an appraisal of the manner in which the discussions may be applicable to the specific context of Southeast Asia (SEA).

Blockchain Use in the Financial Services Sector

As a global bank itself, it is unsurprising that the foremost area covered in the Report is that of financial services in particular with the spotlight being on this particular domain in the United States (U.S). Besides JP Morgan’s JMP Coin, another major U.S-based financial institution which has dived into the cryptocurrency space is Wells Fargo with its Digital Cash stablecoin. In the context of mid-sized financial institutions, Signature Bank is leading the pack with its blockchain-based Signet payments platform which was launched in December 2018. Nonetheless, the Report noted that in general mid-sized financial institutions in the U.S are adopting a wait-and-see approach by taking the cue from larger banks in the country. 

The Report further explains that this is primarily due to the limited budgets of mid-sized financial institutions in the U.S which are far off from those of larger banks in the country which has annual technology budgets of more than US$10 billion. In the context of SEA, it is notable that the central banks of Singapore and Malaysia i.e. the Monetary Authority of Singapore (MAS) and Bank Negara Malaysia (BNM) has established digital banking frameworks in their respective jurisdictions and are looking to issue digital banking licenses in the not too distant future. The rise of digital banking in Singapore and Malaysia certainly bodes well for the use of blockchain in the financial services domains of the two countries in particular and those in SEA in general. 

Blockchain Use for Capital Market Tradings

In contrast with the discussions in the Report in relation to the use of blockchain for financial services which were mainly in the context of the U.S, the discussions about the use of blockchain for capital market tradings takes on more of an international dimension. With regard to the use of blockchain for the processing of capital market trading transactions, the Report highlighted the potential offered by blockchain to speed up the process by reducing the settlement time for such transactions from the current trade date plus three days (T+3) to completion of settlement on the trade date itself (T+0). As for use case examples, the Report discussed about the Australian Securities Exchange (ASX)’s project to replace its existing clearing system i.e. the Clearing House Electronic Subregister System (CHESS) with a blockchain-based system which involve the use of private permissioned ledgers with the ASX being the single source of truth i.e. the only entity which needs to verify the blockchain records. 

Besides that, the Report also highlighted the Swiss Stock Exchange’s upcoming SIX Digital Exchange (SDX) which is a blockchain-based platform slated to be launched sometime this year. In addition to providing a safe trading environment for the issuance and trading of digital assets, the SDX will be a conceptual groundbreaker as it will facilitate the trading of previously non-tradable assets through the tokenization of existing securities and non-bankable assets while providing for instant settlement and fractional ownership. 

In the context of SEA, the Singapore Stock Exchange (SGX) has back in June 2019 established a collaboration with the MAS to explore the use of blockchain-based smart contracts to speed up its securities settlement mechanism. As for Malaysia, the country’s Securities Commission (SC) has back in November 2018 launched its Project Castor which aims to leverage blockchain to enhance the liquidity, transparency and efficiency of its unlisted and over-the-counter (OTC) markets.

The Global Blockchain Phenomenon

As the U.S is the world’s largest economy as well as global technological leader, the rest of the world can certainly learn a thing or two from Uncle Sam when it comes to the use of digital technologies such as blockchain to support the operations of the financial services and capital market sectors. Based on the discussions in this first chapter of our three-part series review of the Report, it can be surmised that the use of blockchain in the financial services and capital market sectors is indeed turning out to be a global phenomenon which traverses the four corners of the globe, starting off from the American continent, and ultimately, finding its way to our shores in SEA.

Reference:

1. J.P Morgan, Blockchain, Digital Currency and Cryptocurrency: Moving Into the Mainstream? (21 February 2020). Accessible at https://markets.jpmorgan.com/research/open/url/t59R6MoBP2TUkWA_itSQBbfUlco1CmYnoNL3dA6WVSm82drJuOYLvdZIqDyuXyp-L4OrVEFw_eAu4UgzicsInqAwjcbKIQHiPfGEjPF2Rt5PKUltFmEKGQaC3DeLBoW7?action=print

2. Crypto Globe, JPMorgan Chase’s Shifting Attitude Towards Cryptocurrency (24 February 2020). Accessible at https://www.cryptoglobe.com/latest/2020/02/jpmorgan-chases-shifting-attitude-towards-cryptocurrency/

3. Investopedia, SGX, Central Bank Plan Blockchain for Settlements (25 June 2019). Accessible at https://www.investopedia.com/news/sgx-central-bank-plan-blockchain-settlements/

4. SC, Project Castor. Accessible at https://castor.my/

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