Mutual fund giant Vanguard Group wants to revolutionize the $6 trillion-a-day FX market with blockchain, taking the first leap to bridge the gap by partnering with Symbiont, a six-year-old New York startup.
Vanguard quietly began using Symbiont’s product that has already handled some FX trades since August, a person familiar with the matter told Bloomberg. Now, after two months of tried and true use, the global asset manager is making the partnership public, with looks to challenge a handful of banks that don’t show any sign of weakening their grip on the FX market.
Symbiont is a Fintech that provides institutional applications of blockchain technology. Symbiont, which raised $20 million led by Nasdaq Ventures, reports they are currently working with companies like Citi, Ranieri, and Vanguard.
Vanguard said the pilot had reduced the cost of settling foreign exchange trades through its blockchain-based system, offering a glimpse of the savings the technology could offer.
Vanguard, however, did not give precise figures for pilot transactions but said that a significant amount of overall internal flows are likely to be settled on the system in the next few years.
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“There’s a tremendous amount of interest in the potential for disintermediation,” Andy Maack, Vanguard global head of FX trading, said.
The asset manager is aiming to provide the blockchain tools mainly to corporate clients with a greater focus on swaps and forward markets rather than spot trading.
The idea behind Vanguard’s blockchain experiment is to help FX asset managers reduce costs through a peer-to-peer trading model that avoids big investment banks. But while the cost savings could prove appealing, such a platform will require a critical mass of users “if it wants to bring a discount advantage to the massive sector,” a former Deutsche Bank FX trader told Bloomberg.
In addition, financial institutions have so far taken a cautious approach with the technology as they were concerned by uncertainty over security, regulation, and the impact on existing systems.
“Vanguard is currently piloting a project focused on improving the efficiency and reducing risk of FX hedging,” company spokeswoman Carolyn Wegemann said.