Global custodian BNY Mellon is working with IBM on a new project aimed at using distributed ledgers to trade and transfer assets, as financial firms ramp up experiments to test uses for the nascent technology.
The bank is collaborating with IBM to design and create a blockchain-based application for securities lending, the technology firm said in a statement on April 29.
The application is being developed using a new IBM service, aimed at financial institutions, that enables blockchain networks to operate more securely on the cloud.
IBM said blockchain applications that run on cloud systems can be subject to tampering via “back door” breaches. The group believes its new security-enhanced cloud makes it more suitable for financial institutions looking to quickly develop and test new blockchain applications.
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Jerry Cuomo, vice-president, blockchain at IBM, said in a statement: “Clients tell us that one of the inhibitors of the adoption of blockchain is the concern about security.”
BNY Mellon’s blockchain initiative is the latest in a series of recent experiments launched by large financial institutions to adapt bitcoin’s underlying encryption technology to simplify the way assets are traded, cleared and settled.
In April, the US Depository Trust and Clearing Corporation was among the seven firms to test credit default swaps trade processing with startup Axoni, while earlier in the year, interdealer broker Icap said it had tested a blockchain-based system for FX markets and Bank of America Merril Lynch said it was working on a blockchain project in trade finance.
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While excitement around blockchain is running high in finance, analysts are warning that significant issues remain to be resolved before the technology can be deployed at scale to run critical capital markets infrastructure. Security was one of the issues raised by payments network provider Swift in a recent report.
Others warn that blockchain might not be suited for all types of financial transactions. In a report in February, capital markets analyst Larry Tabb said that any move to a blockchain-based, real-time clearing environment would create significant problems with the way the practice of securities lending currently works.
IBM did not provide specific details as to how the BNY Mellon securities application will work.
Suresh Kumar, chief information officer at BNY Mellon, said in a statement: “With this new initiative, IBM is providing an environment that will allow companies like us to collaborate more easily and more securely and in a more standardised way, which is critical to advancing meaningful use cases for blockchain.”
IBM is also an investor in Blythe Masters-led blockchain startup Digital Asset Holdings and a member of blockchain open source group the Hyperledger Foundation.
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