Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Jim Sposito, thank you
Speaker 1: for joining us. This is, of course a great conference,
Speaker 1: or President of Cydel Securities, the conference has been going
Speaker 1: for a bit of time, but actually you joined from
Speaker 1: Golden Sachs a year ago. What's it like now being
Speaker 1: part of a non bank liquidity provider.
Speaker 2: Okay, thank you for being with us today, Francine at
Speaker 2: our Future of Global Markets conference. I would say my
Speaker 2: one year anniversary at Citadel's Securities is noteworthy because what
Speaker 2: we're doing, I think is in stark contrast to what
Speaker 2: the big banks do. When you think about Citadel Securities
Speaker 2: in many ways, I think we're doing for trading what
Speaker 2: Amazon did for e commerce. And what I mean by
Speaker 2: that is we're meeting our clients through three distinct channels.
Speaker 2: In terms of doing transactions with them. On exchange market making,
Speaker 2: we represent about a third of the volume on the
Speaker 2: New York Stock Exchange. We're obviously doing a lot in
Speaker 2: retail markets where we take flow off the books of
Speaker 2: Robinhood Charles Schwab Interactive Brokers. We're thirty five percent of
Speaker 2: retail volumes in this country, and more importantly, with this conference,
Speaker 2: we're directly covering institutions and we're trading their flow both
Speaker 2: via the electronic and voice channel. I'd point out the
Speaker 2: big banks are only represented in one of those three
Speaker 2: channels nowadays. So in many ways, when I talk about Amazon,
Speaker 2: we're creating a network liquidity effect that our clients are
Speaker 2: benefiting from.
Speaker 1: Jim, when you look at asset classes or geographies, is
Speaker 1: there anything that you're not into that you want to
Speaker 1: get into or where you want to expand?
Speaker 2: Yeah, in equities we have a very significant position. We
Speaker 2: account for close to twenty five percent of daily US
Speaker 2: equity volumes, so we are a big important player in
Speaker 2: equity markets. On the other hand, in fixed income we
Speaker 2: can definitely get a lot bigger. We're just scratching the
Speaker 2: surface right now. In fixed income markets, we trade US rates,
Speaker 2: US investment grade credit. We're growing a European rate business,
Speaker 2: but in many ways we're only scratching the surface in
Speaker 2: fixed income markets. That's definitely going to be a big
Speaker 2: part of our strategic build in years to come.
Speaker 1: How much bigger do you have a target of how
Speaker 1: much market share you want towards or how quickly you
Speaker 1: want to grow?
Speaker 2: Not yet, I would say We're trying to apply our
Speaker 2: skills and experience that made us so successful in equity
Speaker 2: markets to the fixed income markets, and we're taking our time.
Speaker 2: It's a very balanced and measure build at this moment,
Speaker 2: so there's no definitive plan as to what product will
Speaker 2: be rolled out next. Will it be high yield bonds,
Speaker 2: emerging markets, mortgage backed securities. I don't think we're that
Speaker 2: far along. We want to master the products that we're
Speaker 2: currently trading and then you'll see grow from there.
Speaker 1: Because there's quite a lot also ontogonization. Again, if you
Speaker 1: look at regulation, where do you see the best and
Speaker 1: biggest opportunity.
Speaker 2: I think it's helpful. I think we're about to get
Speaker 2: a much more defined rule set around the trading of
Speaker 2: digital assets, and that will be important for the market
Speaker 2: at large, definitely be important for Citadel Securities. So that
Speaker 2: would be a product expansion that you could expect to
Speaker 2: see us get more active in, assuming we get a
Speaker 2: defined rule set. At our conference today, we have the
Speaker 2: founders of Calshi who are big making a market for
Speaker 2: event contracts. You can think of that as making positions
Speaker 2: or trades in terms of the probability of a political
Speaker 2: outcome or an economic release. We're not yet involved in
Speaker 2: event contracts, but there's no reason why we couldn't consider
Speaker 2: that in the future.
Speaker 1: Jim. When you look at AI and computing, how does
Speaker 1: it change building out of cell securities but also hiring.
Speaker 2: Yeah, I'd say first with our clients, the topic top
Speaker 2: of mind right now is clearly how can we support
Speaker 2: our clients to incorporate AI to either make them more
Speaker 2: operationally efficient or to make them better investors. And so
Speaker 2: we're spending a lot of time with our clients around
Speaker 2: that topic. In fact, as you saw, a major theme
Speaker 2: really underpinning this conference today is AI. We brought a
Speaker 2: lot of the best from the West Coast here to
Speaker 2: New York City. We had Jensen, the CEO of Navidia
Speaker 2: this morning, and I think that opened up the minds
Speaker 2: of our clients in a very profound way. And so
Speaker 2: AI is top of mind for our clients, it's top
Speaker 2: of mind for us, and I'm pleased to report we
Speaker 2: are making some progress around that front.
Speaker 1: What are clients asking today actually have said dell securities
Speaker 1: when it comes to AI, or what are they asking
Speaker 1: you to try and understand where AI goes next? Yeah?
Speaker 2: I think generally, we think a lot about our our
Speaker 2: own content, what differentiates us from the big banks, and
Speaker 2: so we don't want to be a me too bank
Speaker 2: in terms of the content that we provide to our clients.
Speaker 2: So we're doing maybe what you would expect us to do.
Speaker 2: We have differentiated skills around quantitative finance, around leveraging technology.
Speaker 2: Citadel Securities has been in business for twenty three years.
Speaker 2: We were built as a technology driven first organization. That's
Speaker 2: core to who we are. That's what we're leading with
Speaker 2: in our client conversations, and so how do they get
Speaker 2: more efficient? How do they get smarter and become better
Speaker 2: investors from leveraging and harnessing the power of ai Jim.
Speaker 1: We also talked about liquidity a little bit at the conference.
Speaker 1: I certainly had a conversation with Maria Droghi when we
Speaker 1: touched on that. You've in the past talked about, for example,
Speaker 1: teaming up some of the smaller banks right to help
Speaker 1: youild clients with some of the orders there. What conversations
Speaker 1: have you had recently that point into that direction.
Speaker 2: Yeah, this is no longer a strategic idea, it's actually
Speaker 2: now playing out. So we are attempting to provide mid
Speaker 2: tier banks liquidity from Citadel Securities so they can better
Speaker 2: service their clients. I think there are probably one hundred
Speaker 2: banks around the globe that want to service their end
Speaker 2: user client in markets, jurisdictions, in places that we're never
Speaker 2: going to touch. What are we great at. We're great
Speaker 2: at making markets providing liquidity. And so if you're some
Speaker 2: captive client sitting in Latin America, you might want to
Speaker 2: get covered by a bank where you have a relationship
Speaker 2: with We're never going to meet or touch that client,
Speaker 2: but we can provide the mid tier bank the liquidity
Speaker 2: to better service their client. And we're starting to set
Speaker 2: up a whole mid tier liquidity ecosystem to service these
Speaker 2: mid tier banks. It's still early days, but we've seen
Speaker 2: signs where this model can work. It serves the end
Speaker 2: user client well, and it's servicing and allowing those mid
Speaker 2: tier banks to be much much more competitive against larger players.
Speaker 1: And how do you think about the markets and this
Speaker 1: kind of environment. So, given the volatility that we've seen,
Speaker 1: will it stay like this or does it die down
Speaker 1: from here until the end of the year and beyond.
Speaker 2: Yeah, Look, there's a lot of talk about is the
Speaker 2: capital expenditure for AI running too high. People are starting
Speaker 2: to speculate are we in some form of a bubble.
Speaker 2: I think a lot of the macro discussion in markets
Speaker 2: sort of correlates to what's going on and what we're
Speaker 2: talking about at this conference around AI. I think if
Speaker 2: we can have modest productivity gains in the real economy
Speaker 2: by better leveraging AI, market valuations look absolutely attractive. You
Speaker 2: don't need a big productivity boost in order to support
Speaker 2: these valuations. By the way, there's also a lot of
Speaker 2: tough talk about growing stocks of debt and developed countries.
Speaker 2: How do these countries service their debt? They can grow
Speaker 2: their way out of it with productivity gains, So I
Speaker 2: think that's the big bet. Don't think we're in a
Speaker 2: bubble right now. Reasonably confident we will get these productivity gains.
Speaker 2: But that's where the macro discussion really hinges right now.
Speaker 1: Jim, thank you so much for your time today. Those
Speaker 1: is Jim as Posito. There are the president's securities