Japan Exchange Group Bets on Distributed Ledger Technology

Japan Exchange Group plans to shift from standard technology options to the distributed ledger technology, also known as blockchain technology.

The Financial Corporation Japan Exchange Group (JPX) has released a document that explains the use of blockchain technology in the capital markets, as well as its pros and cons.

JPX is known in the financial world as the operator of several stock exchanges, including the largest ones in Asia – Tokyo Stock Exchange and Osaka Securities Exchange among others. 

JPX experts analyze the capabilities of popular blockchain systems, such as Hyperledger Fabric, Corda from R3 and Quorum private blockchain tested by investment bank JPMorgan. In their view, Distributed Ledger Technology (DLT) can improve the efficiency of many processes in the financial sector. The paper was released on Thursday, September 14.

Besides the potential and advantages, the document also highlighted the weaknesses of DLT. In particular, the analysts have focused on the limited performance, the difficulty of using sophisticated cryptography algorithms for confidential transfer of assets, and possible centralization risks that are associated with the concentration of ledger nodes in the cloud.

Researchers from JPX believe that it is necessary to conduct additional DLT experiments to define more accurate impressions on what the technology can achieve in the financial sphere.

"It is a highly meaningful process for users of new technologies to proactively study a new technology and provide feedback to developers based on practical needs. We believe that steadily evolving financial services by implementing new technologies for production use in this industry is essential, even if the new technologies are not very different from existing technologies."

In March 2016, JPX, in partnership with IDM Japan, began testing the blockchain technology in settlements & clearings and other operations. The experiments involved the code developed by the participants of the Hyperledger consortium. At the beginning of 2017, JPX received permission from the Financial Services Agency of Japan to use new financial technologies, including blockchain.

Last week, it was reported that SBI Holdings, a financial services group, in partnership with tech company NEC, will allow financial companies share customer ID data through DLT (blockchain technology), which will simplify the registration of accounts with new services. Besides, the reduced costs for securities services would eventually translate into lower fees for clients. More than 14 brokerage services and megabanks will take part in SBI’s trial.

Elsewhere, Daiwa Securities Group will experiment with applying the DLT to check trade settlement data like issue names, prices, and share numbers. Daiwa’s trial will involve 17 major companies dominated by brokerages.

Last week, we reported that Japanese Bankers Association (JBA) was to start blockchain trials based on Fujitsu’s K5 cloud service.