Retail investors are warning of Citadel’s new plans to enter the bond market due to the hedge fund’s long history of market manipulation.
According to the DESK, “Citadel Securities has announced plans to enter the corporate bond market this year in a surprise play for one of the few areas of the market that it does not already dominate.”
The move was confirmed to The DESK by Will Boeckman, the head of fixed income platform sales at Citadel Securities, who announced the plans onstage at FILS US 2023.
He told The DESK that while the launch was still in its early stages, the firm has already partnered with MarketAxess, live as of Tuesday 20 June, and plans to join all the other major platforms.
Activity will initially be limited to the US, with no entry to Europe yet, but the long-term goal is to build the same footprint in corporate bonds as the firm already holds in rates, treasuries and ETFs, according to sources.
“Citadel Securities is already one of the largest market makers in the world in the global fixed income and currency markets, and in recent years has worked on expanding its footprint in both treasuries and rates.”
According to Boeckman, it is setting its sights on the corporate bond market in order to help liquidity improve.
The hedge fund’s new cryptocurrency exchange also went live this month.
However, retail investors warn of more market manipulation from the hedge fund known for allegedly spoofing and ‘naked short selling’.
SEC and Fed Target Citadel Bond Market Plans
Citadel amongst other hedge funds is under fresh scrutiny from the SEC due to risky bets that are heightening systemic risk in an already shaky economy.
Officials at the Securities and Exchange Commission and the Federal Reserve have questioned prime brokers about leveraged trading as “the dangers have been heightened due to political brinkmanship around the debt ceiling that has threatened to sink the US into default and unleash chaos in financial markets”, per Bloomberg.
“Several of the hedge funds that have recently pursued the so-called basis trade were also active in 2020, when the outbreak of the pandemic upended the Treasury market and caught them wrong-footed until Fed officials intervened to restore normalcy.”
Basis trading is a trading strategy that seeks to profit from perceived mispricing of securities, capitalizing on small basis point changes in value.
The list includes Citadel, Millennium Management, ExodusPoint Capital Management and Capula Investment Management, according to people familiar with the matter.
“Financial watchdogs are under pressure after having been blindsided repeatedly by instability in the bond market since the pandemic erupted”, says Bloomberg.
A new intraday margin call rule is hitting Wall Street hard as the SEC plans to bolster the resiliency and integrity of the market.
The U.S. Securities and Exchange Commission in May voted on the proposal that would require clearing houses to monitor margin exposures on an ongoing basis and give them the authority to make intraday margin calls as frequently as circumstances warrant, per Reuters.
Read: “The Game is Rigged” Says Ex-Citadel Data Scientist
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