(Yicai) Nov. 20 -- There are very few Chinese chief executives at top Wall Street firms. To be precise, Zhao Peng, CEO of Citadel Securities, the world’s leading market maker, maybe the only one.

Zhao led Citadel Securities to break the monopoly of large banks by leveraging innovation, analytics, and electronic trading systems and to provide clients with a seamless trading experience when other major banks were unable to handle transaction volumes.

The Miami-based firm handles more than 20 percent of US equity market volume and ranked No. 1 on Bloomberg for US Treasury trading this October, surpassing the biggest US banks for the first time. In 2022, the firm’s global revenue reached a record USD7.5 billion, and that year, all of Goldman Sachs' combined revenues stood at USD47.4 billion.

High-quality financial opening-up is one of the key terms for the next phase of economic development. Citadel Securities' Asia-Pacific headquarters are located in Hong Kong, and it continues to recruit people even amid the wave of layoffs in the industry. The firm also participated in the A-share markets through the Shanghai-Shenzhen-Hong Kong Stock Connect and secured Qualified Foreign Institutional Investor qualification this February.

On Nov. 10, China's central bank issued ‘Regulations on the Management of Domestic Securities and Futures Investment Funds by Foreign Institutional Investors (Draft for Comment),’ including the cancellation of the administrative licensing requirements for QFII and Renminbi Qualified Foreign Institutional Investors to register funds at the foreign exchange bureau, aiming to further promote opening-up to foreign investment. 

Zhao said that he would not rule out the possibility of seeking to develop business in China's market in the future. And Tang Xiaodong, the former head of BlackRock China, who joined Citadel Securities in September, will play a key bridging role between the firm and regulatory agencies.

Innovation Through Technology

Zhao became CEO of Citadel Securities in 2017. On his watch, the firm’s headcount has risen to 1,600 from 300. The firm’s success stems from the business model of a market maker, which improves market liquidity by matching buyers and sellers to trade financial assets. It can also earn a tiny price difference from it, and large transaction volumes can make the economics really work. Unlike other market makers whose market-making business is only one part of their proprietary business, Citadel Securities focuses on the role of being a market maker and realizes that technology and industry innovation can strengthen the firm’s market position.

“We had a very clear vision, which is to be a company that puts technology and analytics first,” Zhao told Yicai. “The market has become more efficient, more open, and more transparent in recent years, which enabled a technology-first approach to trading.”

Since the outbreak of the Covid-19 pandemic, market volatility has increased the demand for market maker services, with the firm’s total revenue from trading reaching USD6.7 billion in 2020.

In Zhao’s view, although the high volume of trading at that time brought increased profits to Citadel Securities, the key to the firm’s success was scale trading capacity, not market fluctuations based on a single event. He noted that many peers were unable to keep up with sudden hikes in transaction volume.

“Because of our long-term investment in the scalability of our trading system, we were able to take over the transaction volume that our peers were unable to handle in a timely manner to ensure market liquidity and stability,” he said.

Zhao also believes that achieving this is not only through computer science, mathematics, and so forth, but by combining them with real market insights into the economy, regulatory trends, and products. The key is to serve the needs of clients. It is precisely in response to client demands that Citadel Securities officially entered the credit market in the second half of this year by providing clients with investment-grade bond transactions in the United States.

Asia-Pacific Investment

APAC is a key driver of Citadel Securities' business growth. Citadel Securities and Citadel have more than 400 employees in the Asia-Pacific region. In the past three years, the two companies have opened three new offices and doubled their headcount in the region. Both of their largest APAC regional offices are located in Hong Kong.

Both firms expanded their office space in Hong Kong's Two International Finance Center in 2022 as their presence in the region continues to grow. Starting from Hong Kong, Citadel Securities brought its fixed-income business to APAC in 2020 by providing US Treasury and US dollar interest rate swap products to big banks, insurance companies and other asset managers in the region. It opened an office in Tokyo for the first time last year.

Zhao believes that Hong Kong is an international financial center and an important bridge to develop Citadel Securities’ business in the Chinese mainland. In his view, the Connect program is one of the most successful to facilitate China’s financial opening-up and hasten the participation of global investors in China’s capital market.

China Market Participation

Citadel Securities has been expanding into the Chinese market in recent years and has secured the relevant licenses. Being part of a leading US financial institution, Zhao has never been shy about his feelings toward China.

“We’re pleased to further expand our participation in the Chinese market through the Shanghai-Shenzhen-Hong Kong Stock Connect and QFII,” he said. Zhao also expressed interest in exploring different ways to build the firm’s business in China.

Market participants have always been curious about whether the firm will set up a securities firm in the mainland. “Within what the regulations allow, we’ll actively explore the possibility of establishing an onshore licensed business,” Zhao said.

China’s recent Central Financial Work Conference emphasized the high-quality development of finance. High-quality development is also what Zhao cares about the most.

“Opening up and high-quality development are good for the Chinese market, showing that the regulator is paying attention to financial stability while encouraging international institutions to participate in the Chinese market,” he said. “We wish to help realize the above goals through our participation in the Chinese market.”

Editor: Tom Litting