The Unraveling: Wall Street’s Market-Making War Reaches Tipping Point

The battle lines in global markets are being redrawn as traditional Wall Street banks and non-bank market makers collide over who controls the plumbing of finance, with JPMorgan Chase’s recent moves to wall off its franchise signaling that the era of cooperative coexistence may be ending.

The escalation comes as eFinancialCareers reported that Citadel Securities has been raiding Goldman Sachs, JPMorgan, and Morgan Stanley for talent to build a high-touch equities business that competes “head-to-head with banks’ equities franchises.” The Miami-based market maker already accounts for 25% of daily US equities trading volume and handles more than one-third of all retail equity trades, giving it unprecedented visibility into order flow and pricing dynamics.

JPMorgan responded in January by forming a new quantitative trading and research group specifically designed to “speed up its efforts in electronic trading and fend off non-bank rivals,” according to Bloomberg. The bank appointed Chi Nzelu, formerly global head of fixed income, currency and commodities electronic trading, to oversee the defensive buildout—a clear acknowledgment that the competitive threat has reached the C-suite.

Crossing the Rubicon

What makes the current friction distinct from historical bank-versus-upstart battles is the degree to which business models now overlap. Citadel Securities is no longer content to execute retail orders in milliseconds; it’s warehousing risk for weeks, providing block liquidity to institutional clients, and making markets in investment-grade corporate credit—services that have been bank franchises for decades.

In September 2024, Citadel hired Jim Esposito, former co-head of global banking and markets at Goldman Sachs, as president, signaling ambitions that extend well beyond electronic market making. The firm has also expanded into Euro and Sterling interest-rate swaps and became the largest interest-rate-swap trader by transaction volume, displacing traditional dealers.

Banks face a strategic dilemma: they rely on market makers like Citadel for certain execution services and prime brokerage relationships, yet increasingly compete with them for the same institutional clients. This creates conflict-of-interest dynamics that were less acute when market makers stayed in their lane. Now, the information asymmetry favors the upstarts—Citadel sees vast swaths of retail and institutional order flow, data that informs its own trading strategies and client service.

The Capital and Technology Moat

JPMorgan’s $19.8 billion technology budget for 2026 represents one of its key competitive advantages, according to the bank’s SEC filings. Roughly a quarter of incremental costs are tied directly to AI infrastructure, aimed at revenue growth, efficiency gains, and risk reduction. Yet Citadel Securities posted $3.4 billion in net trading revenue in Q1 2025 alone, a 45% year-on-year surge, generating $1.7 billion in net income with a 58% EBITDA margin, per Hedgeweek. The upstart’s profitability per dollar of capital deployed often exceeds that of full-service banks burdened by branch networks, regulatory capital requirements, and legacy IT.

The irony is that banks spent the 2010s investing heavily in prime brokerage technology to serve systematic hedge funds, inadvertently training a generation of talent that then migrated to firms like Citadel. As eFinancialCareers noted in 2021, “the technologists working on systematic trading systems underpinning banks’ prime brokerage offerings” are among the most strategically important hires in markets—and they’re mobile.

Regulatory Asymmetry as Accelerant

Non-bank market makers operate under a lighter regulatory regime than universal banks. They don’t face Basel III capital requirements, don’t hold customer deposits, and aren’t subject to the Volcker Rule’s proprietary trading restrictions. This allows them to deploy balance sheet more aggressively and take risks that banks cannot, creating a structural advantage in certain product lines.

Banks have lobbied for years to level the playing field, arguing that systemically important market makers should face bank-like supervision. But regulatory momentum has moved slowly, and in the meantime, firms like Citadel and Virtu Financial have grown to account for more combined equity market volume than the New York Stock Exchange itself.

The question now facing policymakers: if a non-bank entity handles 40% of retail equity trades and is the largest designated market maker on the NYSE, does it pose systemic risk? And if so, what does prudential oversight look like without stifling the innovation and efficiency that made these firms successful?

The Client Conundrum

For institutional investors, the bank-versus-market-maker dynamic creates both opportunity and risk. Citadel’s expansion into high-touch services and block trading means clients have more execution options, potentially better pricing, and tighter spreads. But it also concentrates flow in fewer hands—if Citadel is both your execution venue and your competitor’s execution venue, what information leakage exists?

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Prime brokerage clients at JPMorgan and other banks are watching closely. The services that prime brokers provide—financing, securities lending, custody, and clearing—are sticky, relationship-driven businesses. But if Citadel or peers launch prime brokerage offerings (a move some analysts expect), they would bring massive scale advantages and data insights that could undercut banks on price and service.

What to Watch

Prime brokerage creep: If Citadel or other market makers launch full prime brokerage offerings, the conflict moves from indirect competition to direct client poaching. Bank executives are preparing for this scenario.

Regulatory reckoning: Expect renewed pressure from banks for “activity-based” regulation that applies bank-like capital and risk rules to non-banks performing bank-like functions. Whether regulators act depends on whether stability concerns outweigh efficiency benefits.

Talent wars intensify: The next 12 months will see aggressive recruiting battles for quants, traders, and technologists who can build or operate electronic trading platforms. Compensation packages are already stretching into eight figures for top performers.

M&A as exit strategy: Smaller regional banks caught between technology costs and competitive pressure may sell to larger players, accelerating consolidation. JPMorgan’s $500 billion in prime brokerage balances makes it a scale leader, but defending that franchise requires constant investment.

The tension between banks and market makers isn’t new—it’s been building since the 2008 crisis forced banks to pull back from proprietary risk-taking. What’s different now is the scale and ambition of the challengers, and the willingness of banks to draw lines. When JPMorgan creates an entire division to counter non-bank rivals, it’s no longer a skirmish. It’s a war for market structure itself.