WEBVTT - Citadel Securities President Jim Esposito Talks First Six Weeks

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio News.

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<v Speaker 2>I'm standing by with Jim Esposito, who is now the

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<v Speaker 2>president of Citadel Securities. He's only six weeks on the job.

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<v Speaker 2>He's a former head co head of Global Banking and

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<v Speaker 2>Markets over at Goldman Sachs, now joining what a lot

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<v Speaker 2>of people consider to be a large rival. And you

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<v Speaker 2>know when you are here now you knew a little

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<v Speaker 2>bit about Citadel Securities before, obviously in your prior role,

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<v Speaker 2>But what now that you're inside. I know, just six

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<v Speaker 2>weeks on the job, but what is different here than there?

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<v Speaker 1>Sure? Thanks Chanelli for being with us at our flagship

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<v Speaker 1>macro conference here in New York. I'd call out two

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<v Speaker 1>things early days for me at Cidel's Securities, as you

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<v Speaker 1>pointed out, that are starkly different than my previous existence.

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<v Speaker 1>The first would be just the operational scale and efficiency

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<v Speaker 1>that Citadel Securities currently operates at. I know when you

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<v Speaker 1>talk to all of the large banks, they are very

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<v Speaker 1>desirous of trying to find ways to lever technology, use AI,

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<v Speaker 1>machine learning computing power in order to reduce their operational

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<v Speaker 1>expense and complexity. That's very much on the come from

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<v Speaker 1>the larger banks. I would humbly submit to you, We've

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<v Speaker 1>already achieved that objective. Now. The best way I can

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<v Speaker 1>demonstrate that to you if I look at the number

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<v Speaker 1>of client tickets and trades that we write each and

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<v Speaker 1>every day at Citadel Securities, I would put forward it's

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<v Speaker 1>a greater number than the largest banks. And against that backdrop,

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<v Speaker 1>Citadel Securities only has seventeen hundred employees, so operating at

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<v Speaker 1>scale has already happened for us. The second thing that

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<v Speaker 1>I would have to call out is just the awesome

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<v Speaker 1>collection of talent that we have. I've probably met more

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<v Speaker 1>PhDs and math olympiads in the past six weeks than

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<v Speaker 1>I have in my entire career. We are a talent magnet.

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<v Speaker 1>If you excel in mathematics, computer science, statistics, these folks

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<v Speaker 1>want to come to Citadel Securities. We believe we have

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<v Speaker 1>some of the most complex financial problems to solve. People

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<v Speaker 1>are attracted to that and they want to be surrounded

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<v Speaker 1>by other bright people in their fields.

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<v Speaker 2>You know, it's interesting you spend a long time at Goldman.

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<v Speaker 2>I do want to talk more about talent, because that

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<v Speaker 2>is pretty fascinating what you just said. But after so

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<v Speaker 2>long at Goldman How does it feel to compete with

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<v Speaker 2>your prior employer.

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<v Speaker 1>Yeah, now I appreciate when I got hired. It makes

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<v Speaker 1>for a nice news story that somehow Citadel Securities hired

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<v Speaker 1>me to directly compete against the largest banks. Again, early

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<v Speaker 1>days for me at Citadel Securities, I would put forward.

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<v Speaker 1>At the moment, I'm finding much better opportunities to partner

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<v Speaker 1>with the largest banks. You think about the challenges that

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<v Speaker 1>large banks have. They're all looking to reduce single party

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<v Speaker 1>concentration risks that they have. They're looking to reduce some

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<v Speaker 1>of their complex risks. We're in the risk management business,

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<v Speaker 1>and so partnering on risk transfer with the largest banks

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<v Speaker 1>is very much on our firm strategic agenda. I've been

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<v Speaker 1>spending a lot of my time with the largest banks

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<v Speaker 1>and we're engaging in that activity at the moment, I

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<v Speaker 1>should also call out I believe there's an enormous opportunity

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<v Speaker 1>for US servicing and partnering with mid tier banks. When

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<v Speaker 1>you think about the large number of mid tier banks

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<v Speaker 1>that currently operate across global equities and fixed income, they

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<v Speaker 1>need to service their end user client. We're going to

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<v Speaker 1>be an awesome partner providing them liquidity providing them access

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<v Speaker 1>to tight pricing where they can maintain their clients. We're

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<v Speaker 1>a little bit less interested in covering mid size and

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<v Speaker 1>smaller clients. So partnering with banks at the moment is

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<v Speaker 1>much more interesting than directly competing with them.

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<v Speaker 2>You know, it's interesting. I talk to a lot of

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<v Speaker 2>trading desks in the run up to the interview with you,

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<v Speaker 2>and when I asked what they would want to know

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<v Speaker 2>is okay, Well, it's interesting. Citadel Security just to be

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<v Speaker 2>very very known strictly for its technology, but you've been

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<v Speaker 2>adding so much talent here recently, particularly from the large

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<v Speaker 2>banks Bank of America, City Group in Goldman Sachs. Where

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<v Speaker 2>do humans play and where does technology play? How do

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<v Speaker 2>you think about talent here at Citadel Securities?

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<v Speaker 1>Look, I think we are a talent driven organization. So

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<v Speaker 1>if you think about the success that we've had on

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<v Speaker 1>exchange market making, innovating and providing a better experience for

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<v Speaker 1>the US retail investor, that's a combination of that differentiated

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<v Speaker 1>human capital combined with levering technology. And so we've built

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<v Speaker 1>very good risk taking skills, very good risk management skills.

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<v Speaker 1>Now the question for us is where else in the

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<v Speaker 1>capital markets can we deploy these skills. We very much

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<v Speaker 1>want to be citadel securities in more places. There's ample

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<v Speaker 1>room for growth Internationally. Our business is a bit skewed

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<v Speaker 1>to the US at the moment, so growth in Europe

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<v Speaker 1>and in Asia, and then you've seen there's parts of

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<v Speaker 1>the capital markets that we're building out. I would call

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<v Speaker 1>out investment grade trading, global interest rate trading, and so

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<v Speaker 1>that's very much on our mind at the moment.

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<v Speaker 2>You know, it's interesting as well, you mentioned math olympiads

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<v Speaker 2>PhDs kind of an excessive level if you will, here

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<v Speaker 2>of technical talent. Is that the future trader? You know,

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<v Speaker 2>if you think about the trader of the future, is

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<v Speaker 2>it more and more along the lines of that math Olympiad.

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<v Speaker 1>Yeah, So for us, I think it is. I think

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<v Speaker 1>our model might be different than the big banks, and

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<v Speaker 1>I think there's places where both can peacefully coexist. We're

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<v Speaker 1>always going to be driven by that differentiated human capital.

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<v Speaker 1>We're going to continue to lever technology, and we believe

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<v Speaker 1>the more flow that we can capture, the tighter pricing

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<v Speaker 1>we can provide, we'll have an ability to systematize and

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<v Speaker 1>monetize those trading flows the exact same way we've done

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<v Speaker 1>in the equity market, So we want to take a

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<v Speaker 1>page out of the playbook that we've deployed so well

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<v Speaker 1>in equities, and now we're going to start to run

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<v Speaker 1>that same play across different parts of the fixed income markets.

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<v Speaker 2>Well, maybe double down on that a little more, because

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<v Speaker 2>to your point, Citadel Securities had been known to be

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<v Speaker 2>such a large retail market maker in the equities world.

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<v Speaker 2>But you're diving more and more into the institutional business,

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<v Speaker 2>You're competing more in credit. How far does that push go?

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<v Speaker 1>Yeah, and you're right. And when you look at our volumes,

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<v Speaker 1>about a third of the volumes that get traded on

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<v Speaker 1>the New York Stock Exchange happen through our platform. Close

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<v Speaker 1>to twenty five percent of all US equity volumes come

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<v Speaker 1>through Citadel Securities platforms. We have dominant and impressive market

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<v Speaker 1>shares at the moment, and so now when we look

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<v Speaker 1>at what we've done, we see the exact same opportunity

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<v Speaker 1>to do that into the investment grade trading markets. We've

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<v Speaker 1>stood up in investment grade trading business. At the moment,

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<v Speaker 1>we're doing the most basic things. We're trading cash corporate bonds.

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<v Speaker 1>You'll see us in the coming months, start to do

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<v Speaker 1>more complex activities in credit. The next thing on our

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<v Speaker 1>agenda is start to trade in portfolio form our clients

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<v Speaker 1>engage in large portfolio rebalances of investment grade credit. We're

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<v Speaker 1>not doing that activity at the moment, but we see

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<v Speaker 1>no reason why we shouldn't excel, and so you'll see

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<v Speaker 1>us filling in different products in our product suite as

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<v Speaker 1>we play forward.

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<v Speaker 2>Jim, you know another thing that's interesting. I spoke to

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<v Speaker 2>your colleague pun Jaw a little earlier about this, this

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<v Speaker 2>idea about whether to go public or not. How do

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<v Speaker 2>you think about that possibility for Citadel Securities? This has

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<v Speaker 2>been kind of long under the surface for a question

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<v Speaker 2>for you guys, So I don't.

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<v Speaker 1>Want to bury the lead. There is at this moment

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<v Speaker 1>zero discussion about Citadel Securities going public now when we

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<v Speaker 1>look around the globe right now, the leadership team's time

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<v Speaker 1>is just focused on executing on a large number of

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<v Speaker 1>strategic growth opportunities and initiatives. So that's our focus now,

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<v Speaker 1>as you're aware. In the past, you know, less than

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<v Speaker 1>three years ago we did take venture capital investment from

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<v Speaker 1>Sequoia and Paradigm. They've been terrific partners Sequoia sits on

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<v Speaker 1>our board of directors. They're providing us with strategic advice

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<v Speaker 1>and guidance. You could things change in the future. Are

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<v Speaker 1>there different things we could do with our capital structure? Possibly,

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<v Speaker 1>but at the moment, no discussions, no thoughts about going public.

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<v Speaker 2>Now a big moment ahead. We have less than thirty

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<v Speaker 2>days until the US election. I spoke yesterday with Ray Dalio,

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<v Speaker 2>founder of Bridgewater Associates. He said there could be election

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<v Speaker 2>uncertainty even well into January, particularly in November when it's

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<v Speaker 2>kind of unclear here how soon investors and America will

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<v Speaker 2>get a sense of who the next president is. How

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<v Speaker 2>are your clients preparing for that uncertainty?

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<v Speaker 1>Sure, I think our clients, I wouldn't say are in

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<v Speaker 1>risk off mode, but I think everyone's operating at the

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<v Speaker 1>moment with a very balanced risk position. They want to

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<v Speaker 1>get this election and the election certainty that comes with

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<v Speaker 1>it behind them, and so until we get to the

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<v Speaker 1>other side, I think you'll see, you know, somewhat moderate

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<v Speaker 1>trading activities. Ours is a business that benefits not from

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<v Speaker 1>taking directional risk. We benefit from volumes and volatility. I

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<v Speaker 1>think you could expect that we may see that type

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<v Speaker 1>of scenario. While we're not rooting on election uncertainty in

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<v Speaker 1>our business, volumes and volatility tend to be very good

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<v Speaker 1>for Citadel Securities.

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<v Speaker 2>Well, it's interesting, we saw the VIX hit past sixty

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<v Speaker 2>five earlier this year. It's nowhere near that levels now

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<v Speaker 2>but still moderately elevated. How volatile can things get?

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<v Speaker 1>Look, I think you know, we'll wait and see. There's

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<v Speaker 1>no expectation we'll go anywhere back to that level of

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<v Speaker 1>volatility in the VIX, but I think you know, any

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<v Speaker 1>possible outcome is something we're risk managing, we're thinking about,

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<v Speaker 1>we're stress testing our own risks, and we're very focused

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<v Speaker 1>on the reliability and durability of our platform. We know

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<v Speaker 1>our clients rely upon us in times of stress, in

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<v Speaker 1>times of high volatility and volumes. That's when we want

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<v Speaker 1>our platform to excel and perform, and that's what's really

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<v Speaker 1>on our mind at this moment.

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<v Speaker 2>Jim, we have to leave it there. Thank you for

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<v Speaker 2>your time. That is Jim Esposido at his first interview

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<v Speaker 2>as president of Citadel Securities