Citadel Securities Is Trying To Corner The Market For Institutional Options Trading

Ken Griffin has to pay for that 23,000 square foot, $238 million apartment in New York City he just bought somehow.

Perhaps that’s why Citadel Securities is now working vigilantly to secure more options order flow from institutional investors. And with major brokerage houses offering $0 commissions across the board now, order flow is most certainly for sale.

Griffin’s Citadel has put together a 7 person team tasked solely with trying to expand the company’s derivatives business. It launched the team in January and the company’s new venture buys and sells exchange traded options tied to stocks and indexes, according to Bloomberg. 

Citadel is already a major player in the industry, too. The firm claims it makes up for about a quarter of all options trading volume. Who knows what that number will advance to as Citadel’s move into options continues.

Former Deutsche Bank AG Managing Director David Silber, who heads up Citadel’s new team, said: “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.”

Citadel currently has over 1,200 institutional clients, but only 40 of them are “signed on” to trade equity options, according to Bloomberg. Citadel posted $3.5 billion in revenue in 2018 from making a market in stocks, treasuries and derivatives. 

And the company has been busy expanding in areas like global fixed income, currencies and commodities, as well. Bringing the company’s institutional clients into its new services has been a strategy that has proven to be successful for Griffin – he employed it with interest rate swaps in 2014. For currencies, the firms has been working closely with banks. 

It’s also a great time to be involved in options order flows, as trading of U.S. stock options, in volume, now nearly matches the volume of the underlying securities. It’s the highest option/underlying ratio in 14 years. 

Goldman Sachs wrote in a report this month: “This is a significant increase from 2016 when options volumes were only 30% of shares volumes.”

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