Vanguard, the global mutual fund, and ETF giant completed the first phase of testing the digitalization of asset-backed securities (ABS).

Vanguard, technology provider Symbiont, an unnamed ABS issuer, and bankers have worked together on the successful, first pilot of an ABS settlement. The test incorporated its entire transactions cycle on a distributed ledger technology (DLT) network. (Finance Magnates)

Blockchain payoffs for ABS market infrastructure

Vanguard ran the test on Symbiont’s Assembly DLT.

“By digitizing and streamlining 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,” said Warren Pennington, principal and head of Vanguard’s Investment Management FinTech Strategies Group, in a statement.

When paired with smart contracts, the ABS securitization process showed “increased information flow, enhanced price discovery, and secondary market liquidity.”

Further, “automation of key corporate actions is possible through the use of a common infrastructure that is open to all market participants.”

Recent bouts of volatility and illiquidity in the markets were witnessed in the recent crisis from the virus outbreak. These exposed the need for fast, transparent, and more automated systems that can highlight liquidity and funding risks in time.

Successful implementation of the blockchain technology will result in better outcomes and reduced costs for market participants.

What the pilot test proved

Mark Smith, CEO of Symbiont, said, “There is considerable significance to the completion of the pilot program. The successful demonstration of an ABS issuance is a momentous step forward in fundamentally changing capital markets’ infrastructure through blockchain technology. 2020 may be the year that, for the first time, market participants will see a live ledger-based issuance.”

Vanguard’s obsession with costs

Vanguard and Symbiont have a history of working together. In October 2019 Bloomberg reported that they were collaborating on building a blockchain platform for trading currencies without the need for intermediation by banks – so-called peer-to-peer trading.

In a separate project, Vanguard and Symbiont went live in 2019 by using the blockchain to update index data.  The data consumed from Vanguard’s funds worth $1.3 trillion.

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