This is another example of how blockchain technology could impact the asset management sector.

SEB, the Nordic financial services group, and NASDAQ are piloting a prototype that aims to improve the efficiency of a mutual fund trading platform using the technology that underpins bitcoin transactions. 

The firms are testing a solution powered by blockchain technology to see if it can streamline the processing of purchases and sales of fund units – an area that is currently “characterised by manual routines, long settlement cycles and paper-driven processes,” the firms said. 

“By leveraging blockchain technology there is strong potential for improvement via digitalisation that can reduce manual work, create a faster process and reduce the risk for errors," said Magnus Haglind, senior vice president and head of product management and market technology at Nasdaq. "This development will look to benefit the fund market and, in the end, also the individual investors through faster response from purchases and sales."

Blockchain technology rose to fame in 2009 when bitcoin was born. A blockchain is a virtual distributed ledger of transactions shared peer-to-peer that can record ownership across a public network of computers rendered tamper-proof by advanced cryptography. 

The technology is causing a stir within the financial services sector as its supporters believe it could reduce hidden expenses in the financial system by ousting inefficiencies across areas such as payments, syndicated loans and equity clearing.

SEB and NASDAQ’s project indicates that by subscribing to a private blockchain – one that is not publicly visible – various market participants including fund houses, distributors and others will be able to share a distributed database in which all transactions and changes are recorded in real time. 

The firms explained that the Swedish funds industry lacks a “central, primary point” for registry holdings, and that the funds administration process is hampered by inefficiencies because a transaction requires input from several intermediaries. 

“This is handled today through a combination of different technical solutions, including orders placed by paper-driven processes and follow-up phone calls,” the firms said. 

Transferring this onto a blockchain could revolutionise the validation process, the firms said, as every party involved in the process would have access to the transaction and could monitor its progress in real time. Any changes made would also be instantly visible by all parties. 

The announcement of the project follows one made by SEI, the investment management solutions provider, last week.

The firm said it had partnered with London-based technology house Coinfirm to build a blockchain-powered solution that would “significantly reshape” the UK’s asset transfer market.