Market Makers Citadel, KCG Investigated by the DoJ
Post# of 72440
Posted On: 12/20/2016 3:59:16 PM
Market Makers Citadel, KCG Investigated by the DoJ (KCG)
By David Floyd | May 10, 2016 — 5:05 PM EDT
The market-making operations of Citadel LLC and KCG Holdings Inc. (KCG) are under investigation by the Department of Justice (DoJ), Reuters reported Tuesday. The government is attempting to determine whether the firms are giving retail investors unfavorable prices on trades in order to boost profit margins, according to Reuters' sources. (For more, see also: Electronic Trading: The Role of a Market Maker.)
The SEC requires brokers to give customers "the best execution reasonably available" on orders. The practices of firms that employee high-speed trading have come under fire for violating this standard in recent years, particularly in the wake of Michael Lewis' 2010 book "Flash Boys."
An analysis of market-makers' trade execution conducted by Barron's last year found that Citadel gave retail traders the best "price improvement," with KCG coming in fourth place.
The DoJ's probe into KCG involves documents from 2009 to 2011, when Jamil Nazarali was head of its electronic trading group. Nazarali transitioned to Citadel in 2012. (For related reading, see: Understanding the SEC.)
The DoJ appears to be investigating the practice of paying retail brokerages to take on their clients' orders. Critics ask how brokerages can be expected to sell order flow to the market-maker that will provide "the best execution reasonably available," rather than the one that will pay the most. They also question the motivation behind paying for other firms' orders, if the intention is to process them at the best reasonably available price.
Market-makers often contend that prices for retail investors are improving, but these statistics are often based on slower pricing data, while faster feeds are available to the firms themselves. The SEC is weighing approval for a new stock exchange, IEX, which will put 0.00035-second delays on orders so as to lessen the advantage enjoyed by high-speed traders. Citadel publicly opposes the exchange.
The Citadel private stock-trading platform is larger than the Nasdaq, according to FINRA. The firm's wholesale market-maker processes 35% of all trades by retail investors in U.S.-listed stocks, Reuters reports.
Citadel also manages a hedge fund with $23 billion in assets under management. Ken Griffin, the firm's CEO, paid $500 million for a painting by Willem de Kooning and one by Jackson Pollock in February, marking perhaps the largest-ever private art sale.
Read more: Market Makers Citadel, KCG Investigated by the DoJ (KCG) | Investopedia http://www.investopedia.com/articles/personal...z4TPjaDkhp
By David Floyd | May 10, 2016 — 5:05 PM EDT
The market-making operations of Citadel LLC and KCG Holdings Inc. (KCG) are under investigation by the Department of Justice (DoJ), Reuters reported Tuesday. The government is attempting to determine whether the firms are giving retail investors unfavorable prices on trades in order to boost profit margins, according to Reuters' sources. (For more, see also: Electronic Trading: The Role of a Market Maker.)
The SEC requires brokers to give customers "the best execution reasonably available" on orders. The practices of firms that employee high-speed trading have come under fire for violating this standard in recent years, particularly in the wake of Michael Lewis' 2010 book "Flash Boys."
An analysis of market-makers' trade execution conducted by Barron's last year found that Citadel gave retail traders the best "price improvement," with KCG coming in fourth place.
The DoJ's probe into KCG involves documents from 2009 to 2011, when Jamil Nazarali was head of its electronic trading group. Nazarali transitioned to Citadel in 2012. (For related reading, see: Understanding the SEC.)
The DoJ appears to be investigating the practice of paying retail brokerages to take on their clients' orders. Critics ask how brokerages can be expected to sell order flow to the market-maker that will provide "the best execution reasonably available," rather than the one that will pay the most. They also question the motivation behind paying for other firms' orders, if the intention is to process them at the best reasonably available price.
Market-makers often contend that prices for retail investors are improving, but these statistics are often based on slower pricing data, while faster feeds are available to the firms themselves. The SEC is weighing approval for a new stock exchange, IEX, which will put 0.00035-second delays on orders so as to lessen the advantage enjoyed by high-speed traders. Citadel publicly opposes the exchange.
The Citadel private stock-trading platform is larger than the Nasdaq, according to FINRA. The firm's wholesale market-maker processes 35% of all trades by retail investors in U.S.-listed stocks, Reuters reports.
Citadel also manages a hedge fund with $23 billion in assets under management. Ken Griffin, the firm's CEO, paid $500 million for a painting by Willem de Kooning and one by Jackson Pollock in February, marking perhaps the largest-ever private art sale.
Read more: Market Makers Citadel, KCG Investigated by the DoJ (KCG) | Investopedia http://www.investopedia.com/articles/personal...z4TPjaDkhp
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