State Street Corporation (NYSE:STT), in collaboration with Vanguard and Symbiont, has announced that the companies have completed the margin calculation process “for a live trade of a 30-day foreign exchange forward contract through the use of Assembly, Symbiont’s distributed ledger technology.”
As mentioned in the announcement, the companies have been exploring the application of blockchain or DLT to “undertake margin processing for foreign-exchange forwards and swaps, with the goal of bringing post-trade workflow automation and efficiencies while significantly reducing counterparty credit risk in the over-the-counter currency market.”
Harnessing the benefits of blockchain tech within the “largely manual currency forwards market will eventually enable the underlying contracts to also be instantiated, signed, executed, and documented on a single unalterable record, digitally securing the trades and allowing for automation over their duration.”
The update also noted that deploying these contracts on DLT facilitates “more frequent and automated valuations, while also enabling parties in the network to move and settle collateral instantaneously — significantly reducing counterparty risk and streamlining processes for those forwards that are non-cleared and subject to margining.”
Nadine Chakar, Head of State Street Digital, stated:
“State Street Digital is incredibly pleased to have collaborated with both Vanguard and Symbiont on this monumental industry initiative to digitize the margining process around collateralized foreign exchange forward contracts that will reduce our customers operational challenges through process automation and state of the art technologies. 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.”
Warren Pennington, Head of Vanguard’s Investment Management FinTech Strategies Group. remarked:
“We’re excited to partner with State Street and Symbiont on the world’s first ever digital collateral-linked currency forward trade margining process. 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 standardized calculation processes. The lower risk and increased speed will lead to lower costs and improved outcomes for investors.”
Mark Smith, CEO, Symbiont, remarked:
“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. 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). 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.”
