Cobalt, the shared back and middle office FX infrastructure provider, has unveiled its innovative credit management platform that significantly reduces risk for FX market participants.
Built for modern, distributed electronic markets and automated trading, Cobalts low latency credit management platform utilises high-throughput technology to control credit and associated market access rules throughout the trade lifecycle in real-time. It significantly reduces risk for the entire FX market, without disrupting the traditional means of execution.
One of the issues the credit engine solves for the market is the challenge faced by credit providers. Over the last ten years the number of prime brokers in the FX market has shrunk significantly, as the risk of suffering a major loss from a defaulting client has failed to justify returns.
This major risk is driven by the inability to allocate and manage credit at FX trading venues in real-time, meaning the party with the credit risk is often the last to know. By enabling central real-time credit management, the Cobalt platform overcomes these issues entirely.
Crucially, the platform is co-located amongst all the main execution venues, meaning it is fast and operates a high throughput messaging infrastructure that can guarantee the delivery of over one hundred thousand messages per second.
Credit can be managed using all traditional market methodologies: NOP, DSL and most importantly margin. It can be pushed dynamically to clients and trading venues in real-time, meaning that a client in a distressed situation cannot increase their position but is able to unwind it and eliminate the risk.
This is critical during unpredictable market events and in instances where algos have lost control, or where thin liquidity and electronic orders can cause losses in the tens of millions of dollars.
Andy Coyne, Co-Founder and CEO of Cobalt, comments: Electronic trading has evolved beyond recognition over recent years, and its now critical that credit management catches up. Centralised low latency credit management is the future for the global FX markets and we look forward to leading the charge in creating a more efficient, orderly future for all participants.
Darren Coote of Cobalts advisory board adds: Credit is the lifeblood of the global FX markets, but if its not managed properly it can have catastrophic consequences for prime brokers and their clients. These institutions are plagued by enough risks already in todays challenging market conditions – credit management should not be one of them.
The platform is currently live in Cobalts beta testing environment and will be rolled out with the companys FX post-trade network later this year.