Citadel Securities is now seeking to operate in China after it failed to take on Credit Suisse’s onshore business, sources report.
Ken Griffin’s Citadel Securities has decided to create its own brokerage operation in China after its unsuccessful attempt to acquire Credit Suisse’s onshore business and the lack of other suitable acquisition targets, according to sources familiar with the situation.
The U.S.-based firm, part of Griffin’s extensive hedge fund and trading network, is preparing to submit an application to the China Securities Regulatory Commission for licenses in brokerage, asset management, and proprietary trading.
These sources requested anonymity as the plans have not yet been publicly announced, per Blooomberg.
Following the failed acquisition of the Credit Suisse unit, Citadel Securities believes that building its own operation from scratch is the best course of action.
This decision is influenced by the fact that most existing brokerages in China are fully licensed, which does not align well with Citadel’s operational model.
The firm had considered Credit Suisse’s China platform, which focuses on brokerage and investment banking services, as a more suitable option for its growth strategy.
While many foreign banks are scaling back their operations in China due to a struggling economy, rising geopolitical tensions, and increased scrutiny on the finance sector, Citadel is looking to take advantage of the country’s conditions.
This follows a recent announcement from China regarding a series of stimulus measures that have positively impacted stock markets.
A representative for Citadel Securities declined to provide comments on the matter.
However, establishing a business from scratch is expected to take significantly longer than an acquisition, given the infrastructure requirements and challenges related to hiring.
Additionally, obtaining regulatory approval for licenses in China can be a lengthy process, often taking between 12 to 18 months.
In Asia, regulators have been applauded by U.S. investors for tackling the problem with naked short selling.
Citadel has raised many concerns in the US markets over its history of manipulating the markets for self-gain.
For five years straight, Citadel marked short sales as long, abusing its market maker and hedge fund responsibilities.
The hedge fund was only fined $7 million by the SEC.
And during the ‘meme stock’ frenzy of 2021, ex-Citadel data scientist Patrick McConlogue stated, “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.”
In a time where China and South Korea are being praised for tackling illegal short selling practices, is it wise to allow Citadel Securities to operate in Asia?
I’m curious to hear what you think — leave your thoughts below.
Also Read: Illegal Short Sellers Will Now Face Life Sentence In Prison
Other Market News Today
Korean regulators now impose billions in fines for illegal trading, particularly when ‘naked short selling’, increasing fees upwards of 5,000%.
The Financial Supervisory Service (FSS) of South Korea is ramping up its enforcement against short sale violations, shifting from treating these breaches as minor infractions subject to low fines to imposing substantial penalties based on the scale of the violations.
This change follows amendments to the Financial Investment Services and Capital Markets Act (FSCMA), which allow penalties to be calculated based on the volume of short sale orders, significantly increasing potential fines.
In March 2023, the Securities and Futures Commission (SFC), part of the FSS, applied this new penalty calculation for the first time, imposing fines on two institutional investors for engaging in illegal short sales.
One case involved an investor mistakenly placing sell orders for shares that were not yet available, leading to a naked short sale.
The other involved an error in inventory management, resulting in a similar breach.
The fines totaled KRW 3.87 billion and KRW 2.18 billion, respectively.
Recent enforcement actions highlight the regulators’ commitment to addressing short sale violations.
In December 2023, the SFC levied penalties of KRW 11.44 billion against a French financial group’s affiliate and additional fines against its Korean affiliate and a UK-based group.
By July 2024, the SFC imposed record fines of KRW 16.94 billion and KRW 10.23 billion on two Swiss-based financial group affiliates.
As investigations into global investment banks continue, it remains unclear whether even larger penalties will follow.
While the SFC has imposed significant fines, a recent court ruling overturned one of its penalties against a European broker for a naked short sale, deeming the fine excessive.
This case involved the broker mistakenly executing sell orders for the wrong fund, leading to a court challenge of the SFC’s authority in imposing such fines.
In a notable escalation, the SFC made a criminal referral in December 2023 for two global investment banks accused of failing to properly document their lending transactions, resulting in prolonged naked short sales.
This marked a significant shift as it was the first time Korean regulators sought criminal liabilities for short sale breaches.
In March 2024, the prosecutor’s office indicted one of the banks and its employees for violating laws against naked short sales.
As Korean regulators continue to maintain strict oversight on illegal short sale activities, it remains to be seen whether they will pursue criminal investigations into other market participants exhibiting similar patterns of behavior.
Interestingly, despite imposing more record fines in July 2024, the SFC chose not to refer any cases for criminal prosecution, highlighting the complexities of regulatory enforcement in this area, per IFLR.
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Also Read: South Korea Now Finds Banks Pursued Illegal Shorting Scheme
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