Awards: Cobalt

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 a 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.

Concentration risks

He also highlights the concentration risks that have piled up within FX prime brokerage operations.

“If you’re making $100 million from FXPB as a bank, a single client blowing up can easily cost you a third of that. So if you have a large slice of the market, as an FXPB the risks and the rewards are hugely skewed to the downside,” Patten notes.

It is not just the risks that are high. The post-trade cost of a trade can be as much as $1, which, especially for smaller trade sizes, verges on the prohibitive side. Cobalt charges 2 cents per unique trade creation and 0.5 cents for micro trades.

“Exchanges are coming into the business and costs are still very high. The role of non-bank market-makers is also on the rise and there are new FXPBs coming into the market. The time for a real all-to-all market is here and we are helping to make this a reality,” adds Patten.

VIEW THE LIST OF WINNERS