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Global Derivatives Awards 2019: Citadel Securities makes its mark

Citadel Securities has this year added depth to its FICC offering to compound an already strong position in equities. This breadth of business, which has been expanded with powerful entries into new markets, has been matched by the firm’s confidence in establishing itself as a significant public advocate on market issues, making it GlobalCapital’s Specialist Liquidity Provider of the Year.

If there is one aspect of Citadel Securities’ business that makes it stand out, it is the breadth of the markets in which it operates. The non-bank market maker provides liquidity in both cash and derivatives products across equity, FX and fixed income markets around the world.

Liquidity conditions across global markets have had a reversal in 2019 after a very supportive 2018. According to Bank for International Settlements data released in April 2019, the growth rate of dollar debt securities has fallen to a level not seen since the global financial crisis. The annual growth rate of international debt securities in dollars has also halved between the end of 2017 and the end of 2018. 

But its breadth of operations has allowed Citadel to cement its position at the front of the world’s specialist liquidity providers, even when liquidity is reducing in certain markets.

“The overall scope of what we do, in terms of the number of asset classes we trade and our global presence, is far beyond what other liquidity providers do,” says Matt Culek, global COO of Citadel Securities in Chicago. “We actually don’t consider ourselves to have one direct, all-to-all competitor and are increasingly facing off against some of the world’s biggest global banks in several areas.”

Over the last 12-18 months, the firm has expanded its derivatives footprint markedly. It has grown the scale and complexity of its swaps offering to take leading market making positions in dollar interest rate swaps, while planning to begin making positions in euro interest rate swaps in 2020. On top of its number one position in retail US cash equity and ETFs, it now executes approximately 25% of US listed equity options volume every day.

This year it has also been focusing on building up its FICC franchise. The firm has 1,200 institutional FICC clients in 52 countries and is one of the top three liquidity providers on most of the major FX platforms.

According to Culek, the focus on FICC has been about building by expanding into additional products and new geographies, rather than any particular market call. “We have been filling out parts of the portfolio of businesses that we didn’t have before,” he says.

This goes back to Citadel Securities’ overall strategy of building on the success of one product and replicating it in another geography and market, with the tweaks necessary to make it fit local conditions.

But the firm aims to be more than just a liquidity factory, spreading widely across the world and driving aggressively into the major derivative markets. Citadel Securities also takes a leadership position as a market participant. Its position as a relative newcomer to the traditionally bank dominated market making world has not caused it to shy away from being a heavyweight voice in the market too, both in conversations with regulators and exchanges.

In the past 12 months, Citadel Securities has publicly submitted over 20 letters to bodies such as the US Securities and Exchange Commission, BIS, US Commodity Futures Trading Commission and the Financial Industry Regulation Authority with recommendations on a variety of market structure topics.

The firm established itself as one of the clearest and most significant market voices on the CFTC’s proposed swap execution facility reforms late last year.

“We take that advocacy position very seriously,” says Culek. “We consistently speak across all markets, and across all products. We support fair, open, competitive and transparent markets, which we think benefits all investors, not just liquidity providers.”

Citadel Securities is right at the cutting edge of change in the global markets. Liquidity is king, new regulations are rampant and the banks have been in retreat. Meanwhile, trading venues have been dispersed, while clearing and settlement has been centralised and standardised. Within this furnace, Citadel Securities has forged a market making colossus, bringing liquidity, leadership and scalability to its client base around the world.