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(Bloomberg) — The market-making powerhouse Citadel Securities LLC is planning to become a direct buyer of German debt as part of its push to expand across Europe.
The German finance agency on Wednesday added Citadel Securities to its bund issues auction group, whose members are authorized to participate in primary auctions of German debt, the ministry said on a conference call with journalists.
It’s the latest sign that Citadel Securities is looking to muscle in on more of Wall Street’s trading activity and take on the work traditionally done by the biggest banks around the globe.
Citadel Securities is not likely to take part in its first bund auction until 2025 at the earliest, according to people familiar with the matter. The company is now looking for similar opportunities in some of the European Union’s biggest debt markets, the people said, asking not to be identified discussing non-public information.
Some of the predominant rates markets in Europe are in France, Italy and Spain.
“There is a real demand for us to be a liquidity provider across Europe,” Michael de Pass, global head of rates trading, said in an interview. “Where we go next will be determined on a case-by-case basis.”
German Market
For now, Wall Street banks like Citigroup Inc., Morgan Stanley, JPMorgan Chase & Co. and Bank of America Corp. dominate Europe’s premier bond market. In fact, earlier this year no German banks appeared as top buyers of the nation’s debt auctions for the first time on record, Bloomberg News reported in June. Deutsche Bank AG slid from second place to eighth in the first half of 2024, while Commerzbank AG fell from sixth to 10th place.
“We had a broad group of auction banks in our group, but we think that is complemented with Citadel,” Tammo Diemer, a member of the executive board of the German finance agency, said on the conference call. “It isn’t about seeing an immediate economic benefit for us, but rather it’s really about an advantage in the diversification of the auction process to have an even broader spectrum of potential clients, potential demand for our securities and having access to that.”
Citadel Securities is on track for record annual revenue as it further encroaches on big banks’ trading territory, Bloomberg News reported earlier this month. First-half net trading revenue rose 81% to $4.9 billion from the same period a year earlier at the firm.
The company’s moves in Europe differ from ones in the US, where Citadel Securities has quietly shelved plans to join the ranks of bond dealers that trade directly with the Federal Reserve. There, the firm has already cemented its status as a key market maker in US government bonds and it no longer sees a need to join the two dozen securities firms that are designated primary dealers with the Fed, Bloomberg News reported Wednesday.
Becoming a participant in Germany’s auction group should help the company’s efforts to ramp up its rates trading desk in the country. That’s because primary and secondary bond markets are more closely intertwined than those in the US.
In January, the firm hired Sergio Colantuono from Nomura Holdings Inc. to build the European rates offering. Its been motivated by the European Union’s moves to improve bond market data transparency and its initiative to create a single market for capital, de Pass said in June.
Citadel Securities has already started electronic trading of euro and sterling interest-rate swaps, and is boosting its swaps offering with full voice trading capabilities. Today it employs about 300 people in Europe across London, Paris, Zurich and Dublin. It has roughly 120 people dedicated to rates globally, with plans to hire more.
“We are always looking for the best people to join our team and will continue to expand as the business grows,” Colantuono said in an interview.
–With assistance from James Hirai and Kamil Kowalcze.
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