Benzinga, a media and data provider bridging the gap between retail and institutional investors, is bringing its annual Global Fintech Awards event back to New York City on Dec. 8, 2022.
Ahead of this recognition of disruptive innovators in finance and technology, Benzinga will periodically publish articles on those brands that it thinks are making a measurable impact.
Today’s conversation is with Sachin Kumar, the CTO at Clear Street.
The following was edited for clarity and concision.
BZ: Tell me a little bit about yourself and how you became involved in the business.
Kumar: I began my career in the options market-making business and, after that, I started my own algorithmic trading firm back in 2008. As a start-up, we didn’t have a lot of access to capital markets and we had to use the existing clearing systems and prime brokers. From there, I started another trading firm. This time, though, it was international and a lot of the same frustrations I had in the U.S. manifested internationally. I wound down that business and reflected on my experiences on what to do next.
What did you do next?
I met my co-founders Chris Pento and Uriel Cohen who had similar experiences. We thought about whether we wanted to reinvent the experience and felt it had all of the hallmarks of something that could really be transformative if executed well. Historically, it’s not looked at as a super sexy business. Payments were the same way until Stripe became successful. We think things that are not sexy can become transformational. We started coding in 2018 and went into production less than a year after that. It’s been amazing growth ever since.
Can you expand on some of those frustrations?
We were an algorithmic trading shop and everyone at our firm was pretty technical. That said, the API access, to get your data, was poor. Like FTPS (File Transfer Protocol Secure) and flat files with undocumented data structures. Really, the ergonomics around what we call a developer experience didn’t really exist. The other problem we had was simply getting onboarded. We were small. People did not want to speak with us. And timing was a big issue. We represented the underserved market.
As CTO, what are you focused on at Clear Street?
My role is to be the technology leader of the organization. I’m making sure we have a clear and crisp idea of what the technology ought to be. It may not mean that we’re here today, but we, at least, have a vision of what to expect that to look like. Then, I’m building a team that can execute that vision over time.
How do you stay true to what your vision is as you grow?
Presently, we have 90-to-100 engineers and three co-founders. The objective is, always, to stay true to our vision. That comes down to how we distill that vision and tackle problems that I felt in my prior experiences.
We’re doing that by building from the ground level. This is unlike a lot of prime brokers who take an off-the-shelf clearing, settlement, and custody solution, create a layer on top of it and then build the UI.
We took the hard route of actually building directly to the DTCC, OCC, and the NSCC – the core clearing, settlement, and custody platforms – so that we could control the data models and experience in totality.
What were some of the barriers you encountered in building this latest company?
Regulatory and compliance. You need to be a broker-dealer. You need to have all the licensing and capital requirements that you might expect. But, more than that, clearing, settlement, and custody, as well as the plumbing of capital of markets, is incredibly complicated.
Understanding all that information and being able to build a system that is robust, scalable, and resilient is incredibly difficult. I personally underestimated it at the start.
How do you stand to compete and gain market share in this business?
We’re serving the underserved market. I represented that underserved market. Showing up and having a will to innovate with technology allows you to wane a certain percentage of the market. We’re microservices first and run cloud natively. So, our ability to innovate is typically faster than most of our competitors and that allows us to capture certain customers. I think, over time, the value proposition will accrete where once we have more asset classes and geographies, our net offering will be rather compelling.
Any thoughts on emerging markets and innovations like blockchain?
I’m a big fan of blockchain technology and the crypto ecosystem, writ large. The way we designed the system is such that if it came to be that blockchain can support this ecosystem, and enough counterparties were on it, we could incorporate it into our stack. I hope in the next few years, we see more people adopting blockchains.
What is the North Star of expansion for Clear Street?
We think about Clear Street in three different ways. We're going to expand into different asset classes, geographies, and, over time, different personas. Our asset classes today are U.S. equities and options. We want to increase that. Geographies we want international. And, then, personas are one of the most interesting parts.
This is because of the way we think about our underlying technology: 80% of what we built is common across multiple personas. What I mean by that is as follows: 80% of the core clearing, settlement, custody, and the layers on top of it, are used to service a prime brokerage that services hedge funds. The difference — that 20% — is specific to hedge funds. You can take the 80% and target the next fintech apps like Robinhood Markets Inc. (NASDAQ:HOOD) and manifest the infrastructure as APIs in the remaining 20%.
So, the fact that you have this sort of orientation and abstraction of this backend technology allows you to go after different personas that differ on the remaining 20%.
How will the recent $165 million Series B round be used?
It’s for growth. Hiring is a big push for us. In order to do the three different dimensions I mentioned — asset classes, geographies, and personas — we need to look at these problems in a novel way, hiring engineers and designers from the likes of Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL) and Meta Platforms Inc. (NASDAQ:META). We want to make sure that access to any kind of marketplace, within capital markets, is easy for those across all three different dimensions.
