High-Tech Trading Firms Race to Grab Bond Market Turf

They subdued stocks, claimed a chunk of foreign exchange and muscled into the commodity market. Now high-tech trading firms like Citadel Securities LLC and Jane Street are pushing deeper than ever into fixed income.

Riding a wave of digitization and a boom in ETFs, electronic market makers — who keep securities moving by continuously buying and selling in lightning-fast transactions — are expanding their reach in government bond trading and finally gaining ground in the once-untouchable world of corporate debt.

In the process they’re storming territory ruled by Wall Street’s biggest banks, throwing everything from client relationships to transaction costs into flux and scooping up staff alongside market share — even as the march of so-called electronification stirs concerns about financial stability.

At Jane Street, a $1.4 billion bond sale in April gave a rare glimpse into the notoriously secretive business. Documents for the debt, the proceeds of which will go toward further expansion, show the firm has earmarked fixed income and in particular government bonds as “particularly high growth” areas. It has also been rapidly climbing the league table of market makers in credit, helped by its dominance in the ETF business.

Citadel Securities says the number of institutional clients using its fixed-income services has jumped more than 15% since it started making markets in investment grade corporate bonds last year. Already one of the top dealers for Treasuries, the sibling to Ken Griffin’s hedge fund will soon launch into European and UK government debt. It also plans to begin portfolio trading — a red-hot technique for moving big baskets of securities in one swoop — before entering high-yield credit.