The post-trade service provision space in foreign exchange has long been dominated by established incumbents, who continue to enjoy the benefits of being deeply embedded in the infrastructure of the market.
But Adrian Patten, Co-Founder and Chairman of Cobalt, says a revolution is happening. He partnered former Traiana Chief Executive Andy Coyne for the Cobalt venture, setting out to take a blank-sheet approach to the post-trade space.
“We started from scratch and decided to see how we could do this differently,” he says.
It worked. Cobalt was voted the winner in the Best Post-trade Services Provider category at the 2018 FX Week e-FX Awards.
The issues that the company wants to solve are manifold: eliminating duplication from processes that occur due to the layers of legacy systems existing within major banks; reducing errors and delays that are the result of non-standard reconciliation processes; and increasing the availability of credit in the market by allowing counterparties to see their exposures in real time.
“Rather than credit being checked at the end of the trading process, we do credit checks right at the beginning, because we can monitor contracted relationships in real-time,” Patten says.
The time for a real all-to-all market is here and we are helping to make this a reality
Adrian Patten, Cobalt
In June, Cobalt unveiled a credit-management platform that significantly reduces risk for FX market participants, as it allows for centralised and real-time checks and adjustments.
“Credit is currently over-allocated in the market and tools like kill switches actually make things worse,” says Patten.
He argues that post-trade kill switches lock counterparties into positions they cannot trade out of once credit exposures have been breached. Cobalt has designed a tool that allows counterparty to exit positions by trading dynamically by currency pair if they run out of credit.
“At the moment, retail traders get better credit-management services than institutional players in interbank markets,” says Patten.