Building tomorrow’s prime broker

As the prime brokerage landscape continues to shift significantly, the importance of client service, technology and agility among providers is coming to the fore.
By Clear Street

Changes in market structure, regulations, and the competitive landscape are coming to a head in prime brokerage. Major players are leaving the field, and others have had to evaluate their client base strictly through the lens of revenue and operational utilisation.

Many primes are adapting to this environment by optimising the clients they choose to support. Brokers are re-evaluating specific clients based on their needs, with some requesting changes or even dropping clients altogether if they are not deemed economically viable. This creates a challenge for fund managers, who need to find a prime broker who will put their needs first. 

In this unstable prime brokerage landscape, client service matters more than ever. Fund managers should focus on providers who offer high-touch white glove service and are prepared to grow with the fund. 

Choosing a prime brokerage with the flexibility to collaborate with the fund’s setup allows investment managers to be nimble and scalable. This in turn lets managers differentiate themselves from competitors and attract a more diverse investor base.

In an ultra-competitive landscape, prime brokers using modern technology like cloud computing and APIs will be ready to adapt to market changes, so fund managers can focus on what’s important – growing their business.

Replacing antiquated technology

The truth is, most banks aren’t in a position to offer funds the higher level of contact and attention they need. A primary culprit is legacy technology. Operating on architecture from the 1980s leaves banks with slow and complicated manual processes, making it difficult to adapt to clients’ needs and react to market changes.

Much of the financial industry still relies on outdated COBOL mainframes developed in the 1970s. Over the years, firms that rely on this antiquated technology stack have applied a facade of quick fixes on top of a 50-year-old core. 

These surface-level solutions can rarely hide the state of the underlying systems. Complex legacy environments often consist of a patchwork of systems that integrate poorly and require extensive reconciliations, causing a business to be bloated and inefficient. As a result, fund managers find themselves forced to make drastic changes to their workflows and technologies to cater to their prime broker’s offering and requirements.

Investors, like all consumers, have become accustomed to on-demand service. They expect to be able to react quickly to market events and are looking to expand into alternative asset classes. Technology-forward prime brokerage operations that use tools like cloud computing and APIs can keep up with these demands and provide the granularity, data visualisation, and user experience that investors and regulators need. 

Designed for the future

To operate at peak efficiency, brokers must reduce the manual processes that increase risk of error and operate in silos in favor of technology that empowers funds with faster and more accurate data processing and a clearer view of risk and opportunity.

For example, firms that did not make technology changes in the move from T+3 to T+2 in 2017 are now even further behind. To accelerate settlement, post-trade agreement and affirmation need to happen faster through increased automation in the allocation, confirmation, and affirmation processes. 

Accelerating the settlement cycle is an opportunity to modernise and standardise infrastructure across the industry, and firms should update legacy technology systems to automate manual processes. A reduced reliance on manual workflows can help brokerage firms achieve greater efficiency and reduce costs, freeing up valuable time and resources for client service. 

A single source of truth platform has the potential to optimise operations across teams, asset classes, and geographies, reducing cost, complexity and risk. In turn, this makes it easier for emerging managers, professional traders, and institutions to access capital markets – without limitations on firm size, return profile, or strategy.

Financial infrastructure for today’s institutions

Clear Street is an independent, non-bank prime broker building a completely cloud-native clearing and custody system designed for today’s complex, global market. The firm provides clients, from emerging managers to large institutions, with everything they need to clear, custody, execute, and finance US equities, options, and fixed income. Clients get access to clean, real-time data to make more informed decisions, faster.

The firm currently processes more than 2.5% of the gross notional U.S. equities volume, which is $15 billion in daily notional trading value of US equities activity and competes with some of the biggest players in the financial industry. Clear Street marries cutting-edge technology with a tailored and bespoke service for each client, providing exceptional customer care to investors of all sizes.

“Our team has made incredible strides since our inception in 2018. Since 2022, the number of institutional clients on our platform increased by 500 percent, our daily transactional volume increased by over 300 percent, and our financing balances increased by almost 150%,” said Chris Pento, co-founder and chief executive officer at Clear Street Group. “This year, we’ve added fixed income, made key hires in investment banking and operations, and acquired a futures clearing platform.”

Clear Street recently announced the completion of the second tranche of its $435 million Series B capital raise, which values the company at $2 billion. The funding supports the firm’s plans to expand its reach across new markets and asset classes, accelerate future product offerings, increase availability to all market participants, and offer solutions for clients looking to migrate to a single-source platform.

Contact Clear Street to learn why clients, from emerging managers to institutions, use the firm’s clearing, custody, execution, and prime brokerage platform to operate their businesses.