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”.
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”.
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.