The Financial Times reported yesterday that UK leading investment fund processing firm Calastone will be considering moving its activities to the blockchain by May 2019, saving up to USD 4.3 billion in costs annually.
Calastone manages an industry share of more than USD 217 billion a month, to include transaction among buyers, sellers, and distributors. According to the news report, CEO of Calastone Julien Hammerson said that “funds were being hampered by continually rising costs and [the] threat of competition… rendering the current system economically and operationally unsustainable”.
The objective of this strategic move will be to reduce the cost of operations and provide a blockchain mainstream approach for finance through over 1,700 firms currently being served, including the JP Morgan Asset Management, Schroders and Invesco firms. The processing will involve a network of banks and other financial advisers.
The fund processing constitutes sending of messages between the communicating firms and their counterparties. The current fund processing done by most industries are manual involving the use of fax to transmit these messages. Calastone operates a digital messaging services where these messages essentially constitute placing orders, receipt confirmation, and price confirmation.
Following a report earlier this year by Forrester, where Calastone was able to achieve cost reduction of up to USD 585 million for mutual funds through automation to major global funds markets; Calastone believes that it could achieve more using the blockchain technology.
The CEO of Calastone Julien Hammerson is optimistic about the roles of technology in managing funds, and in a comment on the Forrester report, said, “These results are [a] testament to the impact technology can have on an industry at a global level. Though that is just the first step… analysis highlights how significantly these benefits can be accelerated when using blockchain technology to automate the entire lifecycle of mutual fund transactions.”
In June, Calastone said it had successfully completed the first phase of its proof-of-concept, a blockchain-enabled distributed market infrastructure (DMI) and has now moved on to bringing mutual funds market onto the blockchain in 2019.
Mutual funds are increasingly showing an interest in blockchain technology. As far back as 2016, Aberdeen Asset Management and Aviva Investors worked on exploring blockchain in trading systems to reduce costs. Last year, Nasdaq and Sweden’s SEB bank together explored the blockchain for mutual funds. Another US mutual fund manager Vanguard said it will consider using smart contracts in some of its business operations.
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