Cobalt, the shared back and middle office FX infrastructure provider that leverages blockchain-derived concepts of encryption, digital signatures and consensus, has unveiled its new credit management platform.

One of the issues that this credit engine attempts to solve 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, in part because the risk of suffering a major loss from a defaulting client has in some cases failed to justify returns.

According to Cobalt, this 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 claims that its platform overcomes these issues entirely.

Crucially, the platform is co-located amongst all the main execution venues, which facilitates speed and enable it to operate 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 could be 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 it’s 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 Cobalt’s advisory board adds: “Credit is the lifeblood of the global FX markets, but if it’s not managed properly it can have catastrophic consequences for prime brokers and their clients. These institutions are plagued by enough risks already in today’s challenging market conditions – credit management should not be one of them.”

The platform is currently live in Cobalt’s beta testing environment and will be rolled out with the company’s FX post-trade network later this year.