Fully digital capital markets with Clear Street
/While fintech has taken off and revolutionized experiences with money, certain pockets of our economy have been left behind. Some of the richest industries among them.
Brad Bailey, Head of Market Intelligence at Clear Street, argues that capital markets run on old-school technologies that leave small players and their clients at a disadvantage. With siloed data sets, stubborn compliance stacks, and incremental tech upgrades, the market is left with outdated, inefficient, and potentially risky infrastructure.
In an interview with The Financial Revolutionist, and a week after Clear Street’s $165M Series B announcement—making the company a unicorn—Bailey details the market gap Clear Street tackles, explains why capital markets have been slow to modernize, and outlines how new technology can level the playing field between large and small players.
This interview has been edited for length and clarity.
The Financial Revolutionist: What is Clear Street, and what kind of market need does it address?
Brad Bailey: Clear Street builds better access to capital markets. If we think about fintech broadly and its different solutions, no one ever wants to dig into the back end. And when it comes to the financial markets and the ability to modernize them correctly, solutions tend to build an orchestration layer or an abstract layer. It always sits above some—in the case of the core of the markets—very antiquated technology. More than anywhere, it’s just so manifest when you're dealing with the underpinning of the financial markets that trade in the billions of shares and trillions of dollars per day.
We rebuilt these systems like clearing and custody and settlement on modern rails: We didn't just polish the rails, we really built new infrastructure. And now you have a full tech stack, where you no longer have to worry about both functional and positional or asset class silos. Everything is built in the same way—the same data, the same tech stack.
We’ve built these battle-tested, mission-critical systems that we use every day. The first part of the platform, the prime brokerage, or the wholesale B2B and B2B2C part of the market, is our starting point. And building from there in terms of the platform just opens up an incredible ecosystem and opportunity.
What falls under your purview as Head of Market Intelligence?
I’ve been working to make sure that we have the right information and data to drive our products and services—and tell the story of Clear Street—as we grow and add clients. It’s only since late last summer that we've really been out there.
So you hinted that there’s a pretty antiquated tech stack for capital markets. Presumably, brokerages and other kinds of institutions in this space don't want to put their huge businesses down as collateral when it comes to transitioning to some new tech stack. The old tech is maybe imperfect, but it still works to some extent. Is that the friction you've encountered?
You really hit a certain aspect of that spot on. The thinking goes, “If it works, don't fix it.” Often firms attempt to build something new, and they end up with just another system in addition to existing ones.
This is not an area that has gotten investment because of regulatory changes and market demands. If these systems break, or parts of them, we can have really tragic outcomes that have a massive impact in the marketplace—you're talking unbelievable sums of money.
How does Clear Street overcome those obstacles?
We’ve combined on a talent level and cultural level to get the right expertise from the markets, the right operational expertise, and combine that with expert engineers and developers who have done this type of data work, taking that vision and mapping it onto a fresh build.
What you’re seeing is the beginning, kind of priming the pump to create an ecosystem, where you use native APIs and can access different types of data that people would not have historically had.
In other words, the two main components at this point that help you overcome businesses’ hesitation is, on the one hand, hiring the right people that demonstrates that you're serious and an expert in the process of digitizing capital markets. And on the other, you're able to provide such a compelling stack that expands the capacity to use data in certain ways, which is its own incentive. Is that right?
Within capital markets, there has been a growing operational, compliance and cost burden for all parties. From the buy side, this has come from regulators and investors demanding more transparency—more insight into underlying trading and portfolios. To get prime brokers and other wholesale folks this type of information has been really hard. Just by demonstrating what kind of data they’ll have access to has resonated with people. And, especially if we talk about smaller funds, or hedge funds, they’re not used to getting that kind of service.
It sounds like this software lets hedge funds have a lot of the same kind of compliance capacities as a much larger player without needing a 40-person legal team—doing so primarily through automation and being able to present data in a transparent way.
That's certainly part of it, but we should also think about large institutions’ technological resources. A lot of large hedge funds have entire quant teams rebuilding the models that their prime has for different risks. So they know, in their own books and minds, what's going on; smaller players just can't do that. So we can give them that information in real time, and, yes, we are automating workflows, which cuts some operational costs.
Are there particular examples that come to mind for you where interfacing with a potential client, you've learned something that's shaped how the product is developed?
There has been a lot of low-hanging fruit. Going through how potential clients get data, for example, or how changing something in a certain report has been a source of tremendous frustration. The receptiveness of clients has been quite profound, because they're used to being ignored in many cases.
You announced a $165 million Series B last week, officially making Clear Street a unicorn. First, congratulations, and second, what external partners have helped Clear Street get to this point?
We've done a lot of our own building, but we built in the cloud, and so AWS has been part of the journey. And, as time goes on, we'll have more partners as that ecosystem is set.
Any final thoughts, especially for The FR’s readers who work in finance and fintech?
Clear Street is doing something that no one else has done. Why has no one else done this? I think it’s a question of how to balance the culture. How can you bridge between someone from Google and another who’s spent years in a large bank or another type of financial service provider? They’re very different worlds. So getting that culture right has been crucial.