Volcker probably resulted in nonbank dealers “permanently displacing” banks in the corporate bond market, according to a working paper published in August by the U.S. Treasury Department’s Office of Financial Research.

A separate Dodd-Frank rule that pushed the clearing of swaps onto exchanges also helped Citadel Securities.

When swaps are traded bilaterally, the quality of a counterparty is important because its failure exposes its trading partner to the value of the swap. As a result, big banks capable of absorbing large losses were the preferred counterparties.

But when swaps are traded through an exchange, it’s the exchange that takes on the risk, making the quality of the counterparty irrelevant while also improving price transparency.

Citadel Securities was one of the first nonbanks to push into markets that were opened up by the rule, said Kevin McPartland, head of market structure and technology research at Greenwich Associates. “That really made people more broadly start to pay attention,” he said.

Providing Liquidity

By targeting big banks, regulators hampered their ability to provide liquidity, JPMorgan Chase & Co. asset management chief Mary Erdoes said last year at the Bloomberg Global Business Forum, where Griffin was a guest.

They’ve been replaced by firms like Citadel Securities that are less regulated, and the market doesn’t yet know if they’ll be reliable partners in a crisis, she said. “It will be a very different playbook when we go through the next liquidity crunch.”

In response, Griffin said his firm was well positioned to provide liquidity because it captures and processes data better than banks, allowing Citadel Securities to offer prices with more confidence during times of market stress.

The exchange highlighted a sometimes difficult relationship between Citadel Securities and big banks.

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