Kenneth Griffin, the founder of Citadel and majority owner of Citadel Securities
Credit: Bloomberg
The sentiment running through the Reddit forum WallStreetBets follows a common thread.
“Are we ready to attack the Citadel?” asked the title of one Reddit post. “Citadel denied my internship application, so now it’s personal,” said a Reddit user, posting a picture of their gains from buying shares in GameStop. “Citadel has its tendrils in almost anything,” claimed someone else in a Telegram channel.
Robinhood day traders on the Reddit forum WallStreetBets have piled into the US financial giant. In fact, their ire is directed at two separately run firms. Citadel, the $35bn hedge fund, and Citadel Securities, an electronic trading firm.
Citadel, the hedge fund, was founded by Kenneth Griffin in 1990. In 2001, he also founded Citadel Securities. This firm acts as a market maker. The electronic trading firm executes trades made on apps such as Robinhood, buying up millions of trades and selling them on to the market, taking a small profit along the way.
The 52-year-old is the chief executive and head of investment of the hedge fund, and majority owner of the separately run trading firm.
Money makers
Griffin first started stock trading himself in 1986, while at Harvard, according to a 2001 profile of the investor. He started his first fund with $265,000, including money from family members and his grandmother, and cashed in on short positions as the market crashed in October 1987, at just 19.
As of 2021, his hedge fund has grown to one of the world’s most successful, with $35bn under management. The billionaire is estimated to be worth $20bn, according to Bloomberg. In 2019, he became owner of the US’s most expensive penthouse, a Central Park home worth $238m. In 2015, he made what was at the time the single largest gift ever to his alma mater, Harvard, of $150m.
In the WallStreetBet’s whirl of joshing, memes, hyperbole and performative spleen, his companies loom large as a suspect for all manner of opposition. The Reddit sentiment of buyers, who have ridden shares in video games retailer GameStop from less than $4 last year to more than $400 at times, is normally met with a chorus of agreements. Perhaps most tongue-in-cheek: “Citadel killed my dog!”.
Though few outsiders had heard of it before this week, Chicago-based Citadel Securities is the power behind many of Robinhood’s commission-free transactions, as well as roughly 41pc of all US retail stock trading by number of shares volume.
GameStop | How the trading frenzy started
Its presence helps keep trading fast and vigorous, and they make money by selling shares for a few pennies more than they buy them, a difference known as the “spread”.
The pandemic has led to a surge in interest in apps that can offer cheap trading – provided via Citadel Securities.
Downloads of Robinhood, the most popular stock trading app, have surged to more than a million per day on the back of the GameStop saga, while 29pc of all the sizable trading volume on GameStop shares on Monday was funnelled through Citadel Securities technology.
“This is the market that Ken Griffin and Citadel Securities have been waiting for,” Christoper Nagy, a former executive at stock trading firm TD Ameritrade, told the Wall Street Journal.
The firm reportedly made $6.7bn last year on the back of trading volatility and a surge in day trading. As shares go up and down, the tiny percentages secured by Citadel Securities have helped boost profits at Griffin’s firm.
But after retail investors were frozen out of buying new shares in GameStop last Friday, Citadel Securities’ work with Robinhood came under furious attack from speculators on Reddit.
‘Conspiracy theories’
Their claims were even echoed by Elon Musk, the chief executive of Tesla, who asked Vlad Tenev, the chief executive of Robinhood, in an interview on Clubhouse: “To what degree are you beholden to Citadel.”
The theory that trading was influenced by its sister hedge fund firm has been strongly denied by Citadel Securities and Robinhood. Tenev said: “There is a rumour that Citadel or other market makers pressured us into doing this and that’s just false.”
Read more: Wall Street Bets
A Citadel Securities spokesperson said there was an “information barrier” between Citadel Securities and Citadel, the hedge fund.
“Citadel Securities has not instructed or otherwise caused any brokerage firm to stop, suspend, or limit trading or otherwise refuse to do business,” the company said. “Citadel Securities remains focused on continuously providing liquidity to our clients across all market conditions.”
Despite this, the way Citadel and Robinhood profit off retail trades has come under scrutiny. In particular, the system of “payment order flow”, which sees Citadel making money by the tiny spread between trades, has been criticised. Citadel pays Robinhood tens of millions of dollars for its order. The UK’s FCA has warned this system “risks inferior execution outcomes and other potential consumer harms”.
Citadel Securities says that trades executed by it in fact provided $1.3bn in “price improvements”. This means the consumer got a marginally improved price when the trade was executed compared to the best bid on the market at the moment they started the trade.
The house always wins
“People are looking for conspiracies where they don’t need to. Everything is perfectly explicable; people just don’t like the explanation,” says Eric Ries, founder of the Long-Term Stock Exchange (LTSE), a new exchange based in San Francisco which opened for business in September.
Ries has long criticised the inner workings of modern financial markets, saying they have become grand casinos for Wall Street firms instead of reliable mechanisms for allocating capital to innovators. Citadel Securities is an approved trader on the LTSE along with other markets such as the Investors’ Exchange (IEX) and the Members’ Exchange (MEMX).
What is short selling?
“The overriding premise of a casino is that the house always wins… people are really wrapped up around longs or shorts, but they need to really understand that the majority of the trading infrastructure or the financial system doesn’t really care if stocks go up or go down.
“It’s just ludicrous to be mad at [Citadel Securities] for profiting by a system whose rules are very clear. They are, as far as I can tell, following the rules. You should be angry about how the rules work.”
Retail interest has only been going up. For now, companies like Griffin’s Citadel Securities are in a position where their winning hand shows no signs of stopping.
Свежие комментарии