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Morgan Stanley Wanting to Quit of R3 Blockchain Group

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Morgan Stanley Wanting to Quit of R3 Blockchain Group

Morgan Stanley not planning to continue its membership in the R3 CEV LLC blockchain group or supply in a $150 million equity funding round meant to speed the technology’s growth.  Morgan Stanley is the most recent large bank to withdraw from R3, which is scrutinizing the use of the blockchain distributed database technology in Wall Street framework.  Bank of America Corp., Barclays PLC and UBS Group AG, also early members of R3, said they are still part of the consortium, though they did not say on whether they plan to take an equity stake. State Street Corp. is an active member in conversations around the future of the R3 consortium. We are classifying a assorted models, a spokeswoman said. J.P. Morgan Chase & Co. and Bank of New York Mellon Corp. refused to remark.  R3 has approached 42 banking members about investing in an equity funding round that seeks to raise $150 million over the next 9 to 12 months, a person familiar with R3′s plans said. An Ernst & Young valuation during the summer placed R3’s worth at $150 million to $250 million, based in part on membership dues of $250,000 per year and expected revenues from commercial products, this person said. Corporations may select to purchase an equity stake, extend memberships or leave. Banks that prefer not to participate in the funding round still may remain members of R3, helping develop blockchain technology and sharing exploration.

Financial institutions pushed R3 to raise money because they thought it would help the consortium meet its product growth objectives.  The expectation of investing more in R3 comes as banks stake their position in blockchain technology, which some say could make global banking quicker, more effective and more secure.  Competing blockchain platforms have arrived. Santander and Goldman Sachs have invested in Digital Asset Holdings LLC, a startup that supports Hyperledger, an open-source blockchain platform.  Earlier this year, R3 unveiled a distributed ledger called Corda to manage financial contracts. It plans to open source the technology on Nov. 30.  During that time, everyone will be able to download the code and build on it as long as it is not used for commercial purposes.  The consortium plans to deliver at least one commercial product by the end of 2017, R3 is working on products for regulatory reporting, trade finance, payments, syndicated loans and know your user verifications, among other regions.  If R3 achieved  raising $150 million, Bank members  would take a 60% ownership stake in R3 while eight founding executives would retain 40%. If R3 doesn’t reach $150 million in a first round, it plans to open the circle to members of its lab and research center. After that, technology firms and other investors would be able to participate.  Blockchain technology, best known for underpinning the system that trades the virtual currency bitcoin, has garnered attention from banks that see opportunities to save billions of dollars and make traditional processes more effective.  Established in 2014 R3, has said turnover in the organization is expected. Promoting technology like this requires commitment and significant resources, and our diverse pool of members all have different capacities and capabilities which consistently varies over time.

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