Moore’s Law observes that the number of transistors on a microchip doubles every two years, while its cost halves over the same period. It has provided an exponential increase in processing power over the past few decades, allowing many applications to increase performance through hardware upgrades 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. Even though recent physical constraints have led to a tapering of improvements associated with Moore’s Law, advancements in distributed systems continue to innovate. On the other hand, many capital markets have not taken advantage of this technological advancement and are still operating 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 make it difficult for market participants to respond to market changes and meet the demands of data-hungry investors and regulators.
To understand how we got to where we are today, we need to dig deeper. The mainframe that has supported global capital markets for decades was built to answer specific questions at specific points in time. For years, modern technologies have been layered on top of antiquated infrastructure, providing only temporary solutions. Like building a new house on top of an old foundation, sooner or later the foundation will cave in and the entire structure will collapse.
In short, silos have solidified over time to the point where it’s easier for humans to talk to each other than it is for technology to find ways to communicate. This technical debt created process disruptions that created the operational inefficiencies that plague companies today.
Investors, like all consumers, have become accustomed to on-demand services. They want to be able to react quickly to market events and want to expand into alternative asset classes like cryptocurrencies. Post-trade operations are challenged to keep up with these demands and provide the granularity, data visualization and user experience that investors and regulators demand.
From cost center to competitive advantage
For many companies, back-office processes are “out of sight, out of mind”—until something goes wrong. The cost of a deal failure is significant when factoring in borrowed stock, interest costs, balance sheet impact and penalties. It is estimated that a failure rate of just 2% of global trade can result in up to $3 billion in costs and losses.
The solution is to minimize human intervention in favor of automated and cloud-based solutions. To operate at peak efficiency, banks and brokers must reduce manual processes that increase the risk of error and operate in silos in favor of technology that enables users to make more informed decisions and identify potential risks throughout the transaction process.
It is estimated that the modernization of the post-trade technology stack will reduce costs by 20-30% in key areas such as reference data management, reconciliation, clearing and settlement, middle office, regulatory reporting and overall application footprint. There are ripples of adoption across the industry—for example, in 2021, Nasdaq partnered with AWS to build the next generation of cloud-enabled infrastructure for global capital markets.
The technology behind streamlining transaction and post-trade functions can transform it from a cost center to a competitive advantage. But for many companies, upgrading requires rewriting many systems, which incurs significant technical debt, significant resource and planning costs—a daunting project with a low chance of success.
Modern high-performance computing coexists with COBOL, microservices coexists with the mainframe. But as the value of data continues to rise, those who invest in the technology and capabilities to keep up with fast-paced intraday market changes will come to the fore.
Modern problems require modern solutions
A modern single-source-of-truth platform has the potential to optimize operations across teams, asset classes and geographies, reducing cost, complexity and risk. This, in turn, provides easier access to capital markets for emerging managers, professional traders and institutions. Founded in 2018, Clear Street is a fintech and non-bank prime broker committed to building modern infrastructure to improve market access for all participants.
Clear Street’s mission is to replace outdated infrastructure used across capital markets by building from the ground up a fully cloud-native system designed for the modern needs of complex global markets. Its proprietary technology platform significantly improves market efficiency while focusing on maximizing returns and minimizing risks and costs for clients.
The company’s goal is to provide all market participants, from emerging managers to large institutions, the tools and services they need to compete in today’s fast-paced marketplace. It has never been more evident that the forces of volatility, regulatory change, and speed require businesses to have tools that allow them to understand the market in real time.In just a few years, the company was Handling about 2.5% of notional U.S. equity trading volume, the value of activity through its platform is about $10 billion.
Clear Street takes proven technology from the world of Silicon Valley and applies it to finance. The company’s technology stack leverages modern cloud-native infrastructure, including elastic service orchestration, event-driven real-time processing, and scalable data warehouses — in stark contrast to the batch processing offered by mainframes. Clear Street’s entire software system is built upon this consistent and cohesive technology stack, enabling components to communicate seamlessly and stay in sync, eliminating the need for cumbersome coordination processes.
It’s time to update the infrastructure that powers capital markets. To keep pace with the ever-accelerating pace of modernization, businesses need to invest in technology to meet the demands of investors and regulators. Those who do so will participate in building a modern, scalable capital markets future – improving access, speed and service for all participants.
Clear Street is an independent non-bank prime broker building modern infrastructure for capital markets. The goal of fintech is to create a single-source platform that serves all investor types across all asset classes globally.For more information, please visit https://clearstreet.io.