Investment Operations

Vanguard, Leading Custodians, Collaborate on Blockchain-based ABS Settlement Lifecycle

Blockchain Data Initiative

Vanguard, in partnership with technology provider Symbiont, confirmed the completion of the first phase of a blockchain pilot designed to digitize the issuance of asset-backed securities (ABS).

In close collaboration with a large US ABS issuer, as well as BNY Mellon, Citi, and State Street, Vanguard successfully modeled the full lifecycle of an ABS settlement on distributed ledger technology (DLT) network by replicating end-to-end transaction flows.

“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.

According to a joint statement, Vanguard and Symbiont have been working with a large US ABS issuer and participants in the banking industry to improve the process of securitization of ABS issuances. The vision for pairing Symbiont’s Assembly DLT with smart contracts—self-executing contracts that are triggered when an agreed-upon event occurs—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 that is open to all market participants.

“We continue to assess new technologies, collaborating with our clients and partners, with a focus on making the risk transfer process across the industry more robust and efficient,” Puneet Singhvi, FMI Head and Markets and Securities Services lead for Blockchain, DLT and Digital Assets, Citi, mentioned.

Mark Smith, CEO of Symbiont, said that the pilot provides the technical and operational foundation critical to supporting an asset issuance on a distributed ledger network. 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. “There is considerable significance to the completion of the pilot program,” Smith said. “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 and Symbiont have been leveraging blockchain technology to improve capital markets since December 2017, when the two joined forces to simplify the data distribution process. In 2019, Vanguard went live with Symbiont’s technology to consume data for $1.3 trillion worth of funds. Industry watchers say 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.