Image credit: Shutterstock
Mitsubishi UFJ Financial Group is launching a proof of concept for on-chain Japanese government bond repo transactions, testing whether blockchain can support real-time settlement and automate more of the trade lifecycle.
The August 13 project brings together four MUFG companies with Digital Asset and Progmat and will use Digital Asset’s Canton Network. It forms part of a series of pilots selected in February under Japan’s Financial Services Agency-led Payment Innovation Project.
JGBs Will Remain Book-Entry Bonds During Blockchain Test
The first part of the pilot will test delivery-versus-payment settlement between Japanese government bonds and digital money without changing the legal form of the underlying securities.
JGBs will remain conventional book-entry transfer bonds. Instead, the Book-Entry Transfer Account Register maintained by an account management institution would be updated in conjunction with the blockchain settlement process. MUFG is also considering tokenized deposits or stablecoins for the digital-money leg.
Digital Asset will provide its Canton Network-based tokenization framework and support token issuance and management. Progmat will analyze how blockchain can be applied to existing JGB book-entry transfers and support possible productization.
Secured Finance Will Automate the Full Repo Transaction Lifecycle
The second part of the proof of concept will test whether the full repo transaction lifecycle can be automated using a lending protocol from Switzerland-based Secured Finance. MUFG expects the model to improve operational efficiency through automation while testing real-time intraday repo transactions and expanded settlement windows.
Mitsubishi UFJ Morgan Stanley Securities and MUFG Bank will participate as market participants. MUFG Bank and Mitsubishi UFJ Trust and Banking will serve as account management institutions, while MUFG Bank will also act as the deposit-taking institution.
FSA Pilot Will Test Real-Time JGB Settlement on Canton Network
The project is part of Japan’s Financial Services Agency Payment Innovation Project and remains a proof of concept rather than a commercial on-chain JGB repo service.
MUFG said it plans to work with regulators and a wider group of domestic and overseas financial institutions as the project develops. It is also considering closer collaboration with Morgan Stanley, its global strategic alliance partner.
The immediate objective is to test whether blockchain can synchronize JGB transfers with digital money while preserving the bonds’ existing legal structure. A second workstream will examine whether smart contracts can automate the broader repo lifecycle before any production deployment.
