Billionaire Ken Griffin is testifying before Congress about the GameStop frenzy. Here’s everything you need to know about his companies, Citadel and Citadel Securities.

Ken Griffin

Summary List Placement

It seems that wherever you look in the GameStop frenzy, there’s a Ken Griffin connection. 

On Thursday, Griffin will testify before Congress as part of a hearing examining the GameStop fiasco and the links between social media, short-selling, and retail traders. 

Earlier this year, the concentrated effort of retail traders, mobilized in large part on Reddit’s WallStreetBet’s forum and other social media sites, helped push shares of heavily-shorted companies like GameStop, AMC, and others to dizzying heights. 

As the trading volume and price of these companies surged, brokerages were forced to issue trading restrictions on their apps, a move that managed to unite the likes of Mark Cuban, Rep. Alexandria Ocasio-Cortez, and Dave Portnoy.

Robinhood, the trading app that offers free trading and is a hit with millennial investors, has played a significant role in the trading boom. And Citadel Securities is a key player in executing Robinhood users’ trades and one of the largest market makers operating in the US, helping to manage the increased volatility in the markets.

Meanwhile, Citadel, which is one of the largest hedge funds in the world, offered a capital infusion to Melvin Capital, the fund that was a focus of the Reddit-fueled trading into GameStop due to its short positions. 

As a result of the recent trading frenzy, both firms have been pushed into the mainstream spotlight. 

And while Citadel and Citadel Securities are separate companies that operate independently of each other, they do share a founder in common: Ken Griffin. 

Paying for retail orders

Robinhood led the charge when it came to offering commission-free trading. Instead of charging trading fees, the startup makes money, as many other brokerages now do, by selling its customers stock and option orders to trading firms like Citadel Securities, Virtu Financial, and Two Sigma Securities. 

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The practice of paying for these retail orders has become more common over the past decade. 

According to Robinhood’s fourth-quarter order-routing public report, the startup routed all its customers’ stock and options orders to market makers as opposed to going directly to trading venues.  

Brokerages like Robinhood are legally required to route their orders to where they can get the best execution, and are also required to set a standard payment structure across market makers so no single firm is privileged. 

In December 2020, Citadel Securities paid $12.4 million to Robinhood to handle a portion of its stock orders. PFOF for options trading proved even more profitable, with Citadel Securities handling the majority of Robinhood trades for the month of December, for which it paid more than $28 million. 

Market volatility

Citadel Securities handled slightly less than a third of all retail flow in the GameStop stock through January 28, or more than $508 million in volume, according to Bloomberg. It was a volatile week in equity markets, which typically means wider spreads for market makers and more profit.

That being said, the severe price detachment from fundamentals exhibited by stocks like GameStop could also have made it more difficult for market makers to accurately quote spreads and ease price discovery.

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Source:: Businessinsider – Finance

      

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