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By Selena Li and Summer Zhen
HONG KONG (Reuters) - Citadel Securities, one of the world's biggest market-making firms, is "actively exploring" establishing a licensed onshore business in China, its chief executive Peng Zhao said.
If Citadel Securities were to obtain a licence, it would be the first foreign firm to formally foray into market-making in China outside interbank and foreign exchange market making.
Over the last two years, Chinese authorities have encouraged the development of market makers, approving more licences and pledging to roll out more types of derivatives as they seek to boost liquidity and draw in more long-term capital.
At least 16 domestic securities brokerage firms have been given the nod to act as market makers in China A shares as of mid-September, official records show.
"We are pleased to see the introduction of the market-making program in China," Zhao told Reuters in an interview in Hong Kong. He declined to disclose the specific licence the company might seek.
"As the Chinese capital market continues to grow beyond simple stock trading and into more complex products, the concept of market making not only will come naturally but also becomes necessary instead of just adding value from a liquidity perspective," Zhao said.
Billionaire Ken Griffin's Citadel Securities, which handles about $390 billion in trades per day, is one of the top market makers by trading volume in the United States.
Market makers quote both buy and sell prices for assets and are constant trading participants in the market, earning profit through the spread of bid and offer prices.
China's nascent market-making sector could grow to be worth 250 billion yuan ($34 billion) in revenues in 2032, compared with an estimated 40 billion yuan last year, according to Chinese brokerage Haitong.
Market-making was first introduced in China in 2014. In February, Beijing started to allow licenced securities brokerage firms to act as market makers for its newest board Beijing Stock Exchange, following a similar move in May 2022 for its Nasdaq-style STAR Market.
Citadel Securities in July appointed Tony Tang, the former head of BlackRock's China business, to helm its China operations.
In February, it became a "qualified foreign institutional investor" in China, a few months after the country allowed qualified foreign institutions to trade more broadly in domestic futures and options instruments.
The wider access it gained with that licence covers bonds, futures and options in addition to stocks it traded via China's Stock Connect Programme.
This year, Citadel Securities also launched an investment-grade corporate bond market-making business in the United States. It is now looking to bring that business to Asia. Currently, it focuses on helping clients in Asia trade in U.S. assets such as U.S. Treasuries and U.S. dollar interest rate swaps.
Since 2020, the brokerage has more than doubled its Asia Pacific headcount to nearly 300 people, a contrast to the wider trend of Wall Street layoffs amid depressed deal activity due to high interest rates and geopolitical uncertainty.
(Reporting by Summer Zhen and Selena Li in Hong Kong; Editing by Sumeet Chatterjee and Edwina Gibbs)
