Citadel Securities Expands into European Rates Markets, Eyes German Bunds

Key Takeaway

• Citadel Securities has launched electronic trading of euro and sterling interest-rate swaps, with plans for full voice trading and entry into the German bunds market.
• The firm has expanded its rates team in London and Paris, aiming to leverage its existing client base to capture 75%-80% of its European rates business.
• Citadel Securities reported $2.3 billion in net trading revenue in Q1 2024, positioning itself for a record year amid rising political risks and ECB rate hikes.

Citadel Securities Expands in Europe

Citadel Securities LLC, a leading market-making firm, has initiated electronic trading of euro and sterling interest-rate swaps as part of its expansion into European rates markets. The firm plans to enhance its swaps offering with full voice trading capabilities within the next month, according to Michael de Pass, the global head of rates trading. Additionally, Citadel Securities is considering entering the German bunds market shortly thereafter.

To support this expansion, Citadel Securities has been bolstering its 120-person rates team. The firm has hired three sterling rates traders and five salespeople in London, along with four euro rates traders and two salespeople in Paris. Paris will serve as the firm's European rates trading hub, with two more traders expected to join by the end of the year. "There is real interest from our investor base for us to bring the kind of liquidity that we brought to the US market over to European markets," de Pass said on Bloomberg Television. "For us, it’s about how we can bring a differentiated type of liquidity, a tech-focused liquidity to a market that maybe hasn’t had that approach before."

Institutional Client Growth

Citadel Securities has reported a significant increase in the number of institutional clients using its fixed-income services. Since the firm began making markets in investment-grade corporate bonds last year, the number of institutional clients has jumped by more than 15%. Already a top dealer for Treasuries, Citadel Securities aims to leverage its existing client base to constitute 75%-80% of its European rates business.

The firm’s expansion is motivated by the European Union’s initiatives to improve bond market data transparency and create a single market for capital. "The EU seems to be quite focused on its capital markets," de Pass noted. "We’re seeing a revitalization of a true capital markets union and a focus on making markets more efficient, improving liquidity and transparency."

Financial Performance and Future Plans

Citadel Securities generated $2.3 billion in net trading revenue in the first three months of 2024, positioning the firm for a potentially record-breaking year as it expands into new asset classes and geographies. Following its entry into European rates, the company plans to offer portfolio trading and high-yield credit.

The firm’s expansion comes at a time of rising political risk in Europe, which has implications for interest-rate swap traders. Recent election results and a surprise parliamentary vote in France have introduced uncertainty, potentially affecting the euro and swap rates. The European Central Bank’s (ECB) recent rate hike, which was anticipated through forward guidance, now appears premature. This situation could result in relatively higher swap rates without a corresponding reflection in the currency.

Street Views

• Michael de Pass, Citadel Securities (Bullish on European rates markets):

  "There is real interest from our investor base for us to bring the kind of liquidity that we brought to the US market over to European markets. For us, it’s about how we can bring a differentiated type of liquidity, a tech focused liquidity to a market that maybe hasn’t had that approach before."

• Michael de Pass, Citadel Securities (Bullish on EU capital markets):

  "The EU seems to be quite focused on its capital markets. We’re seeing a revitalization of a true capital markets union and a focus on making markets more efficient, improving liquidity and transparency."