New York custody bank BNY Mellon is one of a number of firms working with US tech giant IBM on blockchain technology designed for the securities lending market.

In a recent statement, IBM said it is accelerating the design and development of a “unique application for securities lending” with a number of clients including BNY Mellon, using a blockchain network to trade and transfer assets.

Crucial to short selling, securities lending is the act of loaning a stock, derivative or other security to an investor or firm.

Blockchain, which underpins virtual currency bitcoin, is increasingly seen as the technology which will revolutionise the creation and transfer of financial products and agreements.

In basic terms, the software enables data sharing across a network of individual computers.

Proposed use cases are mostly ones with costly and complex processes for post-trade settlement and change in title.

Blythe Masters, founder of Digital Asset Holdings, recently offered this description: "Blockchain enables institutions to do what they already do today using databases but a lot quicker, a lot cheaper, with far lower error rates, with less resulting risk, and, as a result, with lower capital requirements and less vulnerability to cyber attack."

Financial firms are expected to spend over $1bn on blockchain projects in 2017, making it one of the fastest developing enterprise software markets of all time, according to a report by Magister Advisors.

IBM's announcement came as the company launched new cloud services to help companies design and develop blockchain.

The firm is also opening an IBM 'Garage' in New York - similar to the multiple blockchain research labs set up by several major financial institutions over the past year.

"Clients tell us that one of the inhibitors of the adoption of blockchain is the concern about security," said Jerry Cuomo, vice president, blockchain, IBM.

"While there is a sense of urgency to pioneer blockchain for business, most organizations need help to define the ideal cloud environment that enables blockchain networks to run securely in the cloud."

Suresh Kumar, chief investment officer at, BNY Mellon said the company is "actively exploring blockchain’s potential to better serve  clients and the company".

“With the new Garage initiative, IBM is providing an environment that will allow companies like us to collaborate more easily and more securely and in a more standardized way, which is critical to advancing meaningful use cases for blockchain,” Kumar added.

What is a blockchain?

Software that enables data sharing across a network of individual computers.. A blockchain describes computers transferring blocks of records in a chronological chain. Blockchain technology is also known as distributed ledger. The term "distributed ledger" refers to the concept that each user shares the same "ledger" or set of accounts as defined by the software. Blockchain and distributed ledger are used interchangeably.

How does it work? 

Through shared software infrastructure and trust. Users agree to a software protocol describing the rules for the type, quality, and transferability of data in addition to the rules for authorisation, verification and permutation. Users trust that information entered into and transactions conducted over the blockchain software are valid. Blockchain technology in financial service's best initial use cases, we think, are to solve cluttered processes in the post-trade settlement period where there is a change in title.