Japan Exchange Group (JPX), the operator of the Tokyo Stock Exchange and Osaka Securities Exchange, has partnered with IBM Japan to begin testing blockchain technology for clearing and related post-trade operations. According to Nikkei Asian Review, the testing phase will begin in March, and Mitsubishi UFJ Financial Group is considering joining the initiative.
Atsushi Santo, Head of New Business Development at Japan Exchange Group, said that blockchain is an emerging technology closely watched by financial communities worldwide. He added that JPX plans to explore blockchain frameworks to evaluate technical limits and the potential for post-trade services handling low-volume traffic by leveraging IBM’s global resources, including IBM Research in Tokyo.
Asia’s largest bourse operator, which currently uses a centralized, top-down system to store trading data, will experiment with blockchain to identify a lower-cost alternative to its existing infrastructure.
The first phase will test the technology using sample securities in a simulated environment to confirm that clearing and other operations are recorded correctly. A report on the experiment is expected this summer.
If the pilot proves successful, JPX will consider deploying the new system for private equities and other low-turnover instruments. Current blockchain platforms are unlikely to sustain the throughput required for high-frequency trading in listed shares, so JPX intends to focus initially on assets with lower transaction volumes.
The JPX-IBM collaboration comes as more exchanges explore blockchain to improve the efficiency of clearing and settlement. Exchanges worldwide are evaluating distributed ledger technology as a way to modernize back-office systems, reduce costs and shorten settlement times.
For example, the Australian Stock Exchange (ASX) recently selected Digital Asset Holdings among other applicants to help build a new clearing and settlement system for the Australian equity market. ASX, which is an investor in Digital Asset, is working with the firm to modernize trade settlement and replace its existing CHESS system.
Elmer Funke Kupper, CEO of ASX, highlighted the inefficiency of current settlement timelines: equities can be traded in microseconds but still take two days to settle. He argued investors should be able to sell shares and access cash immediately, and that the project represents an opportunity to re-engineer market operations end-to-end rather than merely replacing legacy back-office systems.
In December, Nasdaq conducted the first private securities transaction using Linq, its blockchain-based platform. Nasdaq’s CEO Bob Greifeld described the transaction as a major advance for the global financial sector and a seminal moment in applying blockchain technology.
The Nasdaq Linq platform enables issuers to record digital ownership, reduces settlement times and removes the need for paper stock certificates. Nasdaq says the platform shows promise for accelerating settlement in public market transactions and for improving the efficiency and transparency of ownership records.