Citadel Securities Leads List of Private Trading Venues

Apr 25 2016 | 6:43pm ET

By John McCrank (Reuters) - Citadel Securities, one of the top market makers in U.S. stocks and listed stock options, runs one of the largest stock trading venues in the country, according to a report released on Monday aimed at providing transparency into where stock trading occurs.

Citadel LLC, which also operates a hedge fund, executed just over 1.1 billion shares in its brokerage the week of April 4, according to the Financial Industry Regulatory Authority, Wall Street's own watchdog.

At that scale, if Citadel was a public stock exchange, it would be the seventh-largest out of 13, ahead of some exchanges run by Intercontinental Exchange’s Group, NASDAQ, and Bats Global Markets, which operate multiple trading platforms, according to data from Bats.

Citadel runs a type of private trading platform known as an internalizer, by which it executes stock orders sent by retail and institutional brokers against stocks that Citadel has in its inventory.

Nearly all retail "mom-and-pop" stock orders bypass public exchanges. Instead, retail brokerages such as Charles Schwab, TD Ameritrade and E*Trade sell their clients' orders to retail market makers like Citadel.

Critics of what is called "payment for order flow" say it harms the market because it prevents valuable retail orders from reaching public exchanges.

Not all brokerages sell their orders, but they still send them to market makers hoping to get a better price than publicly available and to access the rich retail order flow.

Market makers make a profit off the spread between the bid and the offer prices.

The FINRA report, which will be released weekly going forward with a three-week lag in the data, was significant because it was the first time Wall Street's self-funded watchdog made the trading statistics of internalizers and stock wholesalers public.

"By putting out this data, it gives us a sense of who is doing what and it gives us a better understanding of how stock trades take place," said James Angel, a finance professor at Georgetown University.

Other firms atop the list included market-making firms KCG and Susquehanna's G1 Execution Services, as well as bulge-bracket banks such as Goldman Sachs and UBS.

The data also gives insight into what retail investors are trading, said Chris Nagy, who heads trading-analytics firm KOR Group.

For instance, more than 58 million shares of Facebook and nearly 47 million shares of Apple were traded that week on the private platforms.

In Depth

PAAMCO: Will Inflation Deflate the Asset Bubble?

Jan 30 2018 | 9:49pm ET

As the U.S. shifts from monetary stimulus to fiscal stimulus, market pricing should...


CFA Institute To Add Computer Science To Exam Curriculum

May 24 2017 | 9:25pm ET

Starting in 2019, financial industry executives sitting for the coveted Chartered...

Guest Contributor

Boost Hedge Fund Marketing ROI By Raising Your ROO

Feb 14 2018 | 9:57pm ET

Tasked with delivering returns on client capital, a common dilemma for many alternative...