Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Billionaire Ken Griffin’s Citadel Securities plans to start market making in eurozone sovereign bonds next year, challenging investment banks’ dominance of the €10tn market.
The Miami-based high-frequency market-making firm hopes to capitalise on the steady shift to electronic trading in Europe and the most active market for trading the continent’s sovereign debt in almost a decade.
Citadel Securities, which has commanding positions in US stocks, Treasuries and swaps trading, has been at the vanguard of a group of ultrafast firms that have stepped into sovereign debt markets as tougher rules on leverage force banks to curb market-making.
“We have built a leading global franchise in US rates products, and Euro rates is a logical next step,” Peng Zhao, chief executive of Citadel Securities, told the Financial Times on the sidelines of an investment conference in Hong Kong this week.
“Client feedback has been overwhelmingly positive and we expect to enter the market next year,” he added.
The move comes as trading volumes pick up in response to the rapid rise in eurozone interest rates over the past year. Average daily trading volumes in European sovereign bonds in the second quarter hit their highest quarterly level since 2014, according to trade association AFME.
The European bond market has historically been dominated by investment banks that also help governments raise money from investors by pricing and selling new debt.
Since its launch in 2002, Citadel Securities has emerged as one of the biggest winners from the electronic trading that has reshaped global markets over the past 15 years. It handles about $390bn in transactions every day, according to the firm, including one in five US stock trades.
“We are always listening to our clients’ needs and determining how we can best address them,” Zhao added.
The market maker has been expanding into new markets where it sees opportunities to compete with banks and other dominant players. It already provides market making in US Treasuries for clients in Europe, and in June began US investment-grade corporate bond trading.
In October, Citadel Securities took the top spot on Bloomberg for US Treasury trading, beating the largest US banks for the first time. It shows how Griffin’s firm has gained significant share in fixed-income trading and become a formidable rival to the likes of JPMorgan Chase and Goldman Sachs.
After the UK voted to leave the European Union in 2016, many banks and trading venues moved their European government debt trading operations out of London to Paris, which has become the dominant hub in the eurozone.
Citadel Securities is the market-making business started by Griffin, founder of the hedge fund Citadel. The $62bn-in-assets firm delivered record profits for investors after fees in 2022, making it the most successful hedge fund firm of all time.
Last year, Citadel Securities sold a 5 per cent stake to venture capitalists Sequoia and Paradigm for $1.2bn, valuing the firm at about $22bn and stoking expectations of an eventual public listing.
While the market maker’s net trading revenue in the second quarter fell 29 per cent compared with a year ago, it still paid out dividends of $500mn to shareholders including Griffin. The firm has generated quarterly trading revenue of more than $1bn for the last 14 quarters.
Additional reporting by Ortenca Aliaj in New York
