Citadel in European market making expansion

The move could radically shake up the hold of traditional bank players in European market making.

Citadel Securities is to expand its market-making service, offering US Treasuries and credit default swaps to European investors for the first time.

It comes amid widespread regulatory changes to the fixed income market, which paves the way for the brokerage unit to increase its market share in Europe.

In an interview with The Trade Derivatives, Paul Hamill, global head of fixed income, currencies and commodities at Citadel Securities, said: “We plan to offer additional fixed income products such as US Treasuries and credit default swaps to investors in Europe.

“So when we talk about whether non-bank firms will have a greater role in market making post-Mifid II, we are no longer speaking in theoretical terms, it is now reality.”

Last week, the International Capital Markets Association (ICMA), released a report stating hedge funds and other independent market makers could see an increased role in Europe’s fixed income market, as banks look to pull back as liquidity providers.

In addition to hedge funds taking a greater role in market making, they may also increasingly partner with traditional players. Citadel’s Hamill says partnerships with banks are appealing.

“Institutions are taking a long hard look at what they do well and where they compete, and in some cases they may conclude that might not include electronic market making in liquid benchmark products.

“If that’s what they decide, it could present the opportunity for us to partner with them. This is something we are actively exploring.”

Earlier this year Citadel launched a euro-denominated interest rate swaps offering, and hired former JP Morgan clearing sales head Brian Oliver  to lead its European strategy.

Citadel has already captured a huge swathe of the US market, both in interest rate swaps and the futures market. One of the catalysts for its rise in the US swaps market was the advent of swap execution facilities (SEFs), which are required by law to be open to all participants.

Hamill says open access of trading venues, as part of Mifid II, and central clearing for derivatives will be a significant stimulus for expanding its model.

“We believe that model can be expanded globally, however we need certain things to happen to enable that. For example central clearing is a very important enabler for new entrants in derivatives, as is impartial access to trading venues,” he adds.

“We expect Mifid II to be almost identical to Dodd-Frank regarding impartial access, and therefore lead to very similar results, such as   more competition and a level playing field.”

«