The proprietary, cloud-based infrastructure is easily scalable and allows trading much sooner than legacy infrastructure, COO, and head of prime sales and electronic execution Andy Volz said. And it’s only the beginning, as the company’s roadmap sees them bringing the same responsive technology to multiple markets and asset classes.
Volz is part of a team uniquely positioned to bridge the traditional and modern. He’s worked at tech-focused prime brokers and helped build systems at large incumbents. Others on the team have similar backgrounds.
What makes Clear Street’s system unique
After meeting Clear Street’s founders, Volz said they were quickly attracted to their novel proposition.
It begins with building an in-house system that allows them to clear trades instead of renting external systems. That system has modern technology at its core, with a horizontally scalable, cloud-based architecture.
“No one’s done that that’s actually in business and clearing meaningful volume except for Clear Street,” Volz said.
“We found that the first application of that technology was to prime brokerage and traditional clearing, which are the main businesses we run now. But it also has applications and clearing for fintechs, the next Robinhood or Webull or Betterment has applications in clearing for other brokers and clearing for market makers.”
Why is such a system a rarity? Volz said that Clear Street is an exception in this era of quickly going to market and iterating.
It’s not something you build and get up and running in six months. It’s taken discipline to maintain the vision for the API-based core system. Once those public APIs are exposed, it will allow the company to service fintech and other brokers.
“We want to stick to our knitting and keep that building discipline, so you don’t end up in a position where replacing a piece of software becomes extremely difficult due to the amount of tech you’ve taken on by implementing someone else’s legacy technology,” Volz said.
Why capital markets have been slow to innovate
Volz said innovation has been late to capital markets for a few reasons.
The incumbents are doing big business with their existing systems, even though they are layering technology on bases that are, in some cases, older than the Internet. Changing that system is like taking the engine out of the plane in mid-air.
Volz said he heard one company say it would take them 15 years to migrate from their current system to a cloud-based one fully.
Any guesses on what the needs will be in 2037? Such companies are lucky if they can deploy twice per year.
Clear Street’s architecture allows them to deploy seven times daily if they need to, thanks to a group of small, configurable services.
Bringing real-time data access via the cloud
Rapid access to data is a hallmark of Clear Street’s system. A legacy system may give you access to real-time data in a few hours or the next day. WIth Clear Street’s horizontally-scaled system, the objective is real-time data.
“It all comes down to scalability,” Volz said. “We were able to scale from probably 20 basis points of the US equity market to 2% with one deployment in December (to) one new customer.
“You can’t do that with servers and racks. You can’t think about how much capacity you need to add when you’re adding servers versus scaling in nodes and clouds and cloud and AWS. So just the scale advantages of not having to overspend and over resource because you can grow quickly and shrink quickly give us the possibility to give our customers so much more access to their data.”
With the cloud, companies can scale in real-time, and that helps margins, Volz added. Longer-term infrastructure investments are often not initially profitable and must be updated once completed. Clear Street doesn’t have to plan for peak capacity because they can add that in real-time. A prime brokerage could need eight months to develop a new system, whereas Clear Street can deploy in two weeks. Volz believes that the time frame can be considerably shortened.
A long list of expansion possibilities
Clear Street can expand into new asset classes and markets, Volz said. They’re doing substantial volume in US equities and options, so the next step is to expand asset classes. The roadmap is Europe and Asia for equities options while also progressing into fixed income, futures (an active project), derivatives, and ultimately crypto.
“Our goal is to improve public market access to all those products globally, on one system,” Volz said. “Our goal is to stay the course of building in the cloud, on our systems, so that clients can get reports across markets, across asset classes quickly and efficiently, as well as real-time data quickly and efficiently across all those products. That’s our ultimate goal.”
Client demand dictates what comes next, Volz said. Current customers are asking for fixed-income products. Customers also operate in multiple regions and would like convenience across them.
In addition to the benefits provided by horizontal scaling and the cloud, Volz said Clear Street’s designers had some great foresight. They built their system to accommodate 18 decimal places, so it was ready for ethereum. Other currencies can be quickly addressed.
The crypto and staffing climates
Volz said the current crypto bear and resulting contractions are correlated to growth tech and part of a normal market cycle. Look for the healthiest to retrench, cut costs and expand their timelines as they wait for the multiples to return. We also see which firms are more dependent on the cost of capital than we thought.
Clear Street is in a good position, Volz said. They recently announced their first raise, a Series B that has them valued at $1.7 billion. Prysm Capital led the round with NextGen Venture Partners, Walleye Capital, Belvedere, NEAR Foundation, McLaren Strategic Ventures, Validus Growth Investors, NEAR founder Illia Polosukhin, Xendit founder Moses Lo, and Alastair Trueger also committing.
Staffing is a current priority, with Clear Street looking to grow its engineering team. It’s a competitive environment for engineering talent, but Clear Street’s unique value proposition provides an incentive.
“We are applying modern tech to a traditional problem, which I think is exciting because it’s well defined,” he concluded. “It’s very difficult to work with the current clearing system. So we know what the problem is, and we’re able to solve it with… all the stuff that we believe the talented engineers from, whether it’s Google, Facebook, or Coinbase, want to work on and learn.”