Capital markets News

Vanguard, BNY Mellon, Citi, State Street complete blockchain pilot for asset backed securities


Today Vanguard announced it completed the first pilot for an asset backed securities (ABS) solution developed with Symbiont. Also involved were BNY Mellon, Citi, State Street and a “large ABS issuer” in the banking sector. Vanguard had almost $6.2 trillion in assets under management as of January this year.

Asset backed securities are seen as a good match for blockchain because, by definition, there is a bundle of underlying assets that historically can seem rather opaque. That’s something that earned mortgage backed securities a bad name during the 2008 financial crisis. 

Blockchain helps to provide some level of transparency. Take the example of an ABS of credit card debt. There’s likely to be a database that tracks the payments made by the cardholders. Potentially on a regular basis, a smart contract could pull in that information and show the proportion of debt that is up to date with payments. 

Symbiont CEO Mark Smith commented: “2020 may be the year that, for the first time, market participants will see a live ledger-based issuance.” 

Greater transparency helps with secondary market pricing discovery and also liquidity. That works whether the underlying asset is card debt, loans, or even trade finance.

“Vanguard is dedicated to providing innovative, world-class solutions that help advance the financial services industry,” said Vanguard’s Warren Pennington. 

“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.”

Vanguard said this is the first phase of the pilot, and this stage focused on ABS issuance.

Symbiont and Vanguard previously worked on a project that uses distributed ledger technology (DLT) for sharing index data between index providers and market participants. The two are also thought to be collaborating on a foreign exchange project.

Elsewhere, WSFS Institutional Services, which provides ABS trustee services, is creating a reporting solution. Unicorn startup Figure Technologies has already done a live issuance in the U.S. for $149 million of blockchain loans.

But a lot of the ABS activity is happening in China, according to Fitch. One of the leaders is Zheshang Bank, which almost two years ago did one of the first ABS issuances based on trade finance logged on a DLT. More recently it issues asset backed commercial paper.

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