Citadel Securities has entered the U.S. corporate bond market, which is valued at $10 trillion. Citadel: “less electronified and more idiosyncratic, so it requires some further refinement in how we’re leveraging our existing franchise”.
Source: https://www.ft.com/content/9a45f0f3-b2b6-4c94-a453-519d7252d4b5
Highlights:
- Citadel Securities’ entry into America’s $10tn corporate bond market looks set to turbo charge an electronic trading revolution in an asset class once dominated by large banks and telephone transactions, say investors and industry executives.
- Ken Griffin’s high-frequency market-making firm, which acts as an intermediary between buyers and sellers of assets and handles $463bn in trades each day, started offering US investment-grade bond trading to clients in June.
- The move points to the changes taking place in the analogue corporate debt market, which is decades behind equities in embracing electronic trading.
- But industry veterans say that the shift from stodgy analogue dealmaking to electronic trading has picked up momentum following a coronavirus pandemic-era surge, with help from so-called alternative liquidity providers such as market maker Jane Street.
- Patrick Moley, senior research analyst at Piper Sandler, said the entrance of a large market maker such as Citadel “has the potential to drive volumes higher on these platforms”.
- “A lot of these larger ticket-size trades, $3-5mn trades, are being done over the phone by banks . . . there has to be an incentive for those larger-ticket trade sizes to go electronic,” he said, adding that liquidity is required “and that’s helped by market makers coming into the ecosystem”.
- Citadel Securities’ entry into investment-grade credit builds on its existing business in market making for fixed-income ETFs, which already required it to act as a market maker in those funds’ underlying bonds
- Citadel’s Cariste acknowledged the market for high-yield credit was “less electronified and more idiosyncratic, so it requires some further refinement in how we’re leveraging our existing franchise”.
TLDRS:
- Citadel Securities has entered the U.S. corporate bond market, which is valued at $10 trillion.
- This move is expected to accelerate the shift towards electronic trading in a market traditionally dominated by large banks and telephone transactions.
- Citadel, which handles $463 billion in trades daily, began offering U.S. investment-grade bond trading to clients in June.
- However, the firm acknowledges that the high-yield credit market requires further refinement due to its less electronic and more idiosyncratic nature.
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