Fireside Friday with… Clear Street’s Andy Volz

The TRADE speaks to Andy Volz, chief operating officer and head of sales at Clear Street, about shifting prime brokerage demands, challenges associated with multi-asset platforms and how best to tackle legacy infrastructure.

How are client demands of prime brokers shifting?

For hedge funds, access to capital and the ability to shift directions with agility — to create, employ, and scale new strategies — is critical. That edge often comes from a fund’s partners like prime brokers, who can facilitate lending and trading strategy implementation, and offer tools for pulling real insights from the troves of data that are a byproduct of proper market engagement. Partners that see risk in the same way hedge funds do are becoming rarer. With the right alignment and access to technology, many hedge funds will see the coming landscape changes as alpha drivers. Firms that continue to make these investments and leverage the best technologies available will have the edge in 2023 and beyond.

What is the driver behind Clear Street’s new investment banking unit?

The investment banking business will further establish Clear Street in the capital markets space and is another area where we’re excited to add value as a trusted partner. It will complement Clear Street’s prime brokerage platform and be another white-glove touchpoint in the client lifecycle. As we continue to build-out our suite of services to meet our clients’ needs, we remain focused on our mission to become a single-source platform that serves a variety of investor types across multiple asset classes, on a global scale. Upon regulatory approval, the business will provide strategic advisory, transaction, and creative capital solutions to emerging growth companies. 

What challenges come with building a platform for multiple asset classes?

The public US securities industry, which moves trillions of dollars a day, still relies on mainframe technology from the 1980s. These legacy systems are entrenched in manual processes and siloed data, resulting in costly errors and expensive technical debt. For many firms, replacing these antiquated systems would be like removing the engine from a plane mid-air. It’s time-consuming and difficult to execute with fragmented technology.Over the years, firms that rely on this antiquated technology stack have applied a facade of trendy solutions on top of an outdated core. However, this surface-level revamp of the interfaces can rarely hide the state of the underlying systems. These complex legacy environments often consist of a patchwork of systems that integrate poorly and require extensive reconciliations. 

In contrast, Clear Street is building a unified platform using cloud-native, event-driven, and horizontally-scalable technology. From front to back, our system acts as a cohesive whole, consisting of hundreds of microservices that can seamlessly communicate via a library of APIs (application programming interfaces).

This API-first approach lets us seamlessly add new capabilities. We started with clearing, settlement, and custody and subsequently added securities finance, risk management, and trading. We’re rapidly building support for multiple asset classes, geographies, and investor types.

How can shifting away from legacy infrastructure be better tackled?

As consumer technology rapidly advances, traditional operations systems in the capital markets seem even more outdated and limited in their ability to meet these demands. Beyond technology shifts, modernisation programs are particularly crucial when firms go through important changes like substantially growing AUM, merging with another firm, or diversifying into new asset classes, like adding fixed income to an equity fund, or taking on low-liquidity alternatives. 

Likewise, modernisation programs are often needed to keep up with changes in market structure and other regulatory demands, like the SEC’s proposals regarding new investor communication processes, core trading changes, new position reporting demands, and the shortening of the settlement cycle to T+1.

Updating operations requires careful planning, cross-functional teams, and a well-executed strategy to ensure success. Firms making a transition can consider following a process that includes a current state assessment, selection of new tools, integration of tools, streamlining of processes, and teaming. 

Firms should be prepared for potential challenges in the form of cultural resistance, improper planning, legacy systems, and resource constraints. However, the long-term benefits outweigh the short-term discomfort. Increased efficiency, improved transparency, enhanced risk management, and better decision-making makes it worthwhile for organisations looking to stay ahead in today’s evershifting and ultra-competitive capital markets.

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