State Street, Vanguard and Symbiont jointly announced that the margin calculation process for live trading of a 30-day currency forward contract has been completed using Symbiont’s distributed ledger technology (DLT).

The firms said they have collaborated to actively explore the application of blockchain technology to perform margin processing for currency forwards and swaps to ensure automation and efficiency of the post-trade workflow.

“We are excited to partner with State Street and Symbiont on the world’s first digital collateral-linked currency forward trading margining process,” said Warren Pennington, head of Vanguard’s investment management fintech strategies group.

“The use of cutting-edge distributed ledger technology represents a giant leap forward in the structure of the foreign exchange market by reducing counterparty risk, automating previously manual processes and mitigating potential disputes through standardized calculation processes.

"Lower risk and increased speed will lead to lower costs and improved returns for investors."

In the future, blockchain technology will allow underlying contracts to be instantiated, signed, executed and documented in a single immutable record, according to the firms.

By implementing these contracts in DLT, more frequent and automated valuation can be facilitated and parties can also move and settle collateral instantly.

"State Street Digital is extremely pleased to be collaborating with both Vanguard and Symbiont on this monumental industry initiative to digitize the margining process around collateralized currency forward contracts, which will reduce operational challenges for our clients through process automation and the -state-of-the-art technology," said Head of State Street Digital Nadine Chakar.

Symbiont CEO Mark Smith said the development marks a "transformational time for financial services" and demonstrates that blockchain is the ideal technology solution for currency contracts.

"Our marketplace still manages risk on an overnight basis and lacks an effective common real-time infrastructure for valuing trades, calculating margin calls and moving assets between counterparties as defined by legal agreements," Mr Smith said .

“This inhibits the credit that the two firms are willing to extend to each other and the resulting transaction. Our solution resolves this by allowing both counterparties to transact and participate in a larger amount (full amount) and activity based solely on best execution without fear of increased credit exposure.”

John Bragg

John 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.