The Vanguard Group, one of the world’s largest index fund management companies, has completed the first phase of a blockchain pilot designed to digitize the issuance of asset-backed securities (ABS).
According to the recent announcement, the American investment company managing $5.7 trillion as of April 30, 2020, has partnered with the New York-based blockchain firm Symbiont. Other project associates include a large US ABS issuer, BNY Mellon, Citi, and State Street.
By utilizing Symbiont’s enterprise blockchain platform dubbed Assembly DLT, Vanguard “successfully modeled the full lifecycle of an ABS settlement on distributed ledger technology (DLT) network by replicating end-to-end transaction flows.”
The statement informs that the idea of employing smart contracts is to offer increased information flow, enhance price discovery and secondary market liquidity, and automate key corporate actions through the use of a common infrastructure open to all parties.
Asset-backed securities are a form of investment securities, a bond or note, for example, centralized by a pool of assets. Those could include loans, leases, credit card debt, receivables, or royalties. ABS operates similarly to mortgage-backed securities with the difference coming from the underlying securities. Investors typically turn to ABS as an alternative to corporate debt.
It’s worth noting that Vanguard and Symbiont have been working side by side, leveraging blockchain since December 2017. At the time, the two organizations joined forces to provide a simplified solution for data distribution. Two years later, Vanguard launched the DLT project to consume data for $1.3 trillion worth of funds, the announcement explains.
While commenting on the successful pilot launch, Symbiont CEO Mark Smith noted that it’s a “momentous step forward in fundamentally changing capital markets infrastructure through blockchain technology.” He added that market participants will see for the first time in 2020 a “live ledger-based issuance.”
“Vanguard is dedicated to providing innovative, world-class solutions that help advance the financial services industry.
By digitizing and streamlining the ABS issuance process, we will be able to increase the speed and transparency of transactions while reducing the costs and minimizing the exposure to risk, which ultimately leads to a more efficient business model for future generations of capital market activity.” – said Warren Pennington, principal and head of Vanguard’s Investment Management FinTech Strategies Group.