
In July, Ken Griffin acquired a nearly pristine 11-foot-tall stegosaurus skeleton named “Apex” for a record $45 million. Often viewed as a leading figure in finance, Griffin exemplifies the “apex predator” label frequently attributed to him in the industry. In a press release issued by Sotheby’s, Griffin remarked, “Apex was born in America and is going to stay in America,” subtly indicating his political intentions, supported by his estimated $43 billion fortune.
Griffin’s wealth is primarily derived from his hedge fund, Citadel, and Citadel Securities, which together demonstrate vast aspirations without any geographical limitations. Citadel is hailed as the most profitable investment firm in history, yet a significant portion of Griffin’s net worth, as estimated by Forbes, comes from Citadel Securities. This firm was valued at $22 billion when Sequoia and Paradigm purchased a small stake in it two years ago.
Citadel Securities has significantly disrupted the traditional stronghold of major banks in trading. Over the last two decades, it has emerged as the largest buyer and seller of stocks in the U.S., surpassing the trading activity on the New York Stock Exchange’s main market in August. Last year, the firm recorded profits of $2.8 billion on net revenues of $6.3 billion, and in the first half of this year alone, it earned $4.9 billion in net revenue.
The firm, already handling one in four U.S. equity trades and playing a major role in Treasuries, has set its sights on new pursuits such as the Chinese equity market, European government bonds, and the traditionally bank-controlled sphere of corporate fixed income trading. According to Matt Culek, COO of Citadel Securities, the company is committed to entering and dominating every market it ventures into.
This success has attracted regulatory attention, as watchdogs scrutinize the shift in risk from traditional banks to non-bank rivals like Citadel Securities since the 2008 financial crisis. An executive at a major bank expressed concern that regulators might impose bank-like regulations on firms like Citadel Securities, which could diminish their return on equity.
Citadel Securities was established in 2002 as part of Griffin’s hedge fund, Citadel, and benefited from the electronification of markets. It initially focused on equities and options, leveraging its mathematical and computational strengths to become one of the largest market-makers globally. The financial crisis of 2008 marked a turning point for the company, resulting in a tough year for the hedge fund but a breakout year for Citadel Securities, which capitalized on increased volatility and reduced liquidity.
Griffin eventually separated the hedge fund and securities businesses, with both continuing to operate independently yet sharing some underlying operational resources. Peng Zhao, who has been with Citadel Securities since its inception, became the firm’s CEO in 2017, taking charge as Griffin assumed a non-executive role.
Despite the formal separation, Citadel Securities’ ethos is influenced by Griffin’s competitive culture. Employees are acutely aware of the expectation of excellence, with rewarding outcomes based on performance. The firm operates as a trading partner, client, and competitor to other trading firms, hedge funds, and banks, leveraging data to enhance predictive analytics and proprietary trading capabilities.
Competitive pricing has been integral to Citadel Securities’ strategy, attracting significant trading flow even from competitors. A notable contribution to this flow stems from retail trading spurred by payment-for-order flow agreements, where the firm pays brokers like Robinhood, Charles Schwab, and ETrade for directing trades to its platform.
Although payment-for-order flow is banned in the UK and EU, it remains a substantial cost for firms in the U.S., enabling Citadel Securities to gain considerable market share in retail trading. The firm handles a significant portion of U.S.-listed retail volume through its platform by ensuring the best prices for customers, supporting commission-free trading. However, there is debate about hidden costs and competitive implications.
Citadel Securities continues to apply insights gained from equities trading to other markets, seeking further product and geographic diversification. Potential expansion into the U.S. corporate bond market is viewed as a direct challenge to traditional investment banks, with Citadel Securities positioning itself to capitalize on shifting market dynamics.
As the firm explores new opportunities and strengthens ties with corporate America, Griffin has increasingly engaged in U.S. politics, contributing over $100 million to Republican candidates and relocating the headquarters of his businesses from Chicago to Miami. Griffin’s political interests are accompanied by the aspiration to be more involved in governance.
Efforts to enter China’s stock market face challenges, including past regulatory scrutiny and a recent unsuccessful bid for Credit Suisse’s China securities unit. Nonetheless, Citadel Securities maintains a cautious approach while laying groundwork for potential approval, supported by continued engagement with Chinese officials.
With the growing significance of non-bank institutions like Citadel Securities, U.S. regulators are reassessing their oversight approaches. The firm, however, emphasizes its transparency and regulatory compliance, meeting regularly with key regulatory figures to ensure alignment with existing requirements.
Overall, Citadel Securities remains a formidable presence in the financial industry, driven by its innovative trading strategies, regulatory acumen, and ambitious expansion plans, positioning itself to sustain growth and influence in global markets.