The Appeal of Citadel Securities for Traders Leaving Goldman Sachs
If you’re leaving the Goldman Sachs trading floor now, there’s a well-trodden path to take. It doesn’t lead to a hedge fund, but to Citadel Securities, the electronic trading firm. Traders and salespeople from Goldman Sachs and other leading banks are congregating there. This is why.
Why Citadel Securities?
Citadel Securities declined to comment for this article, but publicly available information helps explain its appeal. Citadel Securities is growing fast and it’s highly profitable. Sales and trading businesses in banks are being squeezed by the cost of technology investments and by margin compression. Multistrategy hedge funds are also now struggling in the wake of recent losses in their macro businesses. Citadel Securities’ rival electronic trading firms have a broader focus.
Figures released this week showed Citadel Securities making $6.5bn in EBITDA on revenues of $12.2bn last year. This kind of profitability enabled the firm to pay its 1,800 people a total of $3.5bn for 11 months, implying an average of $2.1m each a year. Top traders can make this at Goldman Sachs; average traders, maybe not.
The Citadel Difference
Speaking to Risk Magazine in December, Citadel Securities’ ex-Goldman Sachs president Jim Esposito and chief operating officer Matt Culek, explained what differentiates the firm from banks.
Banks’ trading systems typically evolved for financing activities, said Esposito. These financing activities tend to involve long dated trades and to be capital intensive, he added. As a result, banks’ trading platforms are less able to quickly redeploy capital as needed. Citadel Securities is different. The firm uses its own in-house technology and is able to calculate exposure across multiple businesses and products to capture netting effects. This means capital at the firm can be very swiftly reallocated to maintain liquidity for clients.
Competitors and Market Focus
Citadel Securities has competitors beyond banks, such as Jane Street, IMC, Hudson River Trading (HRT) and others, in the liquidity-provision space. While rivals may pay more on average than Citadel Securities, the focus of each firm differs. Citadel Securities is a pure market maker, while others are more heavily focused on investing their own money.
This helps explain why market makers from banks keep climbing aboard Citadel Securities. The firm’s ability to provide liquidity even in volatile situations makes it an attractive destination for top traders.
Conclusion
In conclusion, Citadel Securities’ appeal lies in its rapid growth, high profitability, and unique approach to trading that sets it apart from traditional banks and other electronic trading firms. As the financial landscape evolves, Citadel Securities continues to attract top talent from leading institutions like Goldman Sachs.
