There have been many challenges for the sell-side firms that provide hedge funds with securities lending, trade execution, cash management and other services, according to Brad Bailey, Head of Market Intelligence at Clear Street.
“It has been tough for prime brokers to meet the evolving needs of the buy side over the years as the industry has undergone massive shifts that impact business operations,” he said.
“There are many types of new trading and new traders coming into the market, but a decreasing supply of prime services. That is especially true for smaller mid-tier firms and firms with sophisticated strategies. You also see rising costs for both the primes and the clients,” he said.
Bailey told Traders Magazine that there is also a disconnect between the technology demands that clients want and what they get. “If you want to run a modern financial firm, you really need different types of tools than what is available in the market today.”
One of the major trends impacting the industry is the regulatory environment we’ve been in and continue to be in, according to Bailey.
“One of the main results of increased regulation is more and more and more reporting,” he stressed.
“Many of our clients are being directed to provide a number of new reports, and it is hard to quickly adjust and meet those requirements if you are operating on older technology,” he added.
“If prime brokers want to position themselves for the future, they really have to stop kicking the can down the road and invest in modern technology,” he said.
Bailey’s guideline for his career has always been “embracing the intersection of technology and business.”
Previously a Research Director with Celent’s Capital Markets division, he joined Clear Street last week in the newly created role of Head of Market Intelligence.
“There are so many opportunities to use more modern technology for the overall benefit of the capital markets,” he said.
“In my new role I’ll be using some of my background in research and product and engaging the market and looking for ways to create value for customers and for the firm,” he said.
According to Bailey, when you get into the core part of clearing and custody, there really haven’t been firms willing to do the hard work and make the investment to try to modernize that area.
“They’re willing to keep the old platforms running and build around them, but they’re not willing to make the investment,” he said.
Clear Street is building modern infrastructure that makes trading easier.
Currently, customers use its platform to process transactions of U.S. securities and options.
In the future, customers will use its platform to trade every major product in every major market.
“At Clear Street, we’ve built a modern, cloud-based clearing system, which we believe can provide substantial benefits for our clients, regardless of their size,” he said.
“When you look across the market you can see that the technology exists to to build better data insight, yet few firms are fully leveraging these tools. At Clear Street we are taking advantage of existing technology like the cloud to build a unified prime offering,” he said.
“We are creating a platform that will make a difference in terms of not only what traders can do, but how well they can do it. I think the industry really needs someone that’s willing to say, ‘look, enough is enough’ and make the investment in technology to drive innovation and improve the prime experience. And this is what we’re doing.”
