Vanguard, in collaboration with technology provider Symbiont, and in conjunction with Bank of New York Mellon, State Street, and Franklin Templeton, is actively exploring the application of distributed ledger technology (DLT) to foreign-exchange forwards, bringing transparency and workflow efficiencies to the over-the-counter currency market. As part of this pilot, Vanguard has simulated multiple 30-day FX forward contracts with its partners in the initiative – a proof of concept that is reflective of how the firms would conduct the first test trades of FX forwards on a DLT network in the future.
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“For more than two years, we’ve been developing blockchain use cases to help transform the capital markets,” said Warren Pennington, principal and head of Vanguard’s Investment Management FinTech Strategies Group. “The current environment emphasizes the need to streamline, automate, and secure critical business processes. When procedures are highly reliant on manual intervention and disconnected operations, it makes the markets vulnerable to disruption from crises and even simple manual mistakes.”
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Harnessing the benefits of blockchain technology within the largely manual forwards market will enable the contracts to be executed and documented on a single unalterable record, digitally securing the trades. It will also give parties in the network the ability to value, move and settle collateral instantaneously—reducing the risk of payment delays and streamlining processes for those forwards that are non-cleared and subject to margining.
“Our work towards conducting the first FX forward contract on a DLT is one of a number of use cases we are looking at in our efforts to modernize trade lifecycles and improve the client experience,” said Jason Vitale, head of FX at BNY Mellon. “We think this partnership with Vanguard is an important step for the FX market, further automating end to end workflows.”
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