Vanguard Group, the Malvern-based investment giant, says it has successfully tested a blockchain application in a pilot program to automate the sharing of stock index prices and updates, sending data faster and cheaper in hopes of improving clients' returns.
For the past several months, Vanguard has been testing a system developed by Symbiont.io, a New York software firm, Vanguard says.
Symbiont is also developing the SmartRecords platform for the State of Delaware, which hopes to enhance its status as a corporate legal haven by helping companies move their financial and legal records to blockchain.
Blockchain is the name for a digital ledger program that allows a network of verified users to update data quickly. The word has become synonymous with undergirding cryptocurrencies like Bitcoin, but blockchain's uses are exploding. Think Excel-type spreadsheets, linked, and speeded up for the smartphone era.
Collecting, calculating, and reporting the values of hundreds of securities split among many markets, as adjusted over time, is a complex challenge. Until now, updating index values meant relying on "multiple parties and distribution channels," according to Vanguard.
But the blockchain application allows a decentralized network of investment pros to accept and post verified prices without moving through a central approval authority. It enabled Vanguard to "automate workflows," "eliminate the need for manual updates," and reduce risk, Vanguard said in its statement.
Starting "in early 2018," Vanguard plans to use the blockchain to share index value updates for indices set up by the Center for Research in Security Prices (CRSP), the University of Chicago affiliate that supplies Vanguard with benchmarks for its Total Stock Market Index and other popular funds.
"This is a terrific and not unusual use case for this technology," especially key in time-sensitive industries like investing, said Joe Guagliardo, a partner in the technology group at Pepper Hamilton LLP who has worked with several Philadelphia-area blockchain developers.
While blockchain "would automate a very manual process and improve accuracy," Vanguard has not yet estimated the cost or labor savings of the switch, spokeswoman Carolyn Wegemann told me.
ADDED 12/12: Symbiont operates a "private" blockchain of its own, as opposed to public blockchains like the bank-approved Ethereum network, which have no central gatekeepers and are open to anyone able to convince network users of their identity, notes Thomas Jay Rush, Philadelphia-based developer of the Quickblocks.io blockchain accounting system, which runs on Ethereum.
Indeed, until recently, many blockchain users have seen a private-access blockchain as a contradiction; why not use a traditional secured network? Symbiont's asset-tracking system represents an emerging use of a private blockchain: Given "the multi-party nature of the data, a blockchain can unify the data format, making exchange easier," Rush concluded. (ENDADD)
The thing, for me, that makes the blockchain most interesting is the fact that no-one needs permission to join. In fact, there is no-one to give permission if someone wanted it. This is the fundamental difference between public and private chains. I'm most interested in what happens when there is a fully public chain. What sorts of new human behaviors (if any) emerge from such a system. That's what I'm interested in, and probably why I don't know too much about Symbiont.
CRSP is one of several providers Vanguard has used in recent years to benchmark its popular indexed exchange-traded funds (ETFs) and mutual funds. The success of its low-fee index funds has helped Vanguard rake in more than $1 billion in new client assets each day this year. Its total assets are approaching $5 trillion, among the world's largest piles of investor capital.
While Vanguard's older generation of mutual-fund investors might not care exactly how much a market index or index fund moves from day to day, investors in ETFs, which trade as stocks, can follow and act on even small price movements.
"Using this platform, investment managers will be able to instantly distribute, receive, and process index data, resulting in better benchmark tracking and significant cost savings that potentially results in better returns for our clients," said Warren Pennington, a principal in Vanguard's Investment Management Group, in the statement.
The blockchain application will enable "the healthy evolution of the marketplace," added David Barclay, chief operating officer at CRSP.
"We're pleased both Vanguard and CRSP were open to exploring new ways to use our platform to make capital markets cheaper, faster, and more accurate for investors," added Mark Smith, Symbiont chief executive and cofounder.
Besides Vanguard and Delaware, other Symbiont clients include the Smart Loans inter-bank loan syndication system, led by Credit Suisse; the Europe-based Smart Swaps hurricane and disaster insurance market; the Orebits "asset digitization" service; and Medici Ventures, "a blockchain-focused venture fund."