State Street and Vanguard complete FX derivative trade on Symbiont DLT

State Street announced that, along with partner Vanguard, the firms have jointly 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 (DLT).

The firms have been actively exploring the innovative application of blockchain technology 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.

It’s expected that using blockchain technology for 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. 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.

“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,” said Nadine Chakar, head of State Street Digital, in a statement.

Warren Pennington, head of Vanguard’s Investment Management FinTech Strategies Group, said in a statement: “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.”

“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,” said Mark Smith, CEO at Symbiont, in a statement.


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