HSBC considers outsourcing trading operations to cut costs
LONDON, UNITED KINGDOM — HSBC Holdings Plc (HSBC) is looking at outsourcing portions of its fixed income trading business to external market makers as it tries to justify technology investments required to compete with bigger rivals.
Bloomberg reports that preliminary talks about allocating some of HSBC’s trading order flow to outside companies, including Citadel Securities and Jane Street Group, have been conducted by the London-based lender. This possible move would let HSBC cut millions of IT expenses related to running worldwide trading offices.
Strategic restructuring under new leadership
Since assuming leadership in September 2024, HSBC’s new CEO, Georges Elhedery, has been restructuring the institution aggressively. His approach cuts out underperforming companies that lack scale or produce inadequate returns.
“European investment banks, notably Societe General and HSBC, need to cut costs to protect profit as they risk ceding more share of the $167 billion trading-revenue market to US rivals,” Philip Richards and Uzair Kundi, Bloomberg Intelligence analysts, said in a note to clients.
As part of this approach, the bank has already said that its M&A (mergers and acquisitions) and equity underwriting activities in the United States, the United Kingdom, and continental Europe would be closing. These developments have been welcomed by investors, with HSBC shares surging more than 30 percent since Elhedery took over as CEO.
Market makers taking front stage
The discussion of outsourcing exposes a major change in global financial markets, whereby non-bank liquidity providers have more than doubled their share of the global market revenue pool to 26 percent in just six years, according to a report from Boston Consulting Group.
Whereas Jane Street accounted for 10.4% of North American equities market activity in 2023, up from 7.7% the year before, Citadel Securities now manages more than a third of all listed retail stock trades in the U.S.
Traditional banks have been losing market share, and European institutions have been especially impacted. Over the past eight years, their share of world trading income dropped by 10 percentage points to 29%. Among the poorest performers over this period was HSBC.
Possible advantages and drawbacks
As a key component of Elhedery’s turnaround strategy, HSBC executives think a collaboration with Citadel Securities or Jane Street could provide customers with better trading pricing and help lower costs.
The bank does, however, have reservations about such a move undermining HSBC’s competitiveness in some areas, especially prime brokerage, which Elhedery has identified as a growth focus.
Getting a deal with HSBC would be a big accomplishment for market makers like Citadel Securities. It originally expected its services would appeal mostly to mid-sized banks lacking scale, not global institutions like HSBC.
The negotiations are still in their early phases, and there is no guarantee they would produce a deal. Declared spokespeople for HSBC, Citadel Securities, and Jane Street have not responded to inquiries on the subject.
