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Japanese Banking Giants Complete R3 Blockchain Trial for Derivatives

Last Updated March 4, 2021 4:56 PM
Samburaj Das
Last Updated March 4, 2021 4:56 PM

A number of major Japanese financial institutions have announced the successful completion of testing a blockchain prototype developed using Corda, a blockchain software platform developed by New York-based R3.

The prototype trial was used to streamline an exhaustive email exchange process during a typical negotiation seen during an over-the-counter (OTC) derivative transaction.

Four financial institutions participated in the trial, namely Nomura Holdings, Daiwa Securities, the Mizuho Financial Group and the Sumitomo Mitsui Banking Corporation. The latter two notably make for 2 out of the 3 Japanese ‘megabanks.’ Nomura and Daiwa led the development of ‘CorDapp’ the distributed application used during the trial that was built on R3’s Corda software.

The blockchain prototype was put to use during the negotiation of an ISDA Master Agreement, a standard document used to government OTC derivatives transactions. Typically, financial institutions coordinate over different functions of the agreement internally and then negotiate terms of the contract with an external counterparty. Both of these legs are conducted via emails that are to be recorded and stored and retrieved each time, with a large amount of embedded data.

“In an attempt to streamline the process, the prototype is designed to remove the use of e-mails, while ensuring agreed terms and conditions can be securely recorded and stored on the DLT platform in chronological order,” read an excerpt from a release by Nomura.

A blockchain-enhanced derivatives negotiation.

The participating institutions expect Corda’s blockchain technology to make the data storing and management process simpler, while enhancing transparency in the overall process to ultimately benefit negotiations in a derivatives transaction.

The Corda software went open-source toward the end of 2016, with R3 contributing Corda’s code to the Linux Foundation-led Hyperledger Project. Corda will see further development thanks to a record $107 million in funding raised by R3 in May, with the industry firm’s chief executive stating that Corda will ultimately become “the new operating system for financial services.”

R3 managing director Charley Cooper added:

You are going to begin to see the rollout of the enterprise grade Corda platform. You will see the beginning of the network standing up – connecting investors and members on nodes on the software.

Tokyo financial district image from Shutterstock.