New Titans of Wall Street: How Trading Firms Outpaced Big Banks

Over the past two decades, Wall Street’s landscape has been significantly reshaped as non-bank trading firms like Jane Street, Citadel Securities, and Susquehanna International Group have emerged as dominant forces. What started as niche players leveraging technology to compete in equity trading has evolved into a formidable presence across a variety of asset classes, challenging the supremacy of traditional investment banks.

The Rise of Non-Bank Market Makers

Historically, investment banks like Goldman Sachs and Morgan Stanley held a monopoly over trading, facilitated by extensive networks and high capital reserves. However, the introduction of regulatory measures such as the 2007 Regulation National Market System (Reg NMS) and the Volcker Rule under Dodd-Frank (which restricted banks from proprietary trading) has transformed the competitive environment. Non-bank trading firms capitalised on these changes, deploying high-frequency trading (HFT) strategies and advanced algorithms to achieve greater trading speed and efficiency.

These firms’ technological superiority has allowed them to offer tighter spreads and more liquidity, particularly in high-volume, lower-margin trades—business lines that traditional banks deprioritised due to regulatory burdens and higher compliance costs. Jane Street, for instance, traded $6.3 trillion worth of ETFs and options in 2023, while Citadel Securities handles $455 billion in trades every day, accounting for nearly 25% of all US stock trading​.

Expansion into New Asset Classes

The electronification of financial markets has also enabled these firms to push beyond equities into more complex markets like fixed income and foreign exchange. Citadel Securities recently expanded its corporate bond market-making operations, and now plans to venture into European and UK government debt markets. Jane Street, meanwhile, continues to gain traction in the credit markets, facilitated by its dominance in ETFs—a $100 trillion fixed-income market​.

These developments are significant because fixed income trading has traditionally been conducted over-the-counter (OTC), characterised by low transparency and high transaction costs. By introducing digital trading platforms and algorithmic pricing models, firms like Citadel and Jane Street are not only capturing market share but are also transforming the very structure of the bond market. As of 2023, 42% of investment-grade bonds in the US are traded electronically, up from 34% just two years earlier​.

Financial Outperformance

The financial success of these firms underscores their growing influence. Citadel Securities saw an 81% increase in net trading revenue in the first half of 2024, reaching $4.9 billion, while Jane Street’s revenue surged 78% to $8.4 billion. The agility and lean structure of these firms allow them to generate superior revenue per employee compared to traditional banks—Jane Street employees earned an average of over $900,000 last year, significantly higher than the $340,000 average at Goldman Sachs​.

Their outperformance can also be attributed to their ability to rapidly adapt to new opportunities. For example, the recent growth of fixed-income ETFs has allowed Jane Street to consolidate its position as a leading liquidity provider. This growth trajectory contrasts sharply with the more stagnant trading revenues of big banks, which saw an average increase of only 11% over the same period​.

Strategic Implications for Banks

The rise of these new titans represents a structural shift that poses strategic challenges for traditional investment banks. Banks remain entrenched in providing large, complex trades for institutional clients, such as foreign exchange and prime brokerage services, but they are losing ground in more commoditised trading areas. Banks are now forced to either collaborate with these firms or attempt to compete directly by upgrading their own technological infrastructure—a process that could require years of investment with uncertain payoffs.

In the fixed income space, for example, non-bank market makers like Citadel are already capturing significant institutional clients by offering tighter spreads and faster execution. With bond and loan markets traditionally being the stronghold of big banks, this encroachment threatens one of their last high-margin business lines​.

MY ANALYSIS: The Path Forward

The competitive landscape of global trading is shifting rapidly, and the dynamics between banks and trading firms are becoming increasingly interdependent. As non-bank trading firms grow in size and sophistication, their systemic importance will inevitably attract greater regulatory scrutiny. While their private ownership and limited leverage offer some protection against systemic risks, their rapid expansion into highly liquid markets could pose a stability concern if one of these giants were to falter.

For aspiring investment bankers and private equity professionals, understanding these shifts is crucial. The days of purely client-driven trading operations are waning, and the future belongs to those who can integrate quantitative strategies with traditional banking expertise. The success of Citadel and Jane Street serves as a reminder that in today’s market, technological prowess and agility often trump legacy advantages. For big banks, adapting to this new reality will require not just technological investment, but a fundamental rethinking of business strategy.

Overall, the rise of non-bank market makers marks a paradigm shift in the financial markets, signalling a more fragmented yet technologically advanced trading landscape. While investment banks retain their dominance in bespoke and capital-intensive deals, the “new titans” are here to stay, and their growing influence will continue to redefine Wall Street for years to come.