Ken Griffin’s market-making giant is poised to offer trades in zero-coupon Treasuries, as it ramps up its presence in the world’s largest fixed-income industry.
Delivering a fresh challenge to Wall Street banks in their own backyard, Citadel Securities will start offering institutional clients so-called Treasury Strips later this month, according to Michael de Pass, the firm’s global head of rates.
Famous for shaking up retail stock trading in the US with its electronic platform, the firm now routes orders for everything from Treasuries and interest-rate swaps to corporate credit more recently.
The latest offering will get Citadel Securities closer to its long-held ambition to become a primary dealer — a designation the Federal Reserve typically bestows only to firms active across all types of Treasury securities.
Last quarter, its Treasury business saw the “most amount of volume out of all the dealers on the Street,” de Pass said in an interview with Bloomberg Television on Wednesday. “The success we have comes down to the fact that we are committed to being a market maker.”
Read More: Citadel Deepens Reach Into Wall Street’s Bond-Dealing Stronghold
Treasury Strips — a $441 billion market — are created by dealers by breaking whole bonds into their future principal and coupon payments and selling them as separate securities. Run by Chief Executive Officer Peng Zhao, the firm started offering investment-grade credit trading to clients in June with plans to make markets in high-yield bonds by the end of the year.
Today, the firm’s fixed-income market making is evenly split between electronic and voice trades, according to de Pass. Though there was jump in electronic orders in the remote-work boom during the pandemic, “there is still a desire to process large flows via voice,” the executive said in a seperate interview.
Big Ambitions
Electronic market-makers and high-frequency traders are expanding their presence in the so-called interdealer business as big banks have retreated thanks to post-crisis regulations. Citadel Securities has also ventured into the investor-to-dealer business, which has been for newcomers to crack.
The company has long harbored ambitions to become a primary dealer in the Treasury market — a decision made by the Fed — which involves trading directly with the central bank with an obligation to place bids at government debt auctions. In 2018, leaders at Citadel Securities had indicated they’d likely be a primary dealer by 2020.
A representative for the firm declined to comment on the process of joining the Fed’s 24-strong roster of primary dealers. ASL Capital Markets Inc. became the most recent addition to the group in early 2022.
Going forward, de Pass says his group will continue to invest in technology and talent. There will always be a need for humans to focus on “higher-order problem solving,” he said.
The firm says its fixed-income market-making business now serves 1,000 institutional clients in over 50 countries. The group has around 50 people in sales and trading, led by de Pass and Jordan Cila, who’s in charge of fixed-income distribution.
--With assistance from Sonali Basak.
