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LONDON, Sept 29 (Reuters) - Thirteen top banks, including HSBC and Deutsche Bank, have joined a consortium led by financial tech firm R3 that is working on a framework for using blockchain technology in markets, a spokesman for the firm said on Tuesday.
Nine other banks had already signed up to the initiative, which represents the first time banks have collaborated on how the technology that underpins bitcoin - a controversial, web-based "cryptocurrency" - can be used in finance.
The other banks announced on Tuesday were Citi, Bank of America, Morgan Stanley, Commerzbank , Societe Generale, SEB, BNY Mellon , Mitsubishi UFJ Financial Group, National Australia Bank, Royal Bank of Canada and Toronto-Dominion Bank, taking the total to 22 banks.
The consortium is being led by David Rutter, who was formerly CEO of electronic trading at ICAP Electronic Trading, one of the world's largest interdealer brokers.
The blockchain works as a huge, decentralised ledger of every bitcoin transaction ever made, which is verified and shared by a global network of computers and therefore is virtually tamper-proof. The Bank of England has a team dedicated to it and calls it a "key technological innovation".
R3's Chief Technology Officer Richard Brown, who joined the company last month from IBM, told Reuters the technology could bring banks significant savings by making their systems more efficient and transparent, with less risk of error.
"Over decades banks and other firms have built systems for themselves ... and then a collection of processes has emerged between the banks ... to make sure these systems are kept synchronised and are reconciled with each other," he said.
"With shared or distributed ledgers perhaps we can imagine a world where participants share this infrastructure, so rather than everyone running their own systems that have to be reconciled, we can have ... an open platform that multiple firms can connect to."
Brown also said that given that the likely use of this ledger by banks would be for banking transactions, those would need to be kept private - unlike the bitcoin transactions currently recorded on the blockchain - because customers would not want their details made public.
Deutsche Bank is half-way through testing out whether a corporate bond can be issued on the blockchain and could automatically issue coupons and redeem itself by means of a "smart contract" that automatically executes the terms.
"For me it's the combination of tokenization and the smart contract that I think is really revolutionary," said Rhom Ram, who steers Deutsche Bank's digital agenda in transaction banking.
"If you get into other asset classes that are dependent on legal contracts, then typically they take a long time to settle. That's a massive inefficiency."
Ram also said banks' interest in blockchain technology had grown rapidly in recent months.
"We have been looking at all these developments for at least 18 months now, and for a long time I was talking to myself within the banking community. But definitely within the last five months there is a lot more understanding, interest and momentum." (Reporting by Jemima Kelly; editing by Andrew Roche)