Andy Coyne: A shared post-trade infrastructure with golden copy transactions not only eliminates reconciliations and multiple bi-lateral operating silos but also ensures that all transaction services are mutually tied. This removes all trade differences and settlement finality failures, which historically has been a great workload for FX participants and a source of expensive market errors and mistakes. The data set is essential to those parties that need a perfect view of interconnectedness across the market, such as trusted compression providers or regulatory bodies in the pursuit of transparency and a means by which systemic market risk can be reduced.
William Essex: Is there a front-office gain here as well, perhaps?
Yousaf Hafeez: The key benefit of this partnership is the way in which distributed ledger technology is able to significantly reduce risk and post-trade costs for financial market participants. Cobalt’s solution achieves this by taking legacy FX systems and replacing them with one immutable record of FX transactions that frees up back and middle office resources from multiple layers of reconciliation.
AC: Yes, historically post-trade has been somewhat detached from execution but there is no reason why this has to be the case. Clearly, market risk system trade stores and portfolio risk profiles must be the same on the ledger. Speed is essential to ensure these are in continual synchronisation, but the ledger store services can also reduce credit risk and improve balance sheets such that market access for the trading businesses is fully optimised. Cobalt has services that make this possible.
WE: I imagine all that data is valuable in itself. Where do we go from here?
YH: The value of data is increasing across all industries. In financial markets, data can be a powerful driver to ensure regulatory compliance and market transparency. The challenge is to understand the value of this data, how it can be consolidated or even augmented to increase the value further. More and more firms are now looking at how they can monetise this data.
AC: Trade data drives the service. Cobalt Brightside is the business-intelligence layer that manages pre and post-trade credit and post-execution trade events, ensuring trades have passed the rules established by market participants before creating each single immutable transaction – the first and last reconciliation of a trade. Cobalt BlueSky is the next layer of Cobalt’s infrastructure. It is the shared ledger that stores the golden copies of FX trades, allowing trade participants to manage their transaction portfolios and leverage further services to bring even greater credit and operational efficiency before settlement.
Cobalt BlueSky’s data set provides a unique view of the market and members can invite trusted third parties to provide services through permissioned access to Cobalt BlueSky, for example regulators, multilateral compression or TCA providers.