When Adams worked on the FX trading desks of Citigroup, Morgan Stanley and Deutsche Bank in the 1990s, asset managers made currency trades almost exclusively through banks. In the mid-2000s, buy-side firms could match trades with other investors on electronic trading platforms but still had to go through a bank to execute them, said Adams. Vanguard’s initiative would bypass that, too.
Success isn’t guaranteed. It remains to be seen how the venture will operate, whether there’ll be sufficient liquidity, who will be allowed to participate and who will be willing to sign up, Adams said.
Swaps, Forwards
A blockchain-based peer-to-peer platform would have greatest impact on swaps and forward markets rather than in spot trading because on a day-to-day basis opposite interests among investment firms may be limited in spot, said Adams. Banks are also more dominant in these derivatives trades because investors may rely on them for credit lines, said Jay Moore, the founder of FX HedgePool, a currency platform that matches buy-side customers.
Vanguard, based in Valley Forge, Pennsylvania, is no stranger to challenging convention. Founded in 1975, the investor-owned firm made its name with the first index mutual fund. It later was among the biggest proponents of ditching a long-held market practice that let currency dealers back out of losing trades.
“Vanguard has proven to be pioneering and very forward thinking in many ways, so it makes sense for them to take the lead,” said Moore, who’s based in New York and previously worked for Brown Brothers Harriman. “The market won’t change on its own, it takes someone to push the envelope.”
The Vanguard FX platform uses blockchain technology developed by Symbiont, a New York-based company that’s applying the technology behind Bitcoin to capital markets, said the person familiar with the matter.
This also isn’t the first time Vanguard has partnered with Symbiont: The firms previously teamed up to explore applying blockchain to the investment giant’s process for updating the index data behind its mutual funds. A spokeswoman for Symbiont, which is backed by Citigroup and Nasdaq Inc., declined to comment.
This article was provided by Bloomberg News.