A new 'bulge bracket' of electronic trading firms is coming for jobs in banks
The 'bulge bracket' of banking as we once knew it has somewhat ceased to exist, with banks now being put into tiers instead. A new bulge bracket appears to be forming elsewhere, however, and it's putting market-making jobs in the big banks at risk.
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A recent report from insights firm Crisil Coalition Greenwhich says that, while banks still hold the most influence on capital markets today, a bulge bracket of non-banking liquidity providers (NBLPs) is growing in influence. It defines NBLPs as "technology-first systematic trading firms," which are more colloquially known as high-frequency trading (HFT) firms.
Who are the 'bulge bracket' NBLPs? The report doesn't say, but we can make some educated guesses. Citadel Securities handles roughly 25% of all US equities trades and executes $500bn in trades daily. Jane Street trades ~10% of US equities. The NBLPs sometimes make proprietary trades with their own funds, but they also generate market making revenues by facilitating trades and pocketing the difference between the buying price and the selling price. Major European players include Optiver and XTX Markets.
The report said that, in 2024, NBLPs generated $26bn in market making revenue across equities, fixed income, currencies, and commodities, up from ~$21bn the year before. Those revenues were generated by both the bulge bracket and smaller electronic market makers. While total market making revenues for NBLPs are still just 19.3% of revenue generated by banks doing the same thing, Coalition Greenwhich said these firms are expanding into new asset classes to grow their revenues even further.
Raman Kalra, co-author of the report, said that NBLPs are "tackl[ing] new opportunities that were once unattainable" and going after asset classes that are "experiencing growth in electronification," like municipal bonds and rates. Asset classes experiencing growth in exchange traded fund (ETF) usage are one target. ETFs accounted for 82% of all trades on low-latency exchange Tradeweb last month.
Credit markets saw a 20% growth in revenues for NBLPs last year, but the report suggests that credit traders in banks might be safe (for now) as "the low hanging fruit has been picked" by NBLPs already. It says that high-yield bonds, for example, have limited growth potential for NBLPs due to stagnating trading volumes.
NBLPs are also beating banks to the punch for burgeoning asset classes. Modern retail-focused equities such as event futures (available from the likes of Polymarket) have growing volumes; the report says NBLPs are already making markets in that space.
NBLPs aren't just putting banking jobs at risk, they're also poaching top staff from those banks. Citadel Securities has hired multiple senior bankers including ex-Goldman Sachs MD Keith Cynar and ex-Morgan Stanley MD Jordan Brink who it hired to head US rates sales and have both started this month. NBLPs are much leaner organizations, though, so few will be given these opportunities.
Revenues for the top NBLPs are a lot more diverse than just market making. Jane Street, for example, generated $20.5bn alone in net trading revenue last year, while Citadel Securities generated $9.7bn.
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