Warren Says ‘Sharks’ Citadel, Robinhood Prey on Customers

LAGOS (Capital Markets in Africa) — Senator Elizabeth Warren renewed her attacks on Citadel Securities and Robinhood Markets on Tuesday, accusing the companies at the center of the GameStop Corp. trading saga of profiting at the expense of their customers during periods of extreme market volatility.

“When big sharks like Citadel and Robinhood come out ahead no matter what happens, and when the information they gather isn’t disclosed, and when it’s secret how that information is used, it’s easier for these giants to skim off the top at the expense of small investors,” the Massachusetts Democrat said in a Senate Banking Committee hearing on wild market swings in shares of the gaming retailer and other stocks.

The latest hearing on the financial firms tied to the Reddit-fueled trading featured academics and market experts, unlike House proceedings in February that included testimony from Robinhood Chief Executive Officer Vlad Tenev and Citadel’s billionaire founder Ken Griffin.

Among the policy proposals discussed at Tuesday’s hearing changed to payment for order flow, a practice that enables brokers like Robinhood to profit by selling their customer orders on to market makers like Citadel Securities, which is separate from Griffin’s hedge fund.

Equity markets should be about capital formation and creating long-term value for companies to grow and create jobs, Warren said, adding that the Securities and Exchange Commission must “provide transparency about these companies’ market tactics, and make sure they don’t rip off customers.”

Her comments followed her office releasing a letter Tuesday from the acting SEC director that said regulators are considering new rules for everything from short-selling to investing with options, indicating a growing response to the recent market mayhem. Warren also released letters from Robinhood and Citadel Securities that responded to questions she asked about the firms’ business relationship and how Robinhood handled wild trading in GameStop.

In its response to Warren, Citadel Securities made clear that it does not receive any personally identifiable information from Robinhood or any other retail broker-dealer, a firm spokesperson said. Robinhood didn’t respond to requests for comment.

Citadel Securities and firms like it enjoy unique advantages because they execute large trading volumes instead of sending the orders to stock exchanges, Gina-Gail S. Fletcher, a Duke University law professor, testified before the panel. The hearing was convened by committee Chairman Sherrod Brown, an Ohio Democrat who has long criticized Wall Street.

“While pension funds and other institutional investors generally can’t interact with retail customers, and retail customers are siphoned off and prevented from interacting with institutional investors, Citadel sits in the middle and is able to interact with all of them,” Fletcher said. “This benefits Citadel by being able to segment the markets in this way, which dilute the number and quality of orders that they see on the exchanges. And the profitability is there for Citadel for doing so.”

Source: Bloomberg Business News