Meet fintech taking on legacy technology in capital markets • TechCrunch

Moore’s Law observes that the number of transistors on a microchip doubles every two years, while costs are halved over the same time period. It has provided exponential growth in processing power in recent decades, allowing many applications to improve performance by upgrading the hardware without fundamental architectural changes.

In the decades since Intel co-founder Robert E. Moore first made this observation in 1965, consumer technology has continued to innovate rapidly, while the technology that powers capital markets has lagged behind. Although recent physical limitations have slowed improvements associated with Moore’s Law, advances in distributed systems have continued the march of innovation. Much of the capital markets, on the other hand, have not utilized such technological advances and have continued to operate in the past.

The $924.5 billion US securities industry still relies on mainframe technology from the 1980s. The result is fragmented systems and interfaces that leave market participants struggling to respond to market changes and to meet the needs of data-hungry investors and regulators.

To understand how we got here today, we need to look under the hood. Mainframes that have supported global capital markets for decades were built to answer specific questions at a specific time. Over the years, modern technology has been layered on top of the antiquated infrastructure, providing only a temporary solution. Like building a new house on top of an old foundation, sooner or later the base will give way and the entire structure will crumble.

Simply put, the silos have calcified over time to the point where it’s easier for people to talk to each other rather than find a way for the technologies to communicate. This technology debt creates broken processes that form the operational inefficiencies that plague businesses today.

Investors, like all consumers, have become accustomed to on-demand service. They expect to be able to react quickly to market events, and want to expand into alternative asset classes such as crypto. Post-trade operations are challenged to keep up with these demands and provide the granularity, data visualization and user experience that investors and regulators need.

From cost center to competitive advantage

For many companies, back office processes are “out of sight and out of mind” – until something goes wrong. When taking into account borrowed shares, interest costs, balance sheet impact and penalties, the costs of trading failure are significant. A global trade failure rate of just 2% is estimated to result in costs and losses of up to $3 billion.

The solution is to minimize manual intervention in favor of automation and cloud-based solutions. To operate with maximum efficiency, banks and brokers must reduce the manual processes that increase the risk of errors and operate in silos in favor of technology that empowers users to make smarter decisions and identify potential risks throughout the trading process.

Post-trade technology stack modernization is estimated to reduce costs by 20-30% in key areas such as reference data management, reconciliations, clearing and settlement, middle office, regulatory reporting and the overall application footprint. Ripples of adoption are emerging across the industry—for example, in 2021 Nasdaq partnered with AWS to build the next generation of cloud-enabled infrastructure for the world’s capital markets.

Simplifying the technology behind trading and post-trade functions can transform it from a cost center to a competitive advantage. But for many firms, upgrading will require rewriting many systems with significant technical debt, with huge resource and planning costs – a daunting project with low chances of success.

Modern, high-performance computing coexists with COBOL, and microservices with mainframes. But as the value of data continues to rise, those who invest in the technology and capabilities to keep up with rapid, intraday market changes will come out on top.

Modern problems require modern solutions

A modern platform with a single source of truth has the potential to optimize operations across teams, asset classes and geographies, reducing cost, complexity and risk. In turn, this makes it easier for new managers, professional traders and institutions to access the capital markets. Founded in 2018, Clear Street is a fintech and non-bank prime broker that builds modern infrastructure to improve market access for all participants.

Clear Street’s mission is to replace the outdated infrastructure used across capital markets by starting from scratch to build a fully cloud-based system designed for the modern needs of a complex global market. Its proprietary technology platform brings significant efficiencies to the market, while focusing on maximizing returns and minimizing risk and costs for clients.

The firm’s goal is to provide all market participants, from emerging executives to large institutions, with the tools and services they need to compete in today’s fast-paced markets. It has never been more evident that the forces of volatility, regulatory change and speed are demanding tools that allow companies to understand the markets in real time. In just a few years the company is processes around 2.5% of nominal US equity volume, which is approximately $10 billion worth of activity through the platform.

Clear Street takes proven technology from the world of Silicon Valley and applies it to finance. The firm’s technology stack uses modern cloud-based infrastructure, including resilient service orchestration, event-driven real-time processing and scalable data warehousing – a stark contrast to the batch processing offered by mainframes. Clear Street’s entire suite of software systems is built on this consistent and interconnected technology stack, allowing components to communicate seamlessly and stay in sync, eliminating the need for tedious reconciliation processes.

It is time to update the infrastructure that powers the capital markets. To keep up with the accelerating pace of modernization, companies will need to invest in technology to meet the needs of investors and regulators. Those who do will be part of building the modern, scalable future of capital markets – improving access, speed and service for all participants.

Clear Street is an independent, non-bank prime broker that builds modern capital markets infrastructure. Fintech’s goal is to create a single source platform to serve all investor types, across all asset classes, globally. For more information visit https://clearstreet.io.