Citadel Securities Expands an Already Dominant Options Business

(Bloomberg) -- Ken Griffin’s Citadel Securities, already a giant in trading U.S. stock options, has a plan to gobble up even more market share in this key derivatives business.

The market maker has assembled a seven-person team, led by former Deutsche Bank AG Managing Director David Silber, to win order flow from institutional investors. Launched in January, the venture buys and sells exchange-traded options tied to individual U.S. stocks and equity indexes on behalf of those customers.

Citadel Securities is a huge presence in this industry. Exchange trading of U.S. stock options is anonymous, but the market-making firm says it accounts for about a quarter of all volume. And that’s before this new institutional business has a chance to ramp up.

“We are digging into every part of equity options execution and examining what we can do more efficiently to create a better experience for clients and improve market transparency,” Silber, head of institutional equity derivatives, said in an interview at the firm’s New York office.

The company says it has over 1,200 institutional clients, with about 40 signed on to trade equity options. Such relationships have helped make Citadel Securities one of the largest trading firms in the world, generating $3.5 billion of revenue in 2018 from markets including stocks, Treasuries and derivatives.

The new push in options follows expansions elsewhere, including a build-out of its global fixed income, currencies and commodities business. Linking up with institutional clients is a playbook Citadel Securities followed in interest-rate swaps, where it began trading for such customers in 2014. In currencies, it’s been teaming up with big banks, unlike in rates and equities where Citadel Securities has battled them head on.

Silber leads the new options initiative, with help from another Deutsche Bank alum, Jason Roelke, who also joined Citadel Securities in September. Roelke is head of institutional equity derivatives sales.

The timing of the expansion looks auspicious. Trading of U.S. stock options recently nearly matched volume for the underlying shares, the highest ratio in about 14 years, Goldman Sachs Group Inc. strategists including Vishal Vivek wrote in a report this month.

“This is a significant increase from 2016 when options volumes were only 30% of shares volumes,” the strategists said.

The pickup may lure competitors into the institutional space, but Silber doesn’t seem concerned.

“We have a strong track record of leveraging our core strengths in risk management, quantitative analytics and technology to improve execution quality and competition,” he said.

To contact the reporter on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Nick Baker, Mark Tannenbaum

©2020 Bloomberg L.P.