Vanguard looks to blockchain for index data
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[December 12, 2017]
By Ross Kerber
BOSTON (Reuters) - Vanguard Group Inc is
moving to use blockchain to simplify how it updates index data
underlying mutual funds, executives said on Monday, an important sign of
confidence for the new financial technology.
Closely-held Vanguard, the top mutual fund firm with nearly $5 trillion
under management, has successfully tested blockchain to automatically
update data like the names and share prices of companies in index funds,
processes that must currently be closely overseen by individuals, said
Warren Pennington, a principal in Vanguard's investment management
group, in Pennsylvania.
Blockchain, the technology underpinning cryptocurrencies like bitcoin,
is a shared and immutable database maintained by a network of computers
on the internet. Banks and other large financial institutions have
ramped up their investments in the technology, aiming for it to simplify
and cut the cost of back-office processes.
Pennington declined to give a specific date as to when fund updates
would chiefly rely on blockchain, saying the goal is not to replace
human workers but instead to free them for other tasks.
Blockchain's potential, he said, is to serve as "a real-time automated
index process."
Vanguard funds tested with blockchain were built on indexes from the
Center for Research in Security Prices, at the University of Chicago's
Booth School of Business. Vanguard manages 17 funds on those indexes
including its largest, the $650 billion Total Stock Market Index Fund.
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Cryptocurrency enthusiasts have hoped big institutional investors could start
offering mainstream products based on blockchain, which would spur its
popularity. Fund firms, however, seem more interested in making the technology
part of their operations.
BlackRock Inc, for example, has tested uses of blockchain with custodian bank
clients, and CEO Larry Fink told analysts in October that the effort should
reduce errors and could be expanded.
Fink told Reuters in November: "Distributed ledger, lets be clear, is a real
thing. I would love to see a blockchain for the whole financial system that’s
legitimate, that is monitored, that is systematically monitored. I don’t see
that day anytime soon."
For its blockchain effort, Vanguard partnered with New York-based technology
firm Symbiont. Its CEO Mark Smith said in an interview the firm could license
the technology to other firms, including additional asset managers and index
providers.
"This can be used to automate all sorts of financial processes," he said.
(Reporting by Ross Kerber in Boston; additional reporting by Trevor Hunnicutt in
New York, editing by G Crosse)
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