Kenneth Griffin, the founder of Citadel Securities, said he would be “quite fine” if payment for order flow was banned as the controversial practice comes under increasing scrutiny from securities regulators.
“Payment for order flow is a cost to me,” Griffin said, addressing The Economic Club of Chicago on Monday. “So if you’re going to tell me that by regulatory fiat one of my major items of expense disappears, I’m OK with that.”
Payment for order flow is the controversial practice by brokers of selling trades made on their platform to market makers such as Citadel Securities. It is lucrative for retail brokers such as Robinhood and Charles Schwab, which use the practice to provide zero-commission stock and options trading to their customers.
In the year to June 2021, Citadel Securities paid nearly $1.5bn to brokers for their order flow, according to regulatory filings collated by Bloomberg Intelligence, the most of any market maker.
Payment for order flow came under a harsh spotlight at the start of this year when chaotic trading by investors organised by Reddit’s r/WallStreetBets page made many aware of the role Citadel Securities plays in handling trading volumes from retail brokerages.
Citadel Securities is the largest US market maker, a business that buys and sells securities and provides liquidity. It handles approximately a quarter of all shares traded in the US, according to the Chicago-based company.
Staff at the US Securities and Exchange Commission are working on new recommendations on payment for order flow. Gary Gensler, SEC chair, has said that the practice “may present a number of conflicts of interest”, and has sought to investigate whether selling retail trades delivers value for retail customers.
Speaking on the SEC’s interest, Griffin said that if payment for order flow “disappeared tomorrow” he was “quite fine with that”.
“Having one of my major cost lines eliminated? I’m going to be a winner in that scenario,” he said.
Griffin has been an outspoken defender of payment for order flow, saying that the practice’s role made trading less expensive for customers and was “good for everybody”.
He noted that while the rise of retail trading “hasn’t all been good”, he warned that brokers would reintroduce commissions to customers if payment for order flow was banned, which “would be a huge loss”.
“Let us hope that in Washington we maintain the status quo that brokerage firms have a duty to secure the best execution they can for their customers,” Griffin said in his address. “That is the basis on which we compete, and that’s the basis on which we win.”
Separately, Griffin said that Citadel Securities would not trade cryptocurrencies because of uncertainty over how it would be regulated. He called crypto “a jihadist call that ‘we don’t believe in the dollar’”.
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