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July 2, 2013

Citadel Builds Out Its Institutional Offering and More

By John D'Antona Jr., Peter Chapman

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  • Citadel Builds Out Its Institutional Offering and More

Citadel Builds Out Its Institutional Offering

Citadel is growing its institutional desk.

The firm is building out a low-touch electronic institutional business, Jamil Nazarali, senior managing director and head of Citadel Execution Services, told Traders Magazine during a recent interview.

Jamil Nazarali

"We are getting traction. The business is growing and doing well," Nazarali said. "We already have two of the top 10 blue chip buyside asset managers trading with us, with others in the pipeline."

The business has about a dozen traders and staff. At present, the institutional group operates under an agency-only model, doesn't manually handle any order flow and doesn't commit capital. It is strictly a low-touch electronic business whereby the buyside accesses and trades through Citadel algorithms on a self-service basis. Citadel does provide electronic sales trading help, however.

Nazarali said some Citadel clients have asked the firm to commit capital-especially on the tail end of an order that hasn't been filled via an algorithm.

The firm is offering a handful of core algorithms to clients: VWAP, TWAP and POV. But it also offers more customizable liquidity-seeking algorithms called Mercury and Mercury Dark (for trading off-board). Nazarali said its growth strategy centers on the Mercury and Mercury Dark algorithms.

The initiative follows the wholesaler's winter expansion of its over-the-counter desk. In May, Citadel hired four new market makers and a broker-dealer sales exec, further bulking up its trading business.

- John D'Antona Jr.

Future of Equity Volume Cloudy

U.S. equity trading volume has dropped 7 percent in the first five months of the year, positioning it as the fourth year in a row of decline. However, one exec thinks the slide could end soon.

For the five months through May, U.S. equity average daily volume was 6.34 billion shares, down 7 percent from the same period in 2012, according to data from Credit Suisse's Trading Strategy Group.

The market isn't going to get any help from investors leaving the bond market any time soon either, wrote Greenwich Associates in its latest report, "U.S. Equities: Five Reasons Why the Great Rotation Might Not Be So Great." The shift out of domestic equities will continue and will keep pressure on trading volumes, despite the expected rotation out of fixed-income products as interest rates are expected to rise.