Vanguard is looking to break banks’ stronghold on the $6 trillion currency market with a new blockchain platform

Vanguard Group, the investment advisor with assets under management (AUM) in excess of $5 trillion and the largest provider of mutual funds in the world, is testing a new currency trading platform, reports Bloomberg citing a person familiar with the matter. Based on blockchain technology, the peer-to-peer (P2P) platform will enable asset managers to trade currencies with one another directly, bypassing the need for investment banks.

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The platform, which has been operational for two months, has already handled some trades, according to the person. Vanguard has enlisted blockchain technology developed by New York-based Symbiont, a company employing the technology to capital markets, for the platform.

This marks the second collaboration between the pair, with Vanguard previously applying Symbiont’s blockchain technology to improve how it reviews index data. While Vanguard hasn’t given details regarding the P2P FX platform, Carolyn Wegemann, a spokeswoman at the company, confirmed that “Vanguard is currently piloting a project focused on improving the efficiency and reducing the risk of FX hedging,” per Bloomberg.

If successful, Vanguard’s blockchain-based platform could have major repercussions for the currency market. For decades, the $6 trillion-a-day market has been dominated by investment banks like JPMorgan Chase and Deutsche Bank, per Bloomberg. Vanguard’s FX platform stands, at least in theory, to shift this dominance away from these banks by reducing asset managers’ trading costs by allowing them to match directly with other managers who have countervailing interests, according to Campbell Adams, a former senior currency trader at Deutsche Bank and founder of ParFX, cited by the outlet.

And Vanguard, which trades around $2.5 trillion in currencies a year, has previously been bullish about the potential of disintermediating these players. Last month, Andy Maack, head of the company’s FX trading, told The Tradeabout the “tremendous amount of interest” around the potential of a P2P trading platform that would decouple currency trading from banks.

Vanguard’s long history of innovation makes its latest venture a genuine threat to the status quo — one that would mark a major milestone in blockchain’s nascent and thus far turbulent history.

  • The FX platform would mark one of the most significant deployments of blockchain in financial services. Amid considerable hype around blockchain’s potential to upend existing processes across the financial services value chain, major players have invested billions on the technology. Yet, despite those investments, firms have struggled by and large to move their early experiments to large-scale enterprise operations. If Vanguard can successfully navigate some of the challenges that have stymied this promise — from scalability to interoperability — it would act as a litmus test for the wider industry’s stumbling blockchain ambitions.
  • And while success isn’t guaranteed, Vanguard’s pioneering legacy gives it a considerable advantage. The company has been a major driver of change within the investment space since it launched in 1975. And it’s continued this streak in recent years: For instance, while a number of banks have struggled to take advantage of the hype around robo advisors, Vanguard’s bucked that trend significantly. As of this year, the $115 billion AUM it’s amassed via its robo platform makes it the largest robo advisor, per Robo-Advisor pro. This ability to leverage emerging technology and trends within the industry to increase its share of the market makes Vanguard’s efforts to upend currency trading markets a serious threat to incumbent banks.

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