Citadel Paying Over $1B a Year for Order Flow

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Citadel Securities LLC paid $2.6 billion in payments for order flow in 2020 and 2021, according to a new report from The Trade, an industry publication.

This amounts to over $1 billion a year and dwarfs its nearest competitors:

Citadel Securities takes the top spot when it comes to payment for order flow (PFOF), forking out $2.6 billion in 2020 and 2021 according to 606 reports gathered by the US’ Securities and Exchanges Commission (SEC).

The market maker due to its dominant market share accounted for around a third of the total market spend on PFOF in 2020 and 2021, followed by Susquehanna (G1X global execution brokers), which spent a $1.5 billion and Virtu which spent $654 million in the same period.

Payment for order flow involves a market maker like Citadel paying brokers, such as Robinhood Markets Inc., for the right to process their trades. The market maker then earns a small spread on each trade they complete.

The practice has proven controversial:

It’s proved a contentious subject globally, with regulators in Europe and the US exploring the possibility of limiting the practice as some claim it does not channel flow – much of it coming from the mushrooming retail segment – based on best execution.

Payments to brokers for order flow can allow brokers to offer free trades. And at least one study found payment for order flow saves customers money.

But both Citadel and Robinhood have been fined for providing worse prices than public exchanges.

With billions at stake and an opaque market, I find payment for order flow suspect. I’d like to see published data from Citadel, Robinhood and others proving their prices are better than the public markets.

Until then, remember the words of Andrew Lewis:

“If you are not paying for it, you’re not the customer; you’re the product being sold.”

Andrew Lewis

This is the last post for this week. Tomorrow, Tremendous will be off for Good Friday.

Have a great holiday everyone! 👋

More on markets:

AMC Now #4 Most Shorted Stock

Melvin Capital Down 21% in Q1

NYSE Investigating Shopify Stock Plunge; Citadel Involved

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Photo: Citadel LLC CEO Kenneth Griffin

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