JP Morgan seeks to patent “tokenized stock trading” for IPOs

JP Morgan Chase ("JP Morgan") recently applied for a patent that would leverage blockchain technology to allow the bank to issue “virtual receipts” backed by assets or bonds. If approved, JP Morgan plans to use the patented technology to facilitate Initial Public Offerings (“IPOs”) in the financial services sector and expand opportunities for raising capital.

The proposed method would make use of “distributed ledger” technology such as blockchain to link “an underlying asset or obligation with its digital representation on a distributed system for the purposes of ownership tracking and transfer”. The idea is that investors would convert their assets on the stock market into tokens, or “virtual receipts”, which could be traded and redeemed much like cryptocurrency in an initial coin offering ("ICO").

The patent application was made public on July 19, 2018.

This is not JP Morgan’s first foray into the blockchain space:

• Earlier this year, JP Morgan applied for a patent to facilitate cross-border payments between banks using distributed ledger technology.
• In 2017, JP Morgan partnered with the startup Zcash on developing an “anonymous” version of Bitcoin, and integrated the same privacy technology into its own open-source platform known as Quorum.

If JP Morgan’s recent activity is any indication, we are likely to see an increase in the number and frequency of other major banks patenting different uses of blockchain in years to come, including through securities trading, partnerships with fintechs, membership in global consortia, and via the building of their own in-house solutions.

Authors: Jaclyn Tilak, Larissa Fulop and Daniela Cerrone, 2018 Summer Student-at-law