Citadel protests new trading venues as risks to their dominance

In 2024, significant discussions arose around trading practices in the United States, particularly regarding the trading system of payment for order flow (PFOF). This method allows retail brokers, such as Robinhood, to sell customer orders to firms like Citadel for execution, appearing beneficial for investors with zero-commission trading. However, it resulted in significant profits for large firms while potentially degrading trade execution quality. Many retail trades are now routed through less transparent private systems, diverting them from public exchanges. Citadel emerged as a primary architect of this system, benefitting from the market's shift towards off-exchange trading. As of now, Citadel commands a substantial market presence, handling around 25% of U.S. stock trading. Other firms, like Jane Street, also capture significant market shares with aggressive algorithmic trading strategies. However, the firm's recent complaints about the lack of transparency in private trading rooms highlight a change in their stance. These new dark venues pose a threat to Citadel's dominance within an ecosystem it helped construct. The Securities and Exchange Commission (SEC) approved a rule in September 2024 allowing certain stocks and ETFs to be quoted in half-penny increments, a change that Citadel initially supported. Ken Griffin, Citadel’s founder, testified before Congress advocating for reforms in U.S. equity market structures to promote tighter spreads that could benefit traders. However, this move also unveiled fears that competitors might outperform Citadel, especially in these new trading environments with 24-hour access, a space the firm does not fully control. Critics argue that much public equity trading has already slipped from transparent, public view and is now consolidating into hands of a small, data-rich elite, undermining market fairness. There is a growing sentiment that while technology in trading systems is essential, human insight, intuition, and judgment must also play a crucial role in the marketplace. Therefore, as Citadel raises concerns about these evolving practices, they reflect an underlying tension between the need for modernization in trading and the push for systems that truly represent human participants in the financial market.