Citadel CEO Ken Griffin has denied allegations that his company misused the information it obtained from its market operation.
Griffin spoke in an interview with CNBC on Friday, a day after Citadel and other market makers were subjected to congressional scrutiny over their role in last month’s GameStop craze.
“I think there were a number of misconceptions about the data we receive from the brokerage community. In fact, a prominent U.S. senator specifically asked us about what personally identifiable information we receive from retail investors. “The answer is one,” said Griffin “Squawk Box co-host Andrew Ross Sorkin.”
Market players like Citadel Securities pay electronic brokers like Robinhood the right to trade with clients. The broker is then paid a small fee by market makers for targeted actions, which can add up to millions when clients trade actively. Robinhood received more than $ 221 million in “payment for order flow” in the fourth quarter of 2020.
However, market makers have been subject to scrutiny, particularly in the context of GameStop trading disorders, as to the information they are able to obtain from retail customer flows. In some cases, critics have speculated on how Citadel, which runs hedge funds and market creation operations as separate companies, could use this information.
“This conspiracy theory that some or others are like some of the big tech giants that have access to personally identifiable information is simply false,” Griffin said. “We have a price, a quantity, a limit. That comes to us in an order from a retail broker.”
Citadel Securities executes about 40 percent of its total retail sales, Griffin told the House Financial Services Committee Thursday during a GameStop meeting.
“We get an order and, as the party that has to execute the order, what we look at when we receive it is what are the different options we have to achieve the best execution for that order,” Griffin said. “We are not allowed to trade in front of that order. Any execution that we can perform in the context of the market to fulfill that order must be provided back to the retail investor, sometimes even with the improvement of the prices that we add at the time of execution. “
Griffin, along with Robinhood, Reddit and Melvin Capital executives, were pressured by committee members on Thursday about last month’s short epic in the GameStop stock.
The head of the Citadel defended a controversial method that brokerages use to make money, pay for the flow of orders and said that his company will adapt if the new regulations prohibit the practice. Robinhood and other brokers rely on “order flow payment” as their profit engine instead of commissions.
Griffin was also pressured about the relationship between Citadel Securities and the Citadel hedge fund, which injected $ 2 billion into Melvin Capital once the latter suffered major losses from the GameStop short circuit. Griffin has repeatedly denied that the company had anything to do with Robinhood’s decision to restrict GameStop trading. Robinhood said it did so to meet the capital requirements of its commercial clearing company.
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