Crain's: What Does Citadel Really Want from ETrade?

Discussion in 'Wall St. News' started by Options12, Nov 23, 2012.

  1. Options12

    Options12 Guest

    The ETrade bailout helped Citadel's market-making business, too. As part of the deal, ETrade agreed to send 40 percent of its retail stock orders to Citadel for execution. Mr. Griffin later tried to expand that share to 97.5 percent, but regulators objected. (By the way, I have to wonder how ETrade's retail customers would benefit from a deal that gives one market-maker a virtual lock on their trades.)

    It's pretty clear that Citadel covets retail order flow from ETrade, which ranks as the third-largest discount brokerage, according to Javier Paz, a senior analyst at industry research firm Aite Group LLC in Boston. But it's been getting a lot less since the 40 percent deal expired two years ago. ETrade filings show Citadel got about 20 percent of its orders in the second quarter of this year, and none in the third quarter.

    By triggering a probe that could force ETrade to route more trades to outside market-makers, Mr. Griffin could boost Citadel's chances of capturing more of that business. It's also possible he just wants ETrade to charge less for retail order flow—market-makers pay retail brokers for orders, another dubious securities-industry practice. Filings show other outside market-makers pay ETrade more than Citadel was paying.
  2. Occam


    Interesting -- I didn't know about Citadel's earlier attempt to get all of E-Trade's order flow.

    Of course, none of this would be an issue if the SEC simply enforced that all retail orders be routed to a real exchange.

    Meanwhile, the end users of the markets (investors, investees) will continue to pay hidden costs measured in billions per year owing to subpennying, internalization, and payment for order flow via wholesalers such as Knight.