Kenneth Griffin, the founder of Citadel Securities, said it would be “fairly good” if payment for order flows were banned as the controversial practice is increasingly under scrutiny by security regulators.
“Paying for order flow is a cost to me,” Griffin told The Economic Club of Chicago on Monday. “So if you want to tell me that one of my most important expenses is disappearing through regulatory conditions, I’m fine with that.”
Payment for order flow is the controversial practice by brokers to sell transactions on their platform to market makers such as Citadel Securities. It is profitable for retail brokers like Robin Hood and Charles Schwab, who uses the practice to provide shareholders with zero commission and option trading to their clients.
In the year to June 2021, Citadel Securities paid brokers nearly $ 1.5 billion for their order flow, according to regulatory entries collected by Bloomberg Intelligence, the largest of any market maker.
The payment for the order flow came to great attention at the beginning of this year when chaotic trading by investors arranged by Reddit’s r / WallStreetBets page has made many aware of the role that Citadel Securities plays in dealing with trading volumes of retail brokers.
Citadel Securities is the largest U.S. market maker, a company that buys and sells securities and provides liquidity. According to the Chicago company, it handles about a quarter of all stocks traded in the US.
U.S. Securities and Exchange Commission staff are working on new recommendations on payment for order flows. Gary Gensler, Chairman of the SEC, said the practice “could cause a number of conflicts of interest”, and sought to investigate whether the sale of retail businesses offers value to retail customers.
On the importance of the SEC, Griffin said that if payment for order flow “disappears tomorrow,” it’s going well.
‘Did I eliminate one of my most important cost lines? I’m going to be a winner in that scenario, ‘he said.
Griffin was an outspoken defendant in payment for order flow and said the role of the practice was to make trading cheaper for customers and ‘good for everyone’.
He noted that while the rise of retail was not all good, he warned that brokers would reintroduce commissions to clients if payment for order flow was banned, which would be a ‘huge loss’.
“Let’s hope in Washington that we maintain the status quo that brokerage firms have a duty to ensure the best execution for their clients,” Griffin said in his speech. “It’s the basis on which we compete, and it’s the basis on which we win.”
Separately, Griffin said that Citadel Securities will not trade cryptocurrencies due to uncertainty about how they will be regulated. He calls crypto “a jihadist call that ‘we do not believe in the dollar’ ‘.