Known as D-Limit, IEX says the order type is designed to help protect investors from predatory trading strategies. Abbreviation for discretionary limit, IEX says that D-Limit acts as a regular limit order, except when stock exchange algorithms predict that a price is about to change. A limit order is an order to buy or sell a stock at a certain price or better.
However, Citadel Securities is arguing that D-Limit does the opposite to protect investors. In 77 pages of court documents filed on 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 business activity at IEX was on behalf of retail investors, and not for its own profit.
To show how retail investors can be hurt by D-Limit, Citadel Securities compared it to shopping at a store.
“Imagine a supermarket that has deliberately installed extra-long conveyor belts on its cash lines,” argues the company in the process. In theory, the store could use that extra time to determine if any items were sold at rival stores.
“In that case, the store’s computers quickly increase their own price before their item reaches the checkout,” says the suit.
‘Predatory’ trading strategies
IEX’s D-Limit, along with other exchange technology, can “protect investors from predatory trading strategies,” Lev Bagramian, senior securities policy consultant at Better Markets, told CNN Business via email.
Kelleher said D-Limit would protect investors specifically from Citadel Securities – and, by extension, would hurt the company’s growing revenue.
“Presumably, that’s why Citadel strongly opposed IEX’s D-Limit order type,” said Kelleher.
“Despite the current environment,” Katsuyama told CNN Business in a statement, “Citadel has moved on in its attempt to reverse the SEC’s approval of an innovation designed to protect all investors from predatory trading strategies.”
A spokesman for Citadel Securities pointed to an October statement in which the company said the SEC “failed to properly consider the costs and charges imposed by this proposal that will undermine the reliability of our markets and harm tens of millions of retail investors. “.
While D-Limit has obtained unanimous support from the SEC, some companies have warned the agency in letters of comment not to approve the rule.
Nasdaq, a rival IEX exchange, criticized D-Limit as “nothing more than a veiled attempt by IEX to reinforce its poor market quality for the displayed orders”.
Elizabeth Warren raises questions about Robinhood, Citadel
Robinhood, who defended the free trade business model that is now common in the industry, repeatedly said that his trade restrictions on GameStop were driven by increasing financial requirements during market volatility, not at the behest of Wall Street companies hampered by the GameStop rally .
But Warren, a Democrat from Massachusetts, said Robinhood’s commercial limits to small investors “raise worrying concerns about his relationship with large financial institutions that run his deals”.
Specifically, Warren pointed to Robinhood’s ties to Citadel Securities.
‘You are the product’
Critics say it is only free to trade on Robinhood because the app sends orders to market makers, allowing them to trade before retail flows.
“With everything that’s free, you are the product,” Mark Yusko, CEO of hedge fund Morgan Creek Capital Management, told CNN Business earlier this week.
Both Citadel Securities and Citadel, the hedge fund, denied any role in Robinhood’s decision to discontinue GameStop purchases.
In a statement, Citadel Securities said it did not “instruct or otherwise cause any broker to stop, suspend or limit trading or otherwise refuse to do business”.