by jhs0108
So has anyone talked about Citadel Securities massive increase in the Notional Amount of their Derivatives over the last few years yet? Cause I just found out about it and holy cow this could be big.
Preface:
So there's some knowledge to get across about derivatives and accounting. I either just learned about this or learned about it in my college's accounting 1 class.
-In accounting, an asset is either a liability or part of owners capital or owners equity. The basic formula that was drilled into my head was
Assets = Liabiliites + Owners Equity.
-Notional value vs Fair Value. Notional value is a term in derivative trading used to describe the value of assets underlying a derivatives contract while fair value is the cost of that contract. An ELI5 is fair value is like the finances of a town government while notional value is the value of all assets within the town. They're linked but not necessarily.
With that out of the way let's get down to business.
Citadel's had a very busy 5 years in derivatives world:
So I spend my Saturday nights as any young adult male in the US does. Look at financial statements of massive companies. This past weekend's theme was Citadel Securities LLC (the market maker). Now, I went through the usual suspects that have been covered to death like assets sold not yet purchased, their definition of fair value being the most ridiculous thing on the planet, etc. Then a came across this section of their notes (where the real juicy stuff is) in 2018.
That's a lot.
So that's a notional value of 243 BILLION USD in equity securities which for context is a lot. Below is the context.
Sauce: OCC Quarterly Report on Bank Trading and Derivatives Activities Q1 23
So this only shows the big 4 banks but it's not like Citadel is anywhere close to that. Especially given that all bank derivatives haven't really grown or shrank in the last few years.
Same OCC report. Generally stable from 2018-2022.
Right?
RIGHT?
Source: Citadel Securities financial statements 2018 last page.
It shrank. No biggie.
Citadel don't be so hard on yourself. I know a lot of people who gained a lot during 2020 it's fine as long as you pick yourself up from it.
Citadel. I'm concerned for your health.
Go on a diet.
So to wrap up,
2018=242 billion
2019=219 billion
2020=309 billion
2021=442 billion
2022=560 billion.
But hey, if all market makers just happen to have as much Notional value of their Equity Derivatives as all banks combined except for the top 4, that's not a big deal.
Virtu has been less busy than Citadel:
All these charts are from their 10ks
In Conclusion:
Citadel now has over 500 BILLION USD in equity derivatives while GOLDMAN FLIPPIN SACHS ONLY HAS 385 BILLION and has more in equity derivatives than EVERY COMMERCIAL BANK that isn't JPMORGAN, GOLDMAN, CITI, and Bank of America COMBINED?
I'm Back :)
Oh...And One More Thing.
I've been hiding something from all the Citadel charts. They all have this but I'll just show the 2022 one.
So if Citadel dies BAML dies like Archegos did to Debit Suisse.