Vanguard’s Blockchain Platform to Go Live in Q3 2020
Mutual fund giant Vanguard has concluded another blockchain pilot intends to change the risk profile of FX (foreign exchange) transactions. The Valley Forge, Pa.-based investment firm, conducted the pilot on Symbiont’s Assembly blockchain with participation from BNY Mellon, State Street, and investment firm Franklin Templeton. Vanguard and Franklin Templeton served as dealer banks, and State Street and BNY Mellon served as counterparty banks and custodians, stating Symbiont’s foreign exchange lead, Joe Ziccarelli.
Symbiont considers the foreign exchange platform will go into production in the third quarter of 2020, Ziccarelli stated. “The pilot has helped to prove out some of the capabilities that address areas of uncompensated risk in collateral-linked instruments like FX forward contracts,” Melissa Kennedy, a Vanguard spokeswoman, said in a statement. “Over the next twelve months, we will continue to build out capabilities on the platform with our partners.”
The FX declaration follows a digital asset-backed securities pilot that Vanguard declared the completion of earlier this month. The FX pilot’s conclusion also reveals that the Assembly blockchain could immediately become a viable alternative for many large enterprises involved in FX, Ziccarelli stated.
According to Ziccarelli, the pilot demonstrates a use case for Assembly that pertains to all foreign exchange contracts, including swaps and outrights, an FX transaction where two parties consent to purchase or sell a particular amount of currency at a predetermined rate in the future.
Sell-side and buy-side firms utilize foreign exchange for hedging and speculative purposes. The market is governed by contracts that help as credit agreements, which define how the over-the-counter (OTC) market should exchange the collateral utilized for these transactions. The calculations and collateral movement usually take two or three days to process.
“[Currently] you are two or three days removed from being protected against the sort of underlying credit risk that’s associated with those transactions,” Ziccarelli said in a statement. “Now, you can be protected in as soon as the last calculation period.”
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