Regulators provide the framework and ongoing review to assure the safety and soundness of markets. FX trading through 9th Gear offers a new approach, with transparency while mitigating the three key risks defined by the Office of the Comptroller of the Currency (OCC):
- Credit Risk: Trading is now executed on a “fund then trade” basis so all trades are fully cash collateralized.
- Liquidity Risk: Disaggregating lending within the FX trade opens the door to a host of new lenders that serve as incremental liquidity providers.
- Operational Risk: Benefits in this area stem from several sources:
- Digital ledgers provide for a mutualization of information with immediate and immutable trade confirmation
- Payment delivery risk is eliminated as payments are no longer limited by inconsistent banking hours around the world (e.g., JPY is paid a day before USD is received)
- Trade failures decline substantially with smart contracts and a “single source of truth”