Citadel tops list of private U.S. trading venues: report

Mon Apr 25, 2016 5:46pm EDT
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By John McCrank

NEW YORK (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 Inc's (ICE.N: Quote) NYSE Group, Nasdaq Inc (NDAQ.O: Quote) and Bats Global Markets BATS.Z, 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 Corp (SCHW.N: Quote), TD Ameritrade (AMTD.O: Quote) and E*Trade (ETFC.O: Quote) 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.   Continued...

Kenneth Griffin, Founder and CEO of Citadel, takes part in the panel discussion "Lessons From the Great Recession: How Businesses Survived and Now Look to Thrive" at the 2011 The Milken Institute Global Conference in Beverly Hills, California May 3, 2011.  REUTERS/Lucy Nicholson