Mutual fund giant Vanguard has completed another pilot study on the blockchain that aims to change the risk profile of Forex (FX) transactions.
Modernize the life cycles of the markets
Pa. Based investment firm Valley Forge led the New York-based Symbiont-based blockchain pilot study with State Street, BNY Mellon and investment firm Franklin Templeton - find out how to invest.
Vanguard and Franklin Templeton acted as concessionary banks while State Street and BNY Mellon acted as counterparty and custodian banks, said Joe Ziccarelli, leader of the Symbiont exchange. Symbiont believes that the forex platform will go into production in the third quarter of 2020, said Ziccarelli.
"The pilot experiment helped demonstrate some of the capabilities that address areas of uncompensated risk in collateral-linked instruments such as forex forward contracts," said Melissa Kennedy, Vanguard spokesperson. "Over the next twelve months, we will continue to develop these capabilities on the platform with our partners."
"Our work on conducting the first FX futures contract on a DLT is one of several use cases we are looking at in our efforts to modernize business lifecycles and improve the customer experience," said Jason Vitale. , FX manager at BNY Mellon.
“Overall the digital strategies of our company are centrally focused on reducing the operational challenges of our customers both through the automation of processes and by using cutting-edge technologies that drive efficiency and growth, and we believe that this pilot project it will help us further achieve this, "said Dean Sakati, product innovation and sales development manager for global markets on State Street.
A viable option for many large FX companies
The FX announcement follows another pilot study on digital asset-backed securities that Vanguard announced completion earlier this month. Work on the FX experiment also shows that Symbiont's blockchain could quickly become a viable option for many large FX companies, says Ziccarelli.
He also states that the study demonstrates a use case that applies to all exchange contracts, including swaps and outrights, which are an FX transaction in which two parties agree to buy or sell a specified amount of currency to a predetermined rate in the future.
Buying and selling companies use exchange rates for hedging and speculative purposes. The market is governed by contracts that act as credit agreements that specify how the over-the-counter (OTC) market should exchange the collateral used for these transactions.
Calculations and collateral movements often take two to three days to process. "[Currently] it takes two or three days to be protected from the type of underlying credit risk associated with these transactions," said Ziccarelli. "Now you can be protected the moment the last calculation is made."
