Citadel pushed back on the possibility of a payment for order flow (PFOF) ban in June of 2022.
But Citadel said in 2004 that payment for order flow “creates conflicts of interest and should be banned”, according to an SEC file.
Gary Gensler said there may be a conflict of interest for brokers and that too much power is concentrated in a handful of market makers.
The SEC Chairman plans to reroute retail investors into an automated system that would provide a deep pool of liquidity.
“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.
Broker dealers accepting payment for order flow have a strong incentive to route orders based on the amount of order flow payments, which benefit these broker-dealers, rather than on the basis of execution quality, which benefits their customers.”
These statements come directly from Citadel in the filing.
After the GameStop and AMC incidents in 2021, retail investors urged the SEC to ban payment for order flow after discovering Robinhood reroutes retail orders to short-seller Citadel.
“Redditors, thank you so much for helping create the best pipeline we’ve ever had”, said Ken Griffin on Business Insider.
Citadel and Industry Push Back
A spokesperson for Citadel Securities released the following statement to CNBC:
“It is important to recognize that the current market structure has resulted in tighter spreads, greater transparency, and meaningfully reduced costs for retail investors. We look forward to reviewing the proposals and working with the SEC and the industry towards our longstanding objective of further improving competition and transparency.”
“You need to be very deliberate on that approach,” Ken Bentsen, president and CEO of the Securities Industry and Financial Markets Association (SIFMA) said.
“We have been calling for a review of market structure for some time, but let’s be careful not to try to fix things that may not be broken,” he said. “The retail investor is getting a better deal than they ever have.”
It looks like a lot has changed since 2004.
Citadel was able to identify how advantageous PFOF was and ultimately decided to weaponize it themselves.
Should the SEC ban PFOF?
What are your thoughts on Citadel’s statements versus where the company stands today with the practice?
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