Vanguard and technology provider Symbiont have completed the first phase of a blockchain pilot designed to digitize the issuance of asset-backed securities, the firms announced Thursday.
The investment manager with $5.7 trillion in global assets as of April 30 said it has successfully modeled the full lifecycle of an ABS settlement on a distributed ledger technology network by replicating end-to-end transaction flows.
Through this pilot and by leveraging Symbiont's distributed ledger technology network, Vanguard is looking to "transform and automate the current capital markets infrastructure to deliver better outcomes and reduce costs for market participants," it said in a news release.
Distributed ledger technology is a decentralized system that records transactions and stores the information in multiple places simultaneously.
Pairing Symbiont's distributed ledger technology network with smart contracts — self-executing contracts that are triggered when an agreed-upon event occurs — offers increased information flow, will enhance price discovery and secondary market liquidity, and automate key corporate actions through the use of a common infrastructure that is open to all market participants, according to Vanguard.
"Market dynamics, such as periods of sustained volatility and illiquidity, have highlighted the need for faster, increasingly transparent and more automated markets where digital capabilities can help alleviate liquidity and funding concerns," it added.
By digitizing the ABS issuance process, "We will be able to increase the speed and transparency of transactions while reducing costs and minimizing exposure to risk, which ultimately leads to a more efficient business model for future generations of capital market activity," Warren Pennington, principal and head of Vanguard's investment management fintech strategies group, said in the news release.
The pilot was completed with help from a large U.S. ABS issuer that was not specified, along with Bank of New York Mellon, Citigroup and State Street Global Advisors.
Vanguard and its partners will now work toward additional milestones that allow it to move from pilot to real issuances on the platform, a Vanguard spokeswoman said in an email.
Vanguard and Symbiont first teamed up in December 2017, and in 2019, Vanguard went live with Symbiont's technology to consume data for $1.3 trillion worth of funds. Vanguard said the partnership has enabled index data to move instantly between index providers and market participants over one decentralized database, resulting in improved benchmark tracking and cost savings for clients.
