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Betting on Blockchain-Enabled Global Mutual Funds Trading

New research from the global fund transaction network operator Calastone forecasts that more than $2.6 billion worth of potential cost savings for the global mutual funds market could be achieved by moving to a blockchain-enabled distributed market infrastructure.

The Calastone press release emphasized the significant value potential that blockchain technology has for this industry and its investors.

Ken Tregidgo, deputy chief executive of Calastone, said significant cost savings could be made by using distributed market infrastructure, as reported by the Financial Times. Distributed market infrastructure would overcome the need for multiple actors to manually input the same transaction data multiple times, which is time-consuming and error-prone.

“That is a cost that is being paid and is ultimately being paid by the end investor, by you and me,” said Tregidgo.

“There is £1.9 billion that is being burnt in the cost of buying the fund rather than accruing and adding value to the investor,” added Andrew Tomlinson, chief marketing officer at Calastone, as reported by the Financial Times.

According to the company: “Calastone’s network connects more than 1,300 financial service organizations across 34 global markets processing over £80bn of trades and 7 million messages each month, making it the world’s largest global fund transaction network.”

Calastone’s previous efforts to partly automate its transaction network have already had a significant impact on the global funds market. A recent research report by Forrester, titled “The Total Economic Impact of Calastone On The Global Mutual Funds Market,” revealed that transaction automation through Calastone permits saving £5.28 in cost efficiencies for each order and has delivered £458 million in savings over the previous six years. The report, commissioned by Calastone, includes a global market survey of 234 mutual funds organizations with an analysis of the role and impact of automation on the transaction life cycle.

Forrester’s analysis found five important benefits for fund operators using Calastone’s automated transaction network: improved process times, a reduction in manual errors (and the time required to address them), the ability to scale and process greater volumes of trades via increased flexibility in trading windows, faster response times, and greater transparency via better audit traceability. 

Calastone’s internal follow-up analysis, based on Forrester’s findings and a 2016 study by Deloitte titled “Europe’s fund expenses at a crossroads; The benefits of mutualizing the cost of distribution,” showed that Calastone’s own forthcoming, blockchain-enabled distributed market infrastructure (DMI) could deliver additional cost efficiencies of over £1.9 billion worldwide. 

In December 2017, Calastone announced that its global transaction network would be migrated onto a private and permissioned blockchain technology infrastructure. The announcement followed the successful completion, announced in June, of the first phase of Calastone’s blockchain-enabled DMI proof-of-concept (PoC). This PoC demonstrated the feasibility of using blockchain technology to create a global marketplace for the trading and settlement of mutual funds.

“Our services have introduced significant operational and cost efficiencies into the sector and as we scale our business for the future, we are ensuring we have the connectivity and technology to continue to service the increasingly sophisticated demands for efficiency, value and speed,” said Calastone CEO Julien Hammerson. “In making this first step using blockchain [technology], we are providing our customers with the requisite tools they need, to be future-ready.”

“Whilst the potential for long term change is great, the migration path for customers to take advantage of the future infrastructure will remain seamless, enabling clients to move when they are ready,” added Tregidgo. “A blockchain-enabled marketplace means alleviating operational inefficiencies, increasing performance and generating greater savings — a win-win for everybody.”

In an October 2017 interview, Tregidgo elaborated on the potential of the blockchain and Calastone’s plan to provide easy access to its customers.

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