In a surprising twist, Citadel Securities, one of the most powerful market makers in the world, has issued a formal warning to the U.S. Securities and Exchange Commission (SEC) about the risks posed by private rooms and 24-hour trading.
In a 29-page letter, the firm outlined concerns about liquidity gaps, increased volatility, and potential operational errors in overnight trading sessions, as well as the opaque nature of alternative trading systems known as “private rooms.”
These private rooms, described as a modern twist on dark pools, limit participant access and operate with less transparency than traditional exchanges.
Citadel’s call for regulatory scrutiny has raised eyebrows, especially given the firm’s long history of regulatory violations and accusations of market manipulation.
Retail investors, in particular, are crying foul, viewing this move as a potential facade to distract from Citadel’s own controversial practices.
Let’s unpack why this interaction with the SEC feels so strange and what it might mean for the broader financial landscape.
Citadel’s Warning: A Closer Look
Citadel Securities’ letter to the SEC emphasizes the risks of 24-hour trading, a concept gaining traction as stock exchanges push to extend trading hours.
The firm argues that overnight sessions, which typically see thinner participation, could lead to liquidity shortages, price volatility, and operational disruptions.
Additionally, Citadel flagged “private rooms,” a type of alternative trading system that restricts access to select participants, creating an environment ripe for unfair access and reduced investor trust.
The firm urged the SEC to act decisively to standardize trading infrastructure and enhance transparency, warning that failure to do so could undermine the benefits of round-the-clock markets.
On the surface, Citadel’s concerns seem legitimate.
Extended trading hours and opaque systems could indeed pose challenges to market stability.
However, the irony is hard to ignore: Citadel Securities, a dominant player in market making, is warning about practices that critics argue it has historically exploited.
The firm’s sudden role as a regulatory watchdog feels disingenuous to many, especially retail investors who have long accused Citadel of manipulating the very markets it now claims to protect.
A History of Fines and Manipulation Allegations
Citadel Securities’ track record casts a long shadow over its latest overture to the SEC.
Over the years, the firm has faced numerous fines and allegations of market misconduct, painting a picture of a company more familiar with bending rules than enforcing them.
One of the most notable incidents occurred in 2023, when the SEC charged Citadel Securities with violating Regulation SHO, a framework designed to curb abusive short-selling practices.
The SEC found that, from 2015 to 2020, Citadel mis-marked millions of short sales as long sales and vice versa, leading to inaccurate order marking and potential market distortions.
The penalty?
A $7 million fine—a mere slap on the wrist for a firm that reported $9.7 billion in trading revenue in 2024 alone.
Retail investors on platforms like X decried the fine as evidence of a “joke” regulatory system, arguing that it failed to deter Citadel’s behavior.
This wasn’t an isolated incident.
According to posts on X, Citadel Securities has been fined over 59 times for violations of FINRA, Regulation SHO, and SEC rules, with some instances described as “willful” naked short selling—a practice where shares are sold short without first locating them to borrow, potentially driving down stock prices.
Between 2007 and 2010, Citadel faced a cease-and-desist order for market manipulation, resulting in a $22.6 million fine in 2017.
Despite these penalties, totaling over $32 million in 15 years, critics argue that Citadel’s profits from questionable practices far outweigh the costs of regulatory fines, allowing the firm to operate with impunity.
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The Retail Investor Connection: AMC, GameStop, NWBO, and MMTLP
Retail investors, particularly those active on social media platforms like X, have long viewed Citadel Securities as a central villain in the saga of their favorite stocks, including AMC Entertainment, GameStop, MMTLP, and Northwest Biotherapeutics (NWBO).
These stocks, often championed by retail trading communities, have been at the heart of allegations involving naked short selling and market manipulation, with Citadel frequently named as the primary culprit.
In the case of AMC and GameStop, retail investors believe Citadel’s market-making activities, combined with its hedge fund arm’s short positions, contributed to suppressing share prices during the 2021 meme stock frenzy.
While Citadel has denied these claims, the firm’s dominance in handling retail order flow—processing roughly $570 billion in daily volume—gives it significant influence over price movements, fueling suspicions of foul play.
More recently, Citadel has been entangled in legal battles over its alleged role in manipulating NWBO and MMTLP.
In the NWBO case, retail investors accused Citadel of engaging in illegal short-selling practices to depress the biotech company’s stock price.
Citadel filed a motion to dismiss the lawsuit, but in a significant development, the court denied the motion, allowing the case to proceed.
This ruling was celebrated by retail investors as a rare victory against a financial giant, with many on X speculating that Citadel’s SEC letter might be an attempt to deflect attention from this legal setback.
Similarly, Citadel has been summoned to appear in court over allegations of fraud and manipulation in the MMTLP case, a stock linked to Meta Materials Inc.
Investors claim that Citadel engaged in naked short selling, preventing shareholders from realizing gains when the stock was halted.
The court’s decision to call Citadel for examination has further emboldened retail investors, who see it as evidence of the firm’s systemic misconduct.
Posts on X reflect a growing sentiment that Citadel’s warnings to the SEC are a calculated move to project an image of regulatory concern while distracting from these ongoing legal challenges.
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Why This Feels Like a Facade
Retail investors and market observers are skeptical of Citadel’s motives for several reasons.
First, the firm’s history of regulatory violations undermines its credibility as a voice for market reform.
Critics argue that Citadel has thrived in the very opaque and fragmented markets it now warns against, raising questions about why it is suddenly advocating for transparency.
On X, users like @ODB123 have called Citadel’s letter “ironic,” likening it to a fox warning a farmer about holes in the fence after building the “casino” of modern markets.
Second, the timing of the SEC letter—coming amid high-profile legal battles over NWBO and MMTLP—suggests a possible public relations strategy.
By positioning itself as a concerned market participant, Citadel may be attempting to curry favor with regulators and the public, deflecting scrutiny from its own practices.
Retail investors on X speculate that the letter could be a preemptive move to influence SEC priorities or even to shape the narrative around dark pools and short selling, areas where Citadel faces significant criticism.
Finally, the broader context of Citadel’s dominance adds fuel to the skepticism.
As a market maker handling a quarter of U.S. equity trading volume and a hedge fund managing $64 billion in assets, Citadel wields immense power.
Its ability to influence markets, whether through order flow, short selling, or proprietary trading, makes its warnings about “unfair access” and “reduced investor trust” ring hollow to those who see the firm as a beneficiary of the status quo.
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What’s Next?
Citadel Securities’ letter to the SEC may mark a pivotal moment in the debate over 24-hour trading and alternative trading systems, but it also underscores the deep mistrust between retail investors and financial institutions.
The SEC now faces pressure to address Citadel’s concerns while grappling with the firm’s own checkered past.
If the agency fails to implement robust safeguards, as Citadel warns, the risks of market disruptions could materialize.
However, if it overlooks Citadel’s history of violations, it risks further eroding public confidence in regulatory oversight.
For retail investors, the focus remains on holding Citadel accountable.
The denial of Citadel’s motion to dismiss in the NWBO case and the court summons in the MMTLP case signal that legal avenues may offer a path to justice, even if regulatory fines have proven insufficient.
On X, the sentiment is clear: investors see Citadel’s SEC letter as a distraction, and they’re not buying it.
As one user put it, “They’re losing control,” suggesting that retail investors, armed with information and legal momentum, are ready to challenge the financial giants head-on.
In the end, Citadel Securities’ warnings to the SEC may be less about protecting markets and more about protecting its own interests.
Whether this move backfires—by drawing more scrutiny to the firm’s practices—remains to be seen.
For now, retail investors are watching closely, and they’re not afraid to call out what they see as a facade.
The battle between Wall Street titans and the retail trading community is far from over, and Citadel’s latest maneuver has only added fuel to the fire.
Back to Daily Market News.
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