Citadel CEO Ken Griffin said the accusation that his company was misusing the information it obtained from its market-making operation was “totally false”.
Griffin spoke in an interview with CNBC on Friday, the day after Citadel and other market makers were examined by Congress about their role in last month’s GameStop craze.
“I think there were a lot of misinterpretations about the data we received from the brokerage community. In fact, a major U.S. senator asked us specifically what personally identifiable information we received from retail investors. The answer is none,” said Griffin. Squawk Box “, co-host Andrew Ross Sorkin.
Market makers, like Citadel Securities, pay electronic brokers like Robinhood for the right to trade with clients. The broker then receives a small fee from the market makers for the shares that are forwarded, which can add up to millions when clients actively trade. Robinhood received more than $ 221 million in “order flow payment” in the fourth quarter of 2020.
However, market makers have been scrutinized, especially in the context of GameStop’s commercial turmoil, on what information they can obtain from retail customer flows. In some cases, critics have speculated how Citadel, which manages hedge funds and market-making operations as separate companies, could use this information.
“This conspiracy theory that in one way or another we are like some of the big tech giants who have access to personally identifiable information is just false,” said Griffin. “We have a price, a quantity, a limit. This is what comes to us in an order from a retail broker.”
Citadel Securities executes about 40% of all retail volume, Griffin told the House’s Financial Services Committee on Thursday during the GameStop hearing.
“We received an order and, as part of the order, what we look at when receiving it is the various options we have to get the best execution for that order,” said Griffin. “We are not allowed to trade in front of that order. Any execution that we can achieve in the context of the market to fulfill that request, we must provide back to the retail investor, sometimes even with our price improvement that we added at the time of execution.”
Griffin, along with CEOs of Robinhood, Reddit and Melvin Capital, were pressured by members of the House committee on Thursday over last month’s epic tightening of GameStop shares.
The Citadel chief defended a controversial method that brokers use to make money, payment by order flow, and said his company would adapt if new regulations banned the practice. Robinhood and other brokers rely on “payment for order flow” as your profit engine instead of commissions.
Griffin was also put under pressure on the relationship between Citadel Securities and Citadel, the hedge fund, which injected $ 2 billion into Melvin Capital as it suffered huge losses from GameStop’s short sale. Griffin has repeatedly denied that the company had anything to do with Robinhood’s decision to restrict trade on GameStop. Robinhood said he did this to meet the capital needs of his commercial clearing firm.
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