Citadel Securities has received endorsement from some tech-savvy investors, and its market-making business appears poised for expansion.
Citadel Securities, trading giant Ken Griffin, announced Tuesday that it has received a $1.15 billion investment from venture capital firms Sequoia Capital and Paradigm, valued at nearly $22 billion. Citadel Securities has been a strong but largely quiet player in the markets for years. That changed last year, when Congress, regulators and retail investors began paying more attention to how trades were handled after volatile trading around Meme’s stock.
The new investment shows that Citadel Securities is taking a larger public role and is likely to expand into the crypto space.
“We look forward to partnering with the Citadel Securities team as they expand their technology and expertise to include more markets and asset classes, including crypto,” Matt Huang, co-founder and managing partner of Paradigm, said in a statement. Paradigm focuses on making investments related to Web3 and cryptocurrency.
Sequoia also does some crypto-related investment, but is best known for its tech investments in companies like
(AAPL). also invested in
A Citadel Securities spokesperson did not respond to a request for comment on its crypto intentions.
A $22 billion valuation puts privately held Citadel Securities ahead of the competition
(VIRT), which has a market capitalization of $5.6 billion.
Citadel Securities is the leading market maker for retail investors who trade stocks, paying brokerages like Robinhood to send in their orders so Citadel Securities can capitalize on the spread between buys and sells. That role came to light when Robinhood restricted trading in some hot stocks last January, with some people on message boards floating conspiracy theories that Citadel Securities was somehow involved in Robinhood’s decision.
An investigation by the Securities and Exchange Commission into the episode did not give credence to those theories, finding that Robinhood made the decision because it did not have enough capital to match orders from the clearinghouse that completed trades on the platform. However, SEC Chairman Gary Gensler raised concerns that market-making is being concentrated in the hands of too few players, which could lead to worse trade execution for investors. Citadel Securities and its peers responded that small investors are getting a great deal, noting that they tend to get better prices for stocks than if they went directly to the exchanges.
Citadel Securities’ potential entry into cryptocurrency trading could change the industry, given the company’s connections and expertise. Traditional brokerages are increasingly offering cryptocurrency trading options.
Creating markets with crypto assets is quite risky, since they can move quickly and often trade at different prices on different exchanges. This same dynamic also makes it a profitable venture. Wide spreads can be valuable to market makers who know how to hedge their risk and spend time in the market.
For investors, the expansion of big companies like Citadel Securities into the crypto space could have the effect of tightening spreads and increasing professionalization of the industry. It could also motivate policy makers to change the rules – at the moment, brokers do not have to disclose the details of their trade execution for cryptocurrency trades, although they do have to do so for stocks and options.
Write to Avi Salzman at firstname.lastname@example.org