FX credit management: Keeping up with the bots
The operators of FX platforms deny that credit management has failed to keep pace with the development of automated trading – but they do acknowledge that the process could be more efficient.
Credit is not allocated or managed correctly at trading venues in real time and the person bearing the credit risk is often the last to know.
That, at least, is the view of Adrian Patten, co-founder and chairman of Cobalt, an FX-focused fintech company, in a recent market commentary. To make things worse, Patten adds, many risk systems sit downstream and are slow, requiring manual processes.
Patten’s comments were made in the context of promoting Cobalt’s own low-latency credit-management solution, and need to be seen in that light. But others do not disagree.
Henry Wilkes, chief executive of Point FX, claims that risk technology systems cannot keep pace with real-time automated trading systems.
“Credit management is a major challenge for the foreign exchange industry,” he says, “and it is essential that the technology infrastructure that supports the credit and risk function is radically upgraded to be able to manage live credit management, creating a more efficient and transparent process for all market participants.”
Tracking and managing credit in a live environment should also give institutions and clients more flexibility and protection from large losses, allowing market participants to unwind trades in an orderly fashion without increasing risk.