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Citadel Securities aims to become a “significant” player in euro zone government bond trading by next year after building a team of traders in Paris and securing valuable access to German bond auctions.
The Miami-based high-speed trading firm, founded by billionaire Ken Griffin, is already a major participant in the U.S. bond market and is now eyeing an equally important role in Europe.
In September, Germany added Citadel Securities to the list of companies that can directly buy German government bonds through regular auctions. The move is widely seen as a tacit blessing, with market makers planning to use it as a beachhead to expand their presence. to senior executives of the company.
Michael de Pass, head of interest rate trading at Citadel Securities, told the Financial Times: “We want to be a significant player in the European interest rate market and our efforts will deepen the capital markets. We believe it will complement the EU’s renewed commitment to integration.”
“While the European market structure remains fragmented and resistant to new entrants, we are focused on building our business gradually and deliberately,” he added.
The company recently established a team of six traders at its new continental European location in Paris. Citadel Securities plans to begin trading German government bonds in the coming weeks, according to people familiar with the company’s plans, but Citadel Securities expects trading to expand quickly as markets are added gradually.
Citadel Securities’ entry into European government bond trading, a market dominated for centuries by local banks, reflects the growing ambitions of algorithm-driven trading firms and subtle changes occurring in the structure of bond markets. is highlighted.
High-frequency traders have been the dominant players in most developed stock markets for more than a decade, but companies such as Susquehanna International Group, Jump Trading, Jane Street, and Citadel Securities have seen their technology improve in recent years. The company is aggressively expanding into a market that has long been considered unreceptive. -Driven approach.
But some critics say the liquidity provided by these professional traders can be temporary during times of turbulence, when the difference between quoted prices for buys and sells can widen. . Skeptics point to an increase in the number of “flash crashes” and “flash rallies” across the market in recent years, arguing that these trading companies are making the market more vulnerable.
A 2019 paper from the European Central Bank states that “as high-frequency trading increases are accompanied by high-frequency trading competition, HFTs will adopt more speculative trading strategies, resulting in poorer liquidity and higher short-term volatility. “We will do so.”
European banks are also urging caution. In a report on the European bond market earlier this year, the International Capital Markets Association, an industry group, said that “probably greater transparency and increased reliance on fixed income will increase the rate at which markets become unstable, or “volatility.” “volatility” has increased. Electronic Trading and Automation”.
Nevertheless, there is a growing trend among some European technocrats and policymakers that this move should be made to better finance many countries’ debt burdens and to finance investments in climate change mitigation and defense. There is growing recognition that regional bond markets need to be developed.
Former ECB President and Italian Prime Minister Mario Draghi has made overhauling the eurozone’s bond markets a central pillar of his European competitiveness strategy.
The EU’s financial watchdog, the European Securities and Markets Authority, is already building a so-called integrated tape that would register and publish the prices of all bond trades across the eurozone.
This is likely to be a boon for tech-oriented trading firms like Citadel Securities, which excel at analyzing large amounts of data and attract more investors to the market, trader executives argue.
Shyam Rajan, global head of fixed income at Citadel Securities, said: “There is a huge underestimation of what increased liquidity and transparency will mean for European fixed income markets.”
“The journey towards improved competitiveness and the ultimate goal of the EU Capital Markets Union starts with promoting broad participation and liquidity in sovereign debt markets.”
