Ken Griffin
Photographer: David Paul Morris / David Paul Morris
Photographer: David Paul Morris / David Paul Morris
The name is synonymous with power on Wall Street. But suddenly there it was, in the White House Briefing Room, “Citadel.”
Given the wild stock market spectacle at which GameStop Corp. was involved, the question for the new press secretary last week was: Would Janet Yellen, now Secretary of the Treasury, withdraw from the case given the hundreds of thousands of dollars she had collected while speaking? fees from Citadel?
For people outside of financial circles, the answer – Yellen is a pro, nothing to see here – was probably less surprising than the fact that Citadel came up with it in the first place. But in the-for-the-real story of GameStop and Robinhood, Citadel, billionaire Kenneth Griffin’s financial empire, has become a subject of fascination, speculation and, in some corners of the Internet, grassy hill conspiracy theories.
No one in a position of authority has officially charged Citadel with misconduct. But from Washington to Silicon Valley to Wall Street and cyberspace, the giant financial firm is at the center of many of the questions being asked, including the big one: What the hell happened?
Griffin, 52, got his start trading from his Harvard dorm and three decades later runs one of the largest hedge funds and one of the largest market makers in the world. The billionaire, who was on the verge of extinction during the 2008 financial crisis, has now become the ultimate example of a prosperous Wall Street archetype that you can easily rage against.
Enter the raging retail crowd with their ‘to the moon’ bets on GameStop, AMC Entertainment and other stocks. When Robinhood curtailed trade in many of those companies last week, Redditors and politicians shouted viciously. Blaming fingers pointed to Griffin, a Republican mega-donor scheming to stamp out the revolt of individual investors – even though Citadel and the online broker both denied any involvement of the billionaire in the decision.
All roads in last week’s saga seemed to pass through Citadel. The market maker, Citadel Securities, is one of Robinhood’s biggest sources of income as it pays the free trading app for handling its orders and fulfills more of them than any other company.
Meanwhile, the hedge fund – a separate entity from the market maker – together with Griffin and his partners jointly invested $ 2 billion in Melvin Capital, which lost 53% in January after being bloated by a brief press on stocks including GameStop.
‘Categorically wrong’
No one could say why they were sure of Griffin’s hand in Robinhood’s decisions, and they disposed of the more likely explanation: the brokerage’s financial fragility. The deposits Robinhood had to make for stocks have increased tenfold this week.
Read more: Robinhood’s Rapid emergence Feels the appeal of Wall Street Physics
Congressman Rohit Khanna, a California Democrat, called on Vladimir Tenev, CEO of Robinhood, to answer questions about whether he discussed the company’s actions with anyone from Citadel and whether clearinghouses were restricting trade in coordination with hedge funds.
“There are people who say we were forced to do this by market makers we route to or other market participants, and I just want to come out and say that is absolutely not true,” Tenev said in an interview on Bloomberg TV. He later reiterated that no market maker or other players had even asked him to limit buying at GameStop or a handful of other big names.
Texas Attorney General Ken Paxton launched his own investigation into Citadel, Robinhood and other brokers: “The apparent coordination between hedge funds, trading platforms and web servers to shut down threats to their market dominance is shockingly unprecedented and wrong. It stinks of corruption, ”he said.
According to the AP, Paxton is himself under investigation for corruption in another case, for which he has denied wrongdoing.
Citadel even denies the hint of suspicious behavior. “Citadel Securities has not instructed or otherwise induced any brokerage firm to stop, suspend or restrict or otherwise refuse to do business,” the company said in a statement. For its hedge fund, “Citadel is not involved in, or responsible for, a retail broker’s decision to stop trading in any way.”
Create market
Amateur sleuths found fertile ground to fuel conspiracies. They didn’t hesitate to cast Jeff Psaki, a money manager at Citadel, as evidence of the firm’s dark arts. It started with claims that Psaki, an ex-Goldman merchant, was married to White House press secretary Jen Psaki. It’s not him: he’s her great-nephew and has never spoken to her, said one person who knows him. But it went on, echoing from chat boards to Twitter and beyond.
There were questions about Yellen’s windfall of Citadel – the more than $ 700,000 she received for speaking engagements paid by the company over the past two years.
What is certain is that Griffin’s Citadel Securities plays a key role in stock market trading and likely made a lot of money during the GameStop frenzy. The marketmaker’s machines are built to thrive on high-volume uncertainty and days, many of which were in January: $ 29 billion in GameStop stock changed hands on Wednesday alone.
Such a trading mania offers millions of opportunities to execute a trade. Companies like Citadel Securities make money off the price difference between buying (or selling) a stock and then selling (or buying) it almost immediately. While the amount is miniscule for each individual order – fractions of a penny – it adds up quickly at extreme times.
“Citadel Securities witnessed an extraordinary level of retail sales last week,” the company said in a statement to Bloomberg. “Often times, the big brokerage firms depended on our ability to handle the flood of orders during the week.”
“The more stocks they see, the more breadcrumbs they take,” said Larry Tabb, an analyst with Bloomberg Intelligence. “Especially in very volatile names, the spreads are wide, so they are not necessarily breadcrumbs anymore.”
Given that scenario, Robinhood’s decision to limit purchases of certain stocks “has more to do with clearing than execution,” he added.
– With the help of Annie Massa