Meet the new market makers - The DESK - The leading source of information for bond traders (2024)

The DESK profiles six of the major electronic liquidity providers.

Non-traditional market makers were seen to offer liquidity when many dealers pulled back in 2020. These alternative liquidity providers do not share the same business models, or offer the same services however, they are firms that buy-side traders increasingly need to know. This article offers a comparison of these businesses, and the potential they offer to asset managers.

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Instruments traded: Equities, options, FX, fixed income (cash and swaps), and ETFs.

Firm’s commercial model: Client market making, on venue market making, NYSE Designated Market Maker, ETF authorised participant, risk transfer and warehousing.

Markets active: North America, EMEA, APAC

Services offered: Trading, actionable trade and investment idea support (events, reports, calls), overnight trading for US treasuries.

Associated venues: Systematic internaliser Citadel Connect Europe, and single dealer equities platform Citadel Connect in the US.

Associated businesses: Citadel Group

Citadel Securities is an electronic market maker, which uses its risk management capabilities and predictive analytics to provide pricing across multiple markets, including during periods of market volatility.

Peng Zhao, CEO of Citadel Securities, wrote in 2018 that, “In the marketmaking space, a new generation of analytically driven and technologically advanced market makers has emerged, competing against the legacy manual intermediaries that once controlled the markets.”

As part of Citadel Securities Group (CSG), since 2018 Citadel Securities Europe also provides agency execution, portfolio management, trading algorithm development and support services to affiliates in CSG. That year it also took on staff who had previously been seconded from the wider Citadel Group, as part of a restructuring in the Citadel Securities Group.

Citadel Securities has been driving into dealer-to-client fixed income markets for over five years, notably is the credit derivatives and US Treasuries markets. During the Covid-19 pandemic Citadel Securities processed additional volume, electronically executed volumes reportedly increasing by 90% in US Treasuries during March, when more manual market makers were reluctant or slow to quote because of the volatility, and was able to operate and provide that liquidity while migrating to a work-from-home (WFH) set up.

In swaps it has gained ground, with a managing director at PIMCO stating in 2017, “I think we’re doing a pretty decent chunk of our swap business with you guys and it’s all fully automated, no voice, no broker, no relationship – best price is all we care about.”

In US equities, its trading volumes reportedly averaged 3.3 billion shares a day in March compared to 2 billion shares handled on its previously busiest day in 2019, while spot FX volumes reportedly increased 110% in March against January and February while volumes for the broader market increased 61% during the same time period, according to CLS data.

The firm trades at significant scale. As of 31 December 2019, its US operations had US$8.4 billion of US Treasury securities as assets, with US$5.5 billion as liabilities, and US$123 million of corporate bonds against US$295 million as liabilities, according to its latest Form X-17A-5 report filed with the Securities and Exchange Commission (SEC).

However, it is not without controversy; it was fined by US regulatory body FINRA in July 2020, for historically trading ahead of over-the-counter client orders in its equity business over a two-year period.


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Instruments traded: Exchange Traded Funds (c. 7,900 listings globally), futures, equities, bonds, FX, crypto, metals

ETFs Value Traded of Ä820 billion in H1 2020 / Non‑ETFs Value Traded of €2.2 trillion in H1 2020.

Firm’s commercial model? Market making (liquidity provision) on all major exchanges. Connected to c. 180 venues and trading directly with c. 1,400 institutional investors. No directional view, low touch, high turnover.

Markets active: US, EU, APAC

Services offered: Streaming quotes and automated response to Request for Quotes (RFQs), 24/5 coverage for thousands of listed instruments, trading on- and off exchange (OTC).

Associated venues: Independent, listed on Euronext Amsterdam

Flow Traders has a relatively straightforward outlook and model, which covers the complexity of managing such a high volume business in all market conditions, which requires the firm to be very capable in risk management.

“We act as the glue for those people who want to get exposure to an index and therefore reach thousands of shares in one transaction,” says Folkert Joling, chief trading officer at Flow Traders. “We do the unwinding on the back of a trade, sorting out the entire underlying basket, and through the creation and redemption process unwind the exposure in the primary market. It involves a lot of process afterwards which the investor doesn’t need to do or see and it costs a few basis points or even fractions of a basis point to get exposure.”

The firm is not connected with any issuer or exchange making it fully independent and does not offer agency business or services, beyond taking the other side to counterparties’ trades.

Its trading volumes for off-exchange volume and on-exchange is balanced at around 50/50 with smaller tickets, up to £200,000 typically on-exchange. For bigger trades, where people need to take risk directly on the book, over-the-counter trading is more common.

“We have onboarded more than 1,000 institutional counterparties to trade with directly, preferably in competition with others, but this trading does not go through a central book,” Joling says. “It has become increasingly normal to trade in this way, and this has pushed spreads down over time.”

Its core skills are in providing this liquidity whilst managing the risk to its own book, in all conditions are what give it an edge argues Joling.

“When the market becomes more volatile, some liquidity providers disappear as it becomes too risky for them,” he says. “They either don’t have scale in their technological set up or they don’t have proper risk management. We have not had any downtime, and we certainly didn’t have any in March and April. Those market circ*mstances force you as a liquidity provider to build a proper pricing mechanism and find ways to hedge yourself because you want to avoid getting stuck with a long position which you cannot get out of, that’s ultimately the risk.”

He observes that although fixed income is a very dealer-led market, with a lot of activity outside of central liquidity pools relative to other markets, the firm has nevertheless become highly engaged in bond markets.

“The lack of liquidity in some fixed income instruments can be an issue and it can make it more difficult for ETF liquidity providers in these products. Obviously, this requires specialist skills to price and hedge appropriately to minimise risk, and we are pretty good in that,” he notes.


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Instruments traded: Global equities, US treasuries, FX, global futures, and options.

Firm’s commercial model: Proprietary trading and algorithmic trading firm.

Markets active: US, Americas, EMEA, and APAC

Services offered: Secondary market trading, bespoke liquidity provision (US treasuries, US and European equities) on a disclosed basis.

Associated venues: Liquidity provider in on-the-run US Treasuries on multiple interdealer platforms.

Associated businesses: Sun Trading (acquired 2018)

Hudson River Trading (HRT) has been in the fixed income markets via the US Treasuries space for over a decade, focused on the electronic communication network (ECN) interdealer space, but increasingly it has begun to offer liquidity to non-dealers.

“As we have seen markets evolve, and platforms offer one-to-many streaming, we have engaged with those, and that has allowed us to do a better job to create bespoke liquidity for counterparties,” says Adam Nunes, head of business development for Hudson River Trading. “We view this as another avenue for us to distribute liquidity to counterparties.”

As a liquidity provider, HRT develops automated trading algorithms designed to provide the best prices to its clients. Its diverse trading strategies allow it to provide liquidity across a variety of time horizons, while customising its liquidity to provide price improvement and to maximise fill rates.

“We want the ability to provide liquidity to firms anonymously on a CLOB but also add additional value by having a bilateral relationship and being able to customise liquidity and size to other firms,” Nunes says. “In that situation they know us and we know them and we have a greater relationship and bilateral accountability under that structure.”

As a long standing market maker on central limit order book (CLOB) driven markets, the firm has realised the importance and value of providing liquidity outside of the CLOB environment, and to that end has developed tailored services for buy-side firms.

Erica Attonito, head of sales and business development at Hudson River Trading says, “We connect with BrokerTec, Dealerweb, FENICS, MarketAxess and Nasdaq. We’re a top liquidity provider on all of those platforms.”

Nunes notes that the value the firm adds comes down to its ability to adapt its trading to what the counterparty wants from the relationship. “Some firms prefer tighter spreads and smaller size, other firms want to trade in size and that allows us to customise how we interact with them and provide them with what they are looking for,” he continues.

HRT has a portfolio of different strategies allowing HRT to warehouse and transfer risk in different ways.

“Our appetite to trade consistently in high and low volatility markets helps our partners execute their strategies”, Nunes says. “In March and April we were in the markets. If we are able to manage our risk we remain in the market and we were present for about 95% of the time at the top level of volatility.”

The firm’s US arm had US$2.3 billion of securities as assets and US$2.1 billion of securities as liabilities as of 31 December 2019, according to its latest Form X-17A-5 SEC filing.


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Instruments traded: ETFs across all asset classes, cash bonds (EUR and USD credit), cash equities.

What is the firm’s commercial model? Providing liquidity electronically and OTC across exchanges, RFQ platforms, SI and bilaterally with eligible counterparties (institutional investors).

Markets active: US, UK, EU & APAC

Services offered: ETF trading (risk and reference price type trades). Cash bonds trading (credit) both electronically (on platforms such as ALLQ, MKTX, TW) as well as in the format of portfolio trading (PTs). Equities trading on RFQ platforms (TW) and electronically streaming IoIs on SI (JX-EU).

Associated venues: Systematic internaliser (SI) in Europe JX-EU

Jane Street is an active market maker, focused on finding the right liquidity offerings to support a range of clients. The firm’s holistic view of risk and market activity has given it a highly efficient operation, which set it apart from rivals, including traditional banks.

“We run a single global portfolio which allows us to coordinate much more efficiently across our trading desks and offices in Europe, Asia, and the US,” says Ian Shea, Head of fixed income trading, Europe at Jane Street. “We think of the firm as one multi-asset central risk book. This facilitates a more efficient global trading model, where desks collaborate closely, which allows us to manage events in various markets and provide efficiencies to investors who are moving in and out of the market.”

He is also keen to tone down the sense of ‘speed’ that is required in electronic liquidity provision; although it plays an important role, Jane Street does not automatically move risk off of its books as fast as possible.

“We invest heavily in technology – a great deal of that is focused on risk management,” Shea says. “As a result, we commit our own capital and are able to hold risk for days, weeks, and longer durations as needed to help our clients accomplish their trading goals.”

This has enabled the firm to support market making in choppy periods, thereby supporting trading counterparties with liquidity throughout the toughest periods of 2020.

“When markets are one-sided, that means that we are doing less ‘business as usual’ in market making, and a little bit more of taking risk and holding positions for longer periods of time,” he says. “That’s just something we are very comfortable doing.”

Taking the other side of more complex transactions, larger trades and portfolio trading are all paths forward in growth that Shea notes has been largely organic.

“We pride ourselves on our ability to execute large, complex trades where we have to take on a significant amount of risk and that often include a technology component. We are very well suited to help firms engage in those trades,” he says.

As of 31 December 2019, Jane Street Capital in the US had US$3.1 billion of corporate bonds, US$19 million of municipal bonds, US$675 million of US government bonds and US$86 million of foreign sovereign bonds as assets, with liabilities of US$2.6 billion in corporate bonds, US$151,916 in munis, US$1.5 billion in US Treasuries and US$110 million in foreign sovereign debt, according to its latest Form X-17A-5 filing with the SEC.


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Instruments traded: FX Spot, NDFs, UST, EU equities, CFDs, digital assets, block futures and base metals. Reported volumes are multiple billions a day.

What is the firm’s commercial model? Jump provides liquidity to clients and does charge fees for trading or connectivity.

Markets active: US, UK, EU & APAC

Associated venues: Pricing is available across multiple channels and ISVs including direct FIX connectivity and GUI.

Mark Bruce, head of fixed income, currency and commodities (FICC) at Jump Trading, and head of Sales and Strategy at Jump Liquidity says, “[Market making] is an essential part of Jump’s DNA over many years in central limit order books. Jump’s DNA and presence as a leading market maker in these venues has led to a seamless transition to market making to counterparties on a direct basis.”

Jump Trading, a registered broker-dealer with the SEC, is a member of, and market maker on, several exchanges. Through its role as liquidity provider, the firm has engaged on a D2C basis through tailored liquidity offerings.

“Jump operates a diverse range of trading strategies that allow us to accommodate a broad range of counterparty flow; we are not a one size fits all liquidity provider,” Bruce says. “We tailor a solution to fit the counterparty instead of trying to force the counterparty to fit our model.”

He notes that the firm covers its positions using a range of market engagement at optimal points for its risk modelling.

“We run risk models based off the appropriate time horizon of our prediction. Wherever possible, we internalise, or are passive when hedging risk,” says Bruce. “As a liquidity provider to the markets globally, Jump has and is committed to being an active market participant during all conditions.”

As of 31 December 2019, according to its most recent SEC filing, in the US Jump Trading had US$57 million of US treasuries as assets and US$27 million of Treasuries as liabilities.


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Instruments traded: Treasuries (on and off the run), fixed income ETFs in every fixed income asset class (leading Virtu to be active in IG and HY corporates), global equities, sovereign debt, FX spot, futures and forwards, crude oil, natural gas, heating oil, and gasoline futures.

What is the firm’s commercial model? Market making, high-touch facilitation, as well as analytics and integrated workflow solutions.

Service offered: Providing streaming liquidity as well as RFQ response over both direct API as well as 3rd party tech providers for treasuries & corporates.

Markets active: US for fixed income (Europe coming 4Q 2020 / 1Q 2021)

Associated venues: For fixed income – direct API, Tradeweb & Dealerweb, Bloomberg, MarketAxess & LiquidityEdge, Ice Bonds

Virtu Financial has a longstanding pedigree as a market maker across asset classes, including fixed income, and is a registered market maker in over 500 ETPs and many major platforms.

“Virtu has a global, multi-asset footprint, strong technology and risk management,” said a spokesperson. “Across the FICC spectrum, our clients turn to Virtu’s liquidity to add incremental value by complementing their overall liquidity profile.”

The firm has done well in the face of market volatility in 2020, with elevated average daily US equity volumes as average daily volumes (ADV) in Q2 2020 almost 80% higher than in Q2 2019 and 13% higher than Q1, according to CEO Doug Cifu. It has continued to deploy quantitative trading strategies across Virtu’s global trading platform, including its global ETF desk, options and corporate bond market making businesses, which Cifu has said “are now making meaningful contributions to our results.”

Its retail business in the US, the legacy of KCG which it acquired in 2017, gives it additional order flow to work orders against, which typically does well in global equities but also had a strong first half of the year in the FICC space.

“In fixed income, most of our strategies were born out of the ex-Knight Capital (KCG) wholesaling and warehousing liquidity provision models,” notes the spokesperson. “These models benefit from our critical mass of client flow, giving us high internalisation rates across clients which enables us to provide more competitive pricing and helps reduce market impact.”

The risks associated with positions are balanced by the size of positions, with portfolio risks quantified using internal risk models, proprietary risk management tools to tackle market risk on an intraday basis. Money market funds and interest/non-interest bearing balances at banks and clearing brokers are used to handle working capital, while it also maintains inventories of the assets which it trades.

As of 31 December 2019, Virtu Financial had assets of US$121 million of total government securities, US$171 million in corporate bonds and US$49 million in exchange-traded notes (ETNs). As liabilities it had US$41 million in government securities, US$244 million in corporate bonds and US$21 million in ETNs, according to its 10k filing with the SEC.

The firm was fined in June and July of 2020 by FINRA, firstly for not having written procedures for handling OTC equity orders, 35% of which FINRA says were handled manually between 2013 and 2019, and latterly for failing to provide best execution with respect to 13,136 orders KCG had received over a two-year period that were customer orders of another broker-dealer.

©The DESK 2020


As someone deeply entrenched in the world of electronic liquidity providers and financial markets, it's evident that the landscape of market participants has undergone significant transformations, particularly with the emergence of non-traditional liquidity providers. The intricacies of each major player highlighted in the article reflect the diverse strategies and services offered by these firms, showcasing their pivotal roles in providing liquidity across various asset classes.

Starting with Citadel Securities, their CEO, Peng Zhao, rightly emphasized the paradigm shift in the market-making space towards analytically driven and technologically advanced entities. Citadel Securities stands out for its risk management capabilities and predictive analytics, allowing it to offer pricing even during volatile market conditions. The firm's foray into dealer-to-client fixed income markets, especially during the challenging period of the Covid-19 pandemic, demonstrates its resilience and ability to adapt to changing market dynamics.

Flow Traders, on the other hand, follows a more straightforward model, acting as the glue for investors seeking exposure to broad market indices. Their emphasis on risk management and adaptability to different market conditions is evident in their ability to provide liquidity consistently, even during periods of heightened volatility.

Hudson River Trading (HRT) strategically engages in the fixed income markets, evolving from an exclusive focus on the electronic communication network (ECN) interdealer space to providing liquidity to non-dealers. The firm's approach of tailoring services to buy-side firms and engaging with various platforms like BrokerTec, Dealerweb, FENICS, MarketAxess, and Nasdaq showcases its commitment to adapting to evolving market structures.

Jane Street's holistic view of risk and market activity, managing a single global portfolio efficiently, sets it apart from traditional banks. The firm's emphasis on technology investment for risk management allows it to hold positions for longer durations, supporting market making even in challenging conditions.

Jump Trading's approach to market making is deeply embedded in its DNA, with a seamless transition to direct-to-counterparty (D2C) engagement. Their ability to provide tailored liquidity solutions to counterparties reflects the flexibility and diversity of their trading strategies.

Virtu Financial, with a global, multi-asset footprint, has demonstrated resilience in the face of market volatility in 2020. The firm's ability to deploy quantitative trading strategies across various asset classes and manage risks using proprietary tools underscores its position as a significant market participant.

However, it's crucial to note that the article does highlight controversies, such as Citadel Securities being fined by FINRA for trading ahead of client orders. This emphasizes the importance of regulatory oversight in maintaining market integrity.

In conclusion, the diverse strategies and services offered by these major electronic liquidity providers contribute significantly to the evolving landscape of financial markets. Their ability to navigate through challenges, provide liquidity, and adapt to changing market dynamics underscores their importance for asset managers and other market participants.

Meet the new market makers - The DESK - The leading source of information for bond traders (2024)
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