Tower Research Capital is rapidly expanding its presence in the fixed-income ETF market, challenging established firms such as Jane Street and Goldman Sachs as competition intensifies in one of the fastest-growing areas of electronic trading, according to a report by the Financial Times.
The report cites unnamed people familiar with the firm’s strategy as revealing that Tower has increased the number of fixed-income ETFs in which it actively provides pricing from around 30 funds just nine months ago to more than 500 today. The New York-based quantitative trading firm is ultimately targeting participation across the entire US-listed fixed-income ETF universe, which comprises more than 1,000 funds investing in government, corporate and other debt securities.
The expansion represents a significant strategic shift for Tower, whose business has historically centred on high-frequency equity trading. By moving deeper into ETF market making, the firm is seeking to capitalise on a global fixed-income ETF sector that has grown to more than $3tn as investors increasingly favour low-cost, exchange-traded exposure to bond markets.
Tower reportedly declined to comment on its plans.
Fixed-income ETFs have become increasingly popular because they offer investors efficient access to bond markets that can often be fragmented and relatively illiquid. Unlike equities, many bonds trade over the counter through dealer networks, making ETFs an attractive vehicle for gaining diversified exposure with the convenience of exchange trading.
Market makers play a critical role in the ecosystem by creating and redeeming ETF shares and trading the underlying portfolios of bonds to maintain liquidity and keep fund prices closely aligned with their net asset values.
While banks once dominated this function, proprietary trading firms have steadily gained market share by combining sophisticated technology with fewer regulatory constraints. Jane Street, in particular, has built a dominant position in ETF market making, with the business contributing significantly to the firm’s revenue growth in recent years.
Despite this shift, fixed-income ETFs remain a relatively specialised segment. The underlying securities can range from US Treasuries and investment-grade corporate bonds to municipal debt, mortgage-backed securities and securitised loans, creating pricing and execution challenges that require significant scale and technological expertise.
Industry participants note that success in the sector depends on accurately valuing a vast range of instruments while managing risk across thousands of securities.
Tower’s broader expansion reflects changes already under way within the firm. In addition to its traditional high-frequency trading strategies, it has increasingly incorporated medium-term quantitative approaches that involve holding positions over several days or weeks rather than milliseconds.
The growth of fixed-income ETFs has accelerated since global central banks began raising interest rates following the pandemic. Higher yields have renewed investor interest in bonds after years of ultra-low returns, driving substantial inflows into fixed-income investment products.
At the same time, continued electronification of bond markets has improved trading efficiency, making it easier for market participants to package diverse debt instruments into ETF structures.
Today, more than 2,500 fixed-income ETFs are listed globally, with investors continuing to allocate significant new capital to products tracking government and corporate bond markets. Against that backdrop, Tower’s expansion signals growing competition for market share in an increasingly important segment of global capital markets.
