Jane Street, Citadel and other strong players have risen, Wall Street has changed

A new force is reshaping the lucrative trading landscape on Wall Street.

As of the second quarter, high-frequency trading firm Hudson River Trading saw its trading revenue more than double to $2.6 billion, while Ken Griffin's Citadel recorded a record revenue of $5.8 billion in the first half of the year. Previously, Wall Street Watch mentioned that Jane Street's net trading revenue in the second quarter reached $10.1 billion, surpassing all major banks on Wall Street.

The three major market makers collectively earned nearly $30 billion in trading revenue in the first half of the year, primarily benefiting from market volatility following Trump's tariff war. Although this still falls short of the combined revenue of $48 billion from Wall Street's top three trading departments—JPMorgan Chase, Goldman Sachs, and Morgan Stanley—the gap is narrowing.

These privately held companies face less regulatory scrutiny compared to their banking counterparts, allowing them to use their own capital for larger-scale investments. After the 2008 financial crisis, banks faced stricter risk limits, creating market space for these technology-driven emerging players.

Paul Rowady of Alphacution Research stated:

The global financial crisis has led to a new generation of market leaders, with new participants leveraging technology and mathematical expertise, making them competitors that large investment banks cannot match.

Technology-Driven Trading Revolution

The core competitiveness of these electronic market makers lies in their cutting-edge technology.

Companies like Citadel utilize advanced technology to quote a wide range of assets, such as bonds, and execute trades at extremely high speeds and with very thin spreads.

Although this model reduces the profit margin per trade, the enormous trading volume is sufficient to compensate for this and ultimately creates economies of scale.

Meanwhile, the business landscape of these trading giants has long since expanded beyond their initial starting points.

As the electronicization of the fixed income market deepens, trading opportunities in areas such as interest rates and corporate bonds have emerged, with Citadel and Jane Street making significant inroads into this field.

Citadel was once known for its dominance in the U.S. stock market, but in recent years has incorporated corporate bond trading into its fixed income business and has also ventured into government bond trading in the U.S., U.K., and Europe.

Jane Street initially started by trading American Depositary Receipts (ADRs) and later expanded to trading ETFs on U.S. exchanges, now holding a dominant position in that asset class.

Banking Retreats to Make Way for Emerging Participants

While non-bank market makers are thriving, traditional banks have retreated in trading operations.

Post-financial crisis regulatory requirements have made it more costly for banks to engage in proprietary trading using their own balance sheets.

Earlier this year, Morgan Stanley shut down its department focused on electronic market making for U.S. stock options, which Citadel subsequently acquired This option business on the exchange has brought Citadel a large portfolio of stock option positions, as well as professional seats on exchanges such as the Chicago Mercantile Exchange, Nasdaq, and the New York Stock Exchange.

Larry Tabb, head of Bloomberg's market structure research, stated:

There are not many companies in the capital markets that can make this much money. When banks are no longer competitive in trading, clients will ultimately turn to those institutions that can provide them with the best prices directly.

Nevertheless, according to Tabb, banks still have an advantage due to their large balance sheets. He said:

If you really need a lot of capital, you can't always get it from Jane Street, Citadel, or Hudson River Trading