Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
Speaker 2: I'm standing by with Jim Esposito, who is now the
Speaker 2: president of Citadel Securities. He's only six weeks on the job.
Speaker 2: He's a former head co head of Global Banking and
Speaker 2: Markets over at Goldman Sachs, now joining what a lot
Speaker 2: of people consider to be a large rival. And you
Speaker 2: know when you are here now you knew a little
Speaker 2: bit about Citadel Securities before, obviously in your prior role,
Speaker 2: But what now that you're inside. I know, just six
Speaker 2: weeks on the job, but what is different here than there?
Speaker 1: Sure? Thanks Chanelli for being with us at our flagship
Speaker 1: macro conference here in New York. I'd call out two
Speaker 1: things early days for me at Cidel's Securities, as you
Speaker 1: pointed out, that are starkly different than my previous existence.
Speaker 1: The first would be just the operational scale and efficiency
Speaker 1: that Citadel Securities currently operates at. I know when you
Speaker 1: talk to all of the large banks, they are very
Speaker 1: desirous of trying to find ways to lever technology, use AI,
Speaker 1: machine learning computing power in order to reduce their operational
Speaker 1: expense and complexity. That's very much on the come from
Speaker 1: the larger banks. I would humbly submit to you, We've
Speaker 1: already achieved that objective. Now. The best way I can
Speaker 1: demonstrate that to you if I look at the number
Speaker 1: of client tickets and trades that we write each and
Speaker 1: every day at Citadel Securities, I would put forward it's
Speaker 1: a greater number than the largest banks. And against that backdrop,
Speaker 1: Citadel Securities only has seventeen hundred employees, so operating at
Speaker 1: scale has already happened for us. The second thing that
Speaker 1: I would have to call out is just the awesome
Speaker 1: collection of talent that we have. I've probably met more
Speaker 1: PhDs and math olympiads in the past six weeks than
Speaker 1: I have in my entire career. We are a talent magnet.
Speaker 1: If you excel in mathematics, computer science, statistics, these folks
Speaker 1: want to come to Citadel Securities. We believe we have
Speaker 1: some of the most complex financial problems to solve. People
Speaker 1: are attracted to that and they want to be surrounded
Speaker 1: by other bright people in their fields.
Speaker 2: You know, it's interesting you spend a long time at Goldman.
Speaker 2: I do want to talk more about talent, because that
Speaker 2: is pretty fascinating what you just said. But after so
Speaker 2: long at Goldman How does it feel to compete with
Speaker 2: your prior employer.
Speaker 1: Yeah, now I appreciate when I got hired. It makes
Speaker 1: for a nice news story that somehow Citadel Securities hired
Speaker 1: me to directly compete against the largest banks. Again, early
Speaker 1: days for me at Citadel Securities, I would put forward.
Speaker 1: At the moment, I'm finding much better opportunities to partner
Speaker 1: with the largest banks. You think about the challenges that
Speaker 1: large banks have. They're all looking to reduce single party
Speaker 1: concentration risks that they have. They're looking to reduce some
Speaker 1: of their complex risks. We're in the risk management business,
Speaker 1: and so partnering on risk transfer with the largest banks
Speaker 1: is very much on our firm strategic agenda. I've been
Speaker 1: spending a lot of my time with the largest banks
Speaker 1: and we're engaging in that activity at the moment, I
Speaker 1: should also call out I believe there's an enormous opportunity
Speaker 1: for US servicing and partnering with mid tier banks. When
Speaker 1: you think about the large number of mid tier banks
Speaker 1: that currently operate across global equities and fixed income, they
Speaker 1: need to service their end user client. We're going to
Speaker 1: be an awesome partner providing them liquidity providing them access
Speaker 1: to tight pricing where they can maintain their clients. We're
Speaker 1: a little bit less interested in covering mid size and
Speaker 1: smaller clients. So partnering with banks at the moment is
Speaker 1: much more interesting than directly competing with them.
Speaker 2: You know, it's interesting. I talk to a lot of
Speaker 2: trading desks in the run up to the interview with you,
Speaker 2: and when I asked what they would want to know
Speaker 2: is okay, Well, it's interesting. Citadel Security just to be
Speaker 2: very very known strictly for its technology, but you've been
Speaker 2: adding so much talent here recently, particularly from the large
Speaker 2: banks Bank of America, City Group in Goldman Sachs. Where
Speaker 2: do humans play and where does technology play? How do
Speaker 2: you think about talent here at Citadel Securities?
Speaker 1: Look, I think we are a talent driven organization. So
Speaker 1: if you think about the success that we've had on
Speaker 1: exchange market making, innovating and providing a better experience for
Speaker 1: the US retail investor, that's a combination of that differentiated
Speaker 1: human capital combined with levering technology. And so we've built
Speaker 1: very good risk taking skills, very good risk management skills.
Speaker 1: Now the question for us is where else in the
Speaker 1: capital markets can we deploy these skills. We very much
Speaker 1: want to be citadel securities in more places. There's ample
Speaker 1: room for growth Internationally. Our business is a bit skewed
Speaker 1: to the US at the moment, so growth in Europe
Speaker 1: and in Asia, and then you've seen there's parts of
Speaker 1: the capital markets that we're building out. I would call
Speaker 1: out investment grade trading, global interest rate trading, and so
Speaker 1: that's very much on our mind at the moment.
Speaker 2: You know, it's interesting as well, you mentioned math olympiads
Speaker 2: PhDs kind of an excessive level if you will, here
Speaker 2: of technical talent. Is that the future trader? You know,
Speaker 2: if you think about the trader of the future, is
Speaker 2: it more and more along the lines of that math Olympiad.
Speaker 1: Yeah, So for us, I think it is. I think
Speaker 1: our model might be different than the big banks, and
Speaker 1: I think there's places where both can peacefully coexist. We're
Speaker 1: always going to be driven by that differentiated human capital.
Speaker 1: We're going to continue to lever technology, and we believe
Speaker 1: the more flow that we can capture, the tighter pricing
Speaker 1: we can provide, we'll have an ability to systematize and
Speaker 1: monetize those trading flows the exact same way we've done
Speaker 1: in the equity market, So we want to take a
Speaker 1: page out of the playbook that we've deployed so well
Speaker 1: in equities, and now we're going to start to run
Speaker 1: that same play across different parts of the fixed income markets.
Speaker 2: Well, maybe double down on that a little more, because
Speaker 2: to your point, Citadel Securities had been known to be
Speaker 2: such a large retail market maker in the equities world.
Speaker 2: But you're diving more and more into the institutional business,
Speaker 2: You're competing more in credit. How far does that push go?
Speaker 1: Yeah, and you're right. And when you look at our volumes,
Speaker 1: about a third of the volumes that get traded on
Speaker 1: the New York Stock Exchange happen through our platform. Close
Speaker 1: to twenty five percent of all US equity volumes come
Speaker 1: through Citadel Securities platforms. We have dominant and impressive market
Speaker 1: shares at the moment, and so now when we look
Speaker 1: at what we've done, we see the exact same opportunity
Speaker 1: to do that into the investment grade trading markets. We've
Speaker 1: stood up in investment grade trading business. At the moment,
Speaker 1: we're doing the most basic things. We're trading cash corporate bonds.
Speaker 1: You'll see us in the coming months, start to do
Speaker 1: more complex activities in credit. The next thing on our
Speaker 1: agenda is start to trade in portfolio form our clients
Speaker 1: engage in large portfolio rebalances of investment grade credit. We're
Speaker 1: not doing that activity at the moment, but we see
Speaker 1: no reason why we shouldn't excel, and so you'll see
Speaker 1: us filling in different products in our product suite as
Speaker 1: we play forward.
Speaker 2: Jim, you know another thing that's interesting. I spoke to
Speaker 2: your colleague pun Jaw a little earlier about this, this
Speaker 2: idea about whether to go public or not. How do
Speaker 2: you think about that possibility for Citadel Securities? This has
Speaker 2: been kind of long under the surface for a question
Speaker 2: for you guys, So I don't.
Speaker 1: Want to bury the lead. There is at this moment
Speaker 1: zero discussion about Citadel Securities going public now when we
Speaker 1: look around the globe right now, the leadership team's time
Speaker 1: is just focused on executing on a large number of
Speaker 1: strategic growth opportunities and initiatives. So that's our focus now,
Speaker 1: as you're aware. In the past, you know, less than
Speaker 1: three years ago we did take venture capital investment from
Speaker 1: Sequoia and Paradigm. They've been terrific partners Sequoia sits on
Speaker 1: our board of directors. They're providing us with strategic advice
Speaker 1: and guidance. You could things change in the future. Are
Speaker 1: there different things we could do with our capital structure? Possibly,
Speaker 1: but at the moment, no discussions, no thoughts about going public.
Speaker 2: Now a big moment ahead. We have less than thirty
Speaker 2: days until the US election. I spoke yesterday with Ray Dalio,
Speaker 2: founder of Bridgewater Associates. He said there could be election
Speaker 2: uncertainty even well into January, particularly in November when it's
Speaker 2: kind of unclear here how soon investors and America will
Speaker 2: get a sense of who the next president is. How
Speaker 2: are your clients preparing for that uncertainty?
Speaker 1: Sure, I think our clients, I wouldn't say are in
Speaker 1: risk off mode, but I think everyone's operating at the
Speaker 1: moment with a very balanced risk position. They want to
Speaker 1: get this election and the election certainty that comes with
Speaker 1: it behind them, and so until we get to the
Speaker 1: other side, I think you'll see, you know, somewhat moderate
Speaker 1: trading activities. Ours is a business that benefits not from
Speaker 1: taking directional risk. We benefit from volumes and volatility. I
Speaker 1: think you could expect that we may see that type
Speaker 1: of scenario. While we're not rooting on election uncertainty in
Speaker 1: our business, volumes and volatility tend to be very good
Speaker 1: for Citadel Securities.
Speaker 2: Well, it's interesting, we saw the VIX hit past sixty
Speaker 2: five earlier this year. It's nowhere near that levels now
Speaker 2: but still moderately elevated. How volatile can things get?
Speaker 1: Look, I think you know, we'll wait and see. There's
Speaker 1: no expectation we'll go anywhere back to that level of
Speaker 1: volatility in the VIX, but I think you know, any
Speaker 1: possible outcome is something we're risk managing, we're thinking about,
Speaker 1: we're stress testing our own risks, and we're very focused
Speaker 1: on the reliability and durability of our platform. We know
Speaker 1: our clients rely upon us in times of stress, in
Speaker 1: times of high volatility and volumes. That's when we want
Speaker 1: our platform to excel and perform, and that's what's really
Speaker 1: on our mind at this moment.
Speaker 2: Jim, we have to leave it there. Thank you for
Speaker 2: your time. That is Jim Esposido at his first interview
Speaker 2: as president of Citadel Securities