Collaboration to leverage blockchain for FX forward contracts
State Street Corporation, Vanguard and Symbiont have jointly announced that they have completed the margin calculation process for a live trade of a 30-day foreign exchange forward contract using Assembly, a blockchain technology from Symbiont.
The firms have been exploring the implementation of blockchain technology to carry out margin processing for foreign exchange forwards and swaps, seeking to bring post trade workflow automation and efficiencies as well as reducing counterparty credit risk in the over-the-counter currency market.
“State Street Digital is incredibly pleased to have collaborated with both Vanguard and Symbiont on this monumental industry initiative to digitise the margining process around collateralised foreign exchange forward contracts that will reduce our customers operational challenges through process automation and state of the art technologies,” Nadine Chakar, Head of State Street Digital, said.
“Our newly launched division, State Street Digital, was created to help drive innovation and address the industry’s digital transformation. We appreciate the joint collaboration on this project and look forward to future partnerships and further developing our digital capabilities for the crypto and digital assets environment.”
Blockchain technology will enable the underlying contracts to be instantiated, signed, executed and documented on a single, unchangeable record, digitally securing the trades and harnessing the benefits of automation.
“Vanguard is committed to improving outcomes for all investors, whether through lowering the cost of investing or reinvesting in new services and innovative capabilities,” Warren Pennington, Head of Vanguard’s Investment Management FinTech Strategies Group, said.
“Leveraging cutting-edge distributed ledger technology represents a giant leap forward in foreign exchange market structure by reducing counterparty risk, automating previously manual processes, and mitigating potential disputes through standardised calculation processes.”
The blockchain technology also allows for more frequent and automated valuations as parties in the network move and settle collateral instantaneously, streamlining processes for forwards that are non-cleared and subject to margining.
“Today’s announcement marks a transformative time for financial services and signals the evolution of blockchain as the ideal technology solution for foreign exchange contracts,” Mark Smith, CEO of Symbiont, said.
“Our market still manages risk on an overnight basis and lacks an efficient, real-time common infrastructure for valuing trades, calculating margin calls, and moving assets between counterparties as defined by the legal agreements (ISDA/CSA).
“Our solution solves for that by allowing both counterparties to transact and participate in greater size (full amount) and activity based purely on best execution, without fear of increased credit exposure.”