Andy Volz is Chief Operating Officer at Clear Street.

What were the key theme(s) for your business in 2023?

We are committed to our mission to replace the old and outdated infrastructure used across the global capital markets. The mixture of antiquated technology, overlayed with new technology, is eroding profit margins and increasing risk. Since 2018, we have sought to build a completely cloud-native clearing and custody system designed for today’s complex, global market.

Over the last 12 months, we’ve focused on growing our offer and hiring top talent.

In May, Clear Street received a $270 million dollar investment from Prysm Capital, successfully closing the second tranche of our $435 million Series B funding round and bringing our total valuation to $2 billion. Then, in June, we launched our investment banking business, which provides strategic advisory, transaction, and creative capital solutions to emerging growth companies.

We welcomed a number of senior executives to spearhead expansion into new asset classes and business avenues. Notable hires include Chief Information Officer Jon Dapyln; Chief Financial Officer Steve Bisgay; Chief Executive Officer of Clear Street Futures Chris Smith; and Chief Administrative Officer and Head of Clearing Kevin McCarthy.

In late 2023, we expanded our asset classes to include fixed income by building new capabilities on Clear Street’s cloud-native, event-driven, and horizontally scalable platform. Additionally, we acquired React Consulting Services and its proprietary, cloud-native futures clearing platform, BASIS. Once fully integrated, BASIS will allow Clear Street’s clients everything they need to clear, custody, and finance U.S. equities, options, fixed income, and futures.

What are your customers’ pain points and how have they changed from 1 year ago?

In 2023, reverberations from bank failures and liquidity shifts due to rising interest rates shook up the balance sheets of many financial institutions. Additionally, larger prime brokers with increased capital restrictions have a limited appetite for emerging managers. The reliance on highly manual processes poses a challenge for these firms, making it difficult to operate profitably with smaller funds or those with more sophisticated risk profiles and demanding trading strategies – leading them to offboard certain clients. While this pain point has not changed, it has become exasperated in the current environment.

The shift to T+1 in May 2024 puts increasing pressure on in-house operations teams. Shorter timeframes mean more work for teams, particularly for those funds trading overseas and at high volumes. Fund managers need to review their systems thoroughly to make sure their systems are ready for the change and that their counterparties are prepared.

What are your expectations for 2024?

We believe the year ahead offers Clear Street an opportunity to cement our position as the prime broker of choice in the capital markets. The shrinking prime brokerage industry, coupled with the regional banking crisis, the meme stock saga, and the collapse of Archegos Capital, has posed a challenge for hedge funds in formulating their prime brokerage strategy. Market turbulence and heightened volatility are pushing managers to review prime brokers’ core services and value propositions in order to find a partner that can give them a competitive edge.

The regulatory oversight and financial strength of a provider play a crucial role in determining the potential impact on a relationship when there are changes in business strategies or commitments to a business line. Specifically, as Common Equity Tier 1 (CET1) ratios face pressure under Basel III regulations, banks may need to scale down their balance sheets, potentially leading to reductions in hedge fund lending. The stability of a counterparty during market volatility, along with considerations such as product offerings, securities lending supply, and financing capabilities, become key differentiators.