Judges Rao, Walker, and Sentelle, asked tough questions during the first part of this Citadel vs SEC lawsuit hearing.
The hearing took place yesterday, October 25th, 2021 but continues today.
I’m going to be breaking down parts of the hearing and summarizing key points.
I will also be linking the video of the live lawsuit hearing for your viewing pleasure.
Welcome to Franknez.com – the Citadel vs SEC lawsuit hearing has commenced. Be sure to bookmark this page is this developing story unfolds.
Let’s get stared!
The lawsuit hearing started with Judge Walker asking Mr. Wall, Citadel’s lawyer, “Mr. Wall, do you think latency arbitrage exists?”
To which Mr. Wall responded, “[stutters] I don’t think the court has to get into it..”
And this set the entire mood of what was about to go down.
To start off, all three judges were great.
Both Mr. Wall and Catherine Stetson of IEX, were asked very fair questions.
Let’s begin with Citadel’s argument against SEC and IEX technology.
Citadel Argument Against The SEC
In the legality of things, Citadel Securities is suing the SEC for ‘violating’ the Administrative Procedure Act that sets requirements for making changes to agency regulations.
As you know, the changes the SEC made was approving the D-Limit order through the IEX Exchange.
This D-Limit order eliminates market arbitrage and predatory tactics against retail investors by using AI technology to level the share prices of stock throughout all exchanges and offering higher and better quality prices.
Citadel Securities says the SEC disregarded important data showing that the rule would hurt retail investors.
On a side note, Citadel Securities is not for retail investors.
Retail investors do not want their orders going through Citadel nor any association having to do with the market maker.
Citadel Securities is not just a market maker, but a hedge fund and dark pool altogether.
Their predatory tactics against retail investors have suppressed the momentum rallied by the AMC and GME community looking to spark a short squeeze from these heavily and overleveraged stocks.
What Is The Data That Would Hurt Retail Investors?
According to Mr. Wall, the data the SEC missed that would hurt retail investors is that share prices would be higher due to IEX.
He argues that IEX is not sufficiently tailored for retail investors but fails to identify exactly how they miss the mark.
Mr. Wall is suggesting that a leveled playfield would harm retail investors because IEX is able to set better and higher prices than their current model…
It seems Citadel wants to protect retail investors from paying higher and more accurate share prices across all exchanges?
Ladies and gentlemen, this argument is pitiful.
Retail investors have been fighting for a fair market and for a leveled playfield where high frequency trading isn’t affecting their trades and long-term investments.
In simpler terms, IEX would not hurt retail investors but rather lay a foundation towards a more effective and fair market.
It’s this very reason the hashtag #CitadelIsNotForRetail has been trending on Twitter.
I think it’s fair to say that if we took a vote from retail investors, majority would vote for an IEX solution.
IEX Just Wants Liquidity (Bigger Market Share)
Mr. Wall argued that the premise doesn’t even surround latency arbitrage or market arbitrage but rather IEX’s desire for more liquidity, or bigger market share.
When avoiding questions about predatory tactics often used by high frequency trading firms, Mr. Wall deflects confirming the current use of market arbitrage by claiming IEX simply wants to gain liquidity.
In the lawsuit hearing, Mr. Wall confirms Citadel processed up to 56% or retail orders within a month time-frame.
It seems Citadel Securities is more concerned about losing market share than protecting retail.
But that’s not difficult to see.
Citadel Securities has proven to abuse their power and we’ve seen this specifically in AMC and GME stock.
As one of the top short sellers of the two stocks, we’ve seen millions of failure-to-delivers get reported, and the overextension of dark pool trading and even naked shorting occur.
High frequency trading has further given Citadel Securities a massive advantage over retail investors going long on these stocks.
Citadel Securities Argues No Latency Arbitrage Has Taken Place
Mr. Wall mentions that maybe a decade ago latency arbitrage could have been possible but not in today’s world.
This is where we see Catherine Stetson of IEX step in to give her stance in this lawsuit hearing.
“Citadel Pays Hundreds of Millions To Brokers”
Catherine Stetson made a great entrance providing backing information that IEX data has indeed found latency arbitrage.
IEX Exchange is the firm that has introduced innovation to the market with its D-Limit order.
The D-Limit order uses AI technology to execute high quality predictions across the market to set higher and more accurate share prices.
This order type eliminates market arbitrage strategically used by high frequency trading firms such as Citadel Securities and gives retail investors a fair playing field.
When orders are process by Citadel Securities, they are able to move them through several different exchanges, allowing them to profit from slower loading share prices on foreign exchanges.
Orders being process through IEX’s model enables the share prices to load equally amongst all exchanges.
Citadel Securities argues that this model intervenes with the natural laws of the stock market.
The same ones that have allowed them to take advantage of market participants.
Catherine Stetson made a valid point when she said, “Citadel pays hundreds of millions of dollars to get retail orders, and profit from them.”
During the lawsuit hearing, Judge Walker sternly addressed Mr. Wall by saying, “You’re the one who’s trying to regulate your way into market victory.”
It’s not difficult to see the intentions of both parties.
“We Are In The Middle of A Speed-War We Never Signed Up For” – Catherine Stetson
Catherine Stetson made a remarkable statement that addressed the real issue of high frequency trading in the markets.
Her statement regarding retail investors participating in a speed-war we never signed up for sums up the deceit of market maker, hedge fund, and dark pool, Citadel Securities.
This is a statement declaring change in our markets.
This is a statement fighting for a fair market, and a voice aimed towards protecting retail investors.
IEX is seeking to eliminate market arbitrage from high frequency trading firms and begin processing orders that will put retail and financial institutions in the same playfield.
For more on IEX and how this exchange will affect AMC and GME shareholders, read my latest article here.
But in short, the market’s share price would reflect more on the actual supply and demand, releasing pressure for growth.
The SEC Is Fighting To Protect Retail
The SEC has been under fire by retail investors primarily due to the lack of regulation within our markets.
However, I think it’s fair to say the SEC is doing a great service by supporting IEX and the D-Limit order that will level the playfield for all participants.
Although the SEC’s discussion in the lawsuit hearing was brief, Emily Parise stood her ground as to why the SEC was not violating the Administrative Procedure Act.
This case continues today and I will be updating you on the second part to the lawsuit hearing here tomorrow.
You can watch the hour debate on YouTube here (starts at 55:00).
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Thanks for this Sir Frank. Your articles are one of the reason why i keep holding on to my AMC shares. May God Bless you more🙏😊
This is basically front running a stock, which if you take a securities test is illegal so why are they allowed to do it?
I thot diff markets had diff shares, so they wud be able to distinguish each stocks’ shares to a certain market. eg. canadas’exchange , UK’s, china’s, etc. if so how is citadel buying on NYSE and selling on UK’s or any other with US. shares, isn’t that def. of market arbitrage. I always thot citadel was stealing fracional pennies on each share we[retailers aka apes] purchased, like movie ENTRAPMENT stealing $10 billion in 10 seconds, a fraction of penny on each transaction, or are they doing both, if so, marketmakers should be limited same as its clients to a single exchange or not be a broker at same time, ethical rule or conflicting interest as policymakers invest in stocks from nonpublic info. its just wrong, soon to be changed without any real punishment when caught doing it, I’m sure
Forward progress it seems and much appreciation for the report!
Great info! Ive watched a few videos summing up the hearing, and you included so much more information, thanks for your effort.
I appreciate that brother – thanks for reading!