DOJ Probing Whether Citadel Is Frontrunning Its Clients
By Tyler Durden
Over two years ago, and just days after Michael Lewis released Flash Boys focusing attention on the ongoing criminal practice of orderflow frontrunning by such Fed intermediaries as Citadel (and many other now entrenched and recently IPOing names), none other than Citadel’s head of “Execution Services” which we supposed is the internal name of the firm’s client-facing HFT group, Jamil Nazarali, proclaimed that small investors have never been so fortunate and said, with regard to Michael Lewis’ now infamous book Flash Boys, “The most important thing that the market can do is stop… pointing fingers at everyone else.”
As we said back then “Citadel, who allegedly provides the NY Fed’s VIX trading capabilities, are among the very largest high-frequency traders in the market (and the most levered), so one would surely expect that Citadel would like us all to stop pointing fingers at them. As Bloomberg reports, Nazarali said yesterday during a panel discussion at the Milken Institute Global Conference in Beverly Hills, California, “things are much better today than they were 10 to 15 years ago.“
Maybe for Citadel; for investors – who are tired if not disgusted of having their orders constantly frontrun by internalizers and wholesale market-maker venues such as Ken Griffin’s Citadel – not so much.
Which is why we were not surprised, though certainly delighted, to see that after years of railing against Citadel’s dominant position at the intersection of HFT trading and retail orderflow – recently Citadel was found to be the largest private US trading venue – this morning Reuters reports that Federal authorities are investigating the market-making arms of Citadel LLC and KCG Holdings looking into the possibility that the two giants of electronic trading are giving small investors a poor deal when executing stock transactions on their behalf.
According to Reuters, the DOJ has subpoenaed information from Citadel and KCG related to the firms’ execution of stock trades on behalf of clients. Not just Citadel, the DOJ is also looking at a number of high-speed trading firms that pay retail brokerages to sell them their flow of customer orders for stock trades. This segment of the industry is known as wholesale market making.
In the case of Citadel, authorities are examining internal data concerning the firms’ routing of customer stock orders through exchanges and other trading systems, to see whether they are giving customers unfavorable prices on trades in order to capture more profit on the transactions.
In other words, the DOJ is looking into whether Citadel is frontrunning its clients, something we have claimed for years.
As a reminder, Citadel is so big and its own private stock-trading platform is so large that, if it were an official exchange recognized by the Securities and Exchange Commission, it would one of the largest registered exchanges in the United States – bigger than Nasdaq Inc, according to data published last month by the Financial Industry Regulatory Authority. Citadel Execution Services, the firm’s wholesale market-making unit, executes 35 percent of all trades by …read more
Source: DOJ Probing Whether Citadel Is Frontrunning Its Clients
