Nasdaq, one of the world’s largest providers of technology for exchanges, and SEB, a Swedish financial group, have teamed up to test blockchain based trading of professionally managed investment funds, called mutual funds which pools money from many investors to purchase securities.
The fund market lacks a Central Securities Depository (CSD), SEB says, with much of the trading continuing to be paper based and done through various means, including over the phone.
They, therefore, have developed a prototype for a new fund platform which allows various market actors, fund companies, distributors and others to share a distributed database on which all transactions and changes are immediately registered and known by all participants.
Göran Fors, acting head of Investor Services and in charge of the cooperation with Nasdaq, says:
“We will together with Nasdaq continue to develop the technology and we have also opened up for collaboration with additional interested parties. This is a matter of developing a uniform market infrastructure, and therefore we welcome collaboration with all actors working in the market.”
It is unclear what blockchain technology SEB and Nasdaq are using, with the main contenders likely being a private fork of Ethereum, Hyperledger, or R3’s products.
Magnus Haglind, senior vice president and head of product management at Nasdaq says: “This is a perfect use case for the blockchain. It is not about disrupting the industry, it is focused on bringing efficiencies.”
Such efficiencies may be mainly brought through replacing intermediaries with technology as SEB says currently numerous parties are involved in one transaction:
“Since a transaction chain can consist of many steps – for example, when a customer via a Swedish bank buys units in a foreign fund company – a relatively large administrative process arises. This is handled today through a combination of different technical solutions, including orders placed by fax and follow-up calls by phone.”
Handling the process through blockchain technology may considerably reduce such steps, with the prototype now to be tested through the process towards potentially live production use.
A time estimate for such live production ready use is unclear at this stage, but some similar blockchain based products may launch as early as next year.