State Street, Vanguard and Symbiont have jointly announced that the margin calculation process for a live trade of a 30-day foreign exchange forward contract has been completed through Symbiont’s distributed ledger technology (DLT).
The firms said they had collaborated to actively explore the application of blockchain technology to undertake margin processing for foreign-exchange forwards and swaps with the aim of delivering post-trade workflow automation and efficiencies.
“We’re excited to partner with State Street and Symbiont on the world’s first ever digital collateral-linked currency forward trade margining process,” said Warren Pennington, Vanguard’s investment management fintech strategies group head.
“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 lower risk and increased speed will lead to lower costs and improved outcomes for investors.”
In the future, blockchain technology will allow underlying contracts to be instantiated, signed, executed and documented on a single unalterable record, according to the firms.
By deploying these contracts on DLT, more frequent and automated valuation can be facilitated, and parties can also move and settle collateral instantaneously.
“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," said State Street Digital head Nadine Chakar.
Symbiont CEO Mark Smith said the development marked a “transformative time for financial services” and demonstrated that blockchain was the ideal technology solution for foreign exchange contracts.
“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,” said Mr Smith.
“That hampers the credit both firms are willing to extend to each other and the resulting dealing price. 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.”
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.