BNY is bringing a core part of its record-keeping onto a blockchain, launching a digital transfer agent alongside the physical one it already runs. Baillie Gifford, BlackRock and BNY's own Dreyfus money market business are set to use it. Industry participants still expect traditional infrastructure to stay in place for years.
BNY, the world's biggest bank for safeguarding assets with more than $59tn in assets under custody and administration, was set to unveil on Wednesday a digital version of its transfer agency business — the unit that processes trades and keeps ownership records.
The 242-year-old financial services group will maintain its physical transfer agent. But the new digital arm underscores a broader push on Wall Street toward shares issued in tokens and traded on a blockchain instead of by traditional means.
A single record across 7.6mn accounts
BNY's transfer agent services roughly $8.6tn in assets across 7.6mn accounts. Establishing that market architecture on the blockchain provides a single universal record for share ownership and other functions without the need for multiple intermediaries.
Carolyn Weinberg, chief product and innovation officer at BNY, said the development "has the potential to transform the processing and the infrastructure of how financial markets work", describing the bank as modernising a function that sits behind every single fund transaction by bringing books and records on-chain.
Baillie Gifford and BlackRock line up first
Edinburgh-based Baillie Gifford, a BNY client with £197bn in assets under management, is using the new digital transfer agent for the first fully native UK-regulated tokenised fund. BlackRock and BNY's Dreyfus money market fund and cash management business are similarly expected to use it for their own soon-to-launch funds.
Institutions from BlackRock to Franklin Templeton have rolled out tokenised money market funds in recent years — vehicles that hold short-dated debt and cash — while large exchanges have also shown signs of embracing blockchain technology. Asset managers hope the technology can reduce the time required to settle transactions and bridge the system to operate 24 hours a day, seven days a week.
Traditional rails stay in place
Much of the wider push for tokenisation is still in the pilot stage as companies test the technology. The path has become clearer in recent years as regulators in the US issued guidance on how the law applies to digital representations of assets.
Blockchain technology can also bring new cyber security risks, including potential hacks of the embedded code in smart contracts and in bridges that connect one chain to another. Emily Portney, BNY's global head of asset servicing, said the bank fully recognises that trillions and trillions of dollars' worth of funds will continue to exist on traditional rails. Industry participants predicted that physical plumbing would remain in place for years to come.
Source: Financial Times
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