Chicago-based global asset management and multi-strategy hedge fund provider to individuals and institutions, Citadel, are expanding their business by trading directly on electronic platforms.
The company plans to make a difference in this area by focusing on client relationships on electronic platforms such as Tradeweb and Bloomberg. They intend to take on the banks’ established dominance in US Treasury bonds by being one of the biggest non-bank electronic market makers in equity and future markets.
The move comes at a time when there is a large amount of disruption present in the banking sector, as smaller companies are challenging banks and enticing customers away from them. In the past, there have been concerns surrounding bond trading because of expensive rates and the breakdown of liquidity has caused a problem for finance worldwide.
To put this into perspective, the Financial Times report that foreign investors account for about half of the $12.2 trillion in debt issued by the US Treasury.
Although some industry experts are unsure about Citadel’s competence in the bond marketplace, others are confident that the industry is in need of new players. The head of US Treasury trading at one European bank has this attitude. “The system needs more players. The street is getting smaller due to deleveraging, but the system has not got any smaller. So you need more people to be able to absorb market shocks and provide liquidity,” the European bank head of trading said according to the FT.
Changes in the US fixed income market mean that companies like Citadel can have a significant role in this area because of the increased use of technology. “Your ability to transact in the Treasury market is different to how it was even two years ago because of the changing dynamics of the structure due to greater electronification and a lower risk tolerance,” a fixed income strategist at a US bank told the FT.
Citadel’s move to making markets in US governmental debt for clients is risky and the global head of fixed income at the company, Paul Hamill is aware of this. “We are not operating a riskless business. We engage in client flow on the assumption we cannot immediately lay off risk all the time in other markets or venues,” Hamill says.