Citadel Deems Retail Advocacy Group as Conspiracists

A Citadel spokesperson is deeming retail advocacy group “We The Investors” and founder Dave Lauer as conspiracists.

Many retail investors support the advocacy group, which aims at helping create market transparency for all and encourages regulators to pass proposals that will level the playing field for retail investors.

Nearly 35,000 retail investors have signed a letter to the SEC published by We The Investors requesting improvements to market rules and new disclosures.

The letter is introducing new disclosure in lending transparency, margin transparency, netting transparency, FTD transparency, as well as disclosure of registration, and many other rules that will help level the playing field for retail investors.

We The Investors has held two online meetings since December with SEC Chair Gary Gensler, who took questions directly from retail investors on the proposals, which include requiring most retail stock orders to be sent to auctions to boost competition.

Other proposed rules call for a new standard for brokers to demonstrate they’ve gotten the best execution for clients on transactions, as well as lower trading increments and access fees on exchanges, and stronger disclosure around retail order executions.

But Wall Street, including Ken Griffin’s Citadel is pushing back.

“Baseless Conspiracy Theories”

We The Investors has urged the SEC to ban Payment for Order Flow (PFOF), a practice that Dave Lauer considers unethical.

“The system uses individual investors as products. It doesn’t support them,” says Dave.

The Wall Street Journal says that many brokerages, trading firms and academic researchers say individual investors get a good deal in the current system.

They say payment for order flow has benefited investors by allowing brokers to offer zero-commission trading and to execute orders at better prices than those quoted on public stock exchanges.

Many industry veterans say Mr. Lauer’s criticism is misguided, and they criticize him for peddling what they consider baseless conspiracy theories.

However, in 2004 Citadel said that payment for order flow “creates conflicts of interest and should be banned”, according to an SEC file.

“Citadel Group urges the commission to ban payment for order flow. This practice distorts order routing decisions, is anti-competitive, and creates an obvious and substantial conflict of interest between broker-dealers and their customers, said Citadel in a 2004 SEC filing.

“David Lauer spent nine months as an analyst at Citadel 14 years ago,” a Citadel spokesperson told the Wall Street Journal.

“While he may consider himself an authority on how the equity market functions, his rhetoric is unsupported by data and often veers into conspiracy.”

“The Game is Rigged”, Says Ex-Citadel Data Scientist

While pushback from Wall Street is expected, millions of retail investors have educated themselves in the market well enough to understand what is and what isn’t beneficial to their investments.

Payment for order flow and dark pool trading are just two of the tools retail investors want to ban from the market.

Dark pools suppress a stock’s price from rising, slashing true retail demand in the market by 50%-70% or more — will Wall Street argue that dark pools are good for retail investors too?

Patrick McConlogue, an ex-Citadel Data Scientist said during the ‘meme stock’ frenzy that the stock market is rigged, claiming he helped design it.

“The game is not fair and it never has been. Individual investors, even when operating in a swarm, are destined to lose. How do I know? I helped design the game.”

Patrick says the rules of the game also heavily favor hedge funds, something retail investors have urged SEC Chairman Gary Gensler for years to change.

“I respect many of my colleagues, the problem isn’t the people, it’s the rules of the game which heavily favor the funds.”

You can read Patrick’s full story here.

Citadel may deem retail investors as conspiracists, but this is just a coping mechanism.

I’d love to know what you think — leave your thoughts below.

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