Another mainstream financial company has seen the light. Calastone, a global funds network based out of London, is going to switch its entire fund trade clearing services system to the blockchain. According to a report by Reuters, the transition is expected to take place next May.
Calastone’s move will put all of its services on a shared ledger. It will allow the company to automate nine million messages, reportedly worth more than $217 billion, that are sent back and forth between counterparties each month. Reuters points out that the company processes mutual fund trades for more than 1,700 financial companies, including Schroders, Invesco and JPMorgan Asset Management.
Under the current operating system, three distinct messages are required when an enterprise wishes to purchase a fund. The first places the order, the second provides the receipt and the third confirms the purchase price. Calastone’s chief marketing officer, Andrew Tomlinson, states, “The more you can automate, the more you de-risk, you more you streamline, the more you speed up.”
By switching to the blockchain, the company anticipates that the entire global fund industry – not including the U.S. industry - could save as much as $4.3 billion annually, per data Calastone received from the Deloitte audit company. This savings is possible by allowing companies to optimize trading and settlement processes and would a welcome relief to an industry that has seen higher costs due, in part, to the financial crisis of 2008.
Julien Hammerson, CEO of Calastone, told the Financial Times yesterday that funds are currently “hampered by continually rising costs and threat of competition, ultimately rendering the current system economically and operationally unsustainable.” The company has asserted that, by implementing blockchain technology, the mutual fund industry alone could save as much as $2.6 billion.
Calastone is just the latest to make the leap to blockchains. Last month, the Depository Trust & Clearing Corporation, a global post-trade market firm, began testing a new platform that is based on distributed ledger technology. DTCC is behind the Trade Information Warehouse, an event processing system that is used for about 98% of all credit derivatives transactions around the world.
Some traditional finance pundits are still too hesitant, or too naive, to understand the value of the blockchain. They continue to hold on to yesterday, arguing that blockchains aren’t secure, that they’re exposed to the risk of fraud and that there is a risk of data being lost. Of course, just a few key words can put those arguments to rest - Deutsche Bank, Wells Fargo (guilty of both losing data and of scamming customers) and Marriott.
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