Claira Aims to Accelerate Revolution of Financial Markets
Claira, the document intelligence fintech, has raised funding from Citi to accelerate the digitalization of manual areas in financial markets and provide a roadmap to smart contracts and the tokenization of assets on blockchains.
The fintech has received strategic investment from Citi Spread Products Investment Technologies (SPRINT), the strategic investing arm of the bank’s global spread products division.
Vitaliy Kozak, global co-head of secondary CLO, ABS and CDO trading at Citi, said in a statement: “CLO (collateralized loan obligation) professionals can spend more than 20 minutes analyzing a single structured credit document. Through Claira’s technology, the document analysis process is vastly reduced, cutting to mere minutes the time it takes to extract relevant sections, perform initial analysis, and interpret results to deliver actionable insights on pricing.”
Claira was launched in 2019 as a spin-off from the technology and venture arm of Exos Financial, a 100% cloud-native, data-enabled institutional finance platform that was designed to deliver the full suite of investment banking services in a modular and interconnected way.
Joe Squeri, co-founder and chief technology officer/chief operating officer at Exos and technical advisor at Claira told Markets. Media: “I’ve been a CTO in the financial industry for a number of decades, and really suffered from the pain point of trying to get insights out of documents..”
His previous roles include global CIO/CTO at Citadel, Goldman Sachs and Barclays Bank. Exos Financial is fully digital so Squeri tried a dozen platforms that use natural language processing to try to digitise the firm’s legal documentation.
“They were like Swiss Army knives,” Squeri added. “They were pretty good at a lot of things but not really great at any one thing and I thought there has to be a better way to do it.”
He contacted Eric Chang and Alex Schumacher, co-founders of Claira, and the fintech was born.
“Claira enabled Exos to get a jumpstart in the industry as we don’t have to train the model for all our documents,” said Squeir. “We cut over 90% of our time and costs by not having to use external counsel which is a competitive advantage.”
Squeri emphasised that as institutional finance evolves it is critical to digitize which capture transactions such as trades or mergers and acquisitions.
“Documents are essential lifeblood of institutional finance,” he added. “Having Claira providing document intelligence will enable institutional finance to truly revolutionize.”
In the future when financial assets are put on blockchains, they need to be atomized so the terms and conditions can be put on a block and included in smart contracts.
“Claira could really be that onramp by atomizing transactions into their component parts so they can be put on chain,” said Squeri. “We can dare to dream.”
Chang told Markets Media that Claira has three key differentiators – its proprietary technology, the user experience and transparency.
Most existing documentation platforms require users to label and tag data which is not scalable or sustainable. In contrast, Claira takes a computational linguistics approach that converts each sentence into a logic map and then maps all the relationships in a legal document.
“We leverage the linguistic characteristics of each of the provisions in the document and built analytics on top of that,” Chang added.
Users can completely configure and customize the data output which Chang said is critical so Claira fits into existing investment processes or pricing and risk models. They also have full transparency as all data can be traced back to the exact provision in the original document.
Citi will collaborate with Claira to support its business, starting with municipal prospectuses and CLOs.
Patrick Brett, head of municipal debt capital markets & capital solutions at Citi, said in a statement: “Claira’s AI-enabled credit document analysis is well-suited for the $4 trillion municipal bond market comprising over 50,000 issuers and more than one million unique securities. Their use of specialized AI and pre-trained models greatly surpasses legacy Natural Language Processing solutions, making Claira a game changer that’s poised to transform our market.”
Claira delivers data in a standardized format that can be analysed for pricing, trading, risk and operational processes so it is quicker to negotiate complex agreements, reduce business risk and identify market opportunities.
Chang highlighted that Claira can analyse years of deal documentation and decipher market standards. He said: “The next evolution is creating benchmarks and using them, for example, as signals for pricing.”
Squeri added that markets have become more sophisticated so traders need to know the terms, conditions and covenants off the underlying loans in CLOs.
“You can no longer rely on manual methods of extracting that data because it doesn’t scale,” said Squeri. “Exos Financial is of the mind that as markets evolve, you need to rely on data science and document intelligence for trading.”
Chang continued that the funding will be used to grow outside the initial use case of CLOs to other ares of financial markets which still have cumbersome manual processes, including private markets.
“We have other clients around commercial real estate, corporate loans and insurance,” Chang said. “We quite a few buy-side clients who want to record all the details and obligations they have as a counterparty as they’re managing the risk and price of their portfolios.”
As Claira expands, Chang expects the firm to have strategic partnerships with other large financial institutions in 12 months time.
Squeri said: “From an Exos Financial perspective, we see Claira making the institutional financial services industry much more efficient. Markets will trade faster, with greater accuracy around pricing and risk management.”