Known as D-Limit, IEX says the type of order is designed to help protect investors from predatory trading strategies. In short for the discretionary limit, IEX says that D-Limit acts as a regular limit order, unless the exchange algorithms predict that the price is about to change. A limit order is an order to buy or sell a stock at a certain or better price.
However, Citadel Securities claims that D-Limit does the opposite of protecting investors. In 77 pages of court documents filed Tuesday, Citadel Securities accused the SEC of “ignoring” evidence that retail investors would be “harmed” by the D-Limit order. The company cited its own analysis which found that more than half of its trading activity on IEX was on behalf of retail investors, not for its own profit.
To argue how retail investors may be affected by D-Limit, Citadel Securities compared it to shopping at a store.
“Imagine a grocery store that deliberately installed extra-long conveyor belts on its paylines,” the company said in the file. In theory, the store could use that extra time to determine if items were sold to rival stores.
“If so, the store’s computers quickly increase their price before your item reaches the cashier,” the file reads.
“Predatory” trading strategies
D-Limita IEX, along with other stock market technology, can “protect investors against trading strategies,” Lev Bagramian, a senior securities adviser at Better Markets, told CNN Business.
Kelleher said D-Limit will specifically protect investors from Citadel Securities – and by extension, affect the company’s expanding revenues.
“That’s probably why Citadel vehemently opposed IEX’s D-Limit command type,” Kelleher said.
“Despite the current environment,” Katsuyama told CNN Business in a statement, “Citadel continued their attempt to reverse the SEC’s approval of an innovation that is designed to protect all investors from predatory trading strategies.”
A Citadel Securities spokesman said in an October statement that the company “failed to properly consider the costs and burdens imposed by this proposal, which will undermine the reliability of our markets and damage tens of millions of dollars.” retail investors ”.
Although D-Limit won unanimous support from the SEC, some companies warned the agency in comment letters not to approve the rule.
Nasdaq, a rival exchange with IEX, criticized D-Limit as “nothing more than a thin attempt by IEX to consolidate its poor market quality for displayed orders.”
Elizabeth Warren raises questions about Robinhood, the Citadel
Robinhood, which has supported the free-to-trade business model that is now common in the industry, has repeatedly said its GameStop trading restrictions were driven by growing financial demands during market volatility, not at the behest of affected Wall Street firms. of GameStop Rally.
But Warren, a Massachusetts Democrat, said Robinhood’s trading limits for small investors “raise worrying concerns about its relationship with large financial institutions that execute its transactions.”
Specifically, Warren pointed to Robinhood’s links to Citadel Securities.
“You are the product”
Critics say it is free to trade only on Robinhood, as the app sends orders to market makers, allowing them to trade before these retail flows.
“With whatever it’s free, you’re the product,” Mark Yusko, CEO of Morgan Creek Capital Management, told CNN Business earlier this week.
Both Citadel Securities and the Citadel hedge fund have denied any role in Robinhood’s decision to stop GameStop acquisitions.
In a statement, Citadel Securities said it had not “instructed or caused in any way a brokerage firm to stop, suspend or limit trading or otherwise refuse to do business.”