Citadel Securities to Receive First Outside Investment

Discussion in 'Wall St. News' started by ajacobson, Jan 11, 2022.

  1. ajacobson

    ajacobson

  2. newwurldmn

    newwurldmn

    Ken marking to market his investment?

    It means what? The firm earns like 2-3bn in net income?
     
  3. ajacobson

    ajacobson

    Citadel Securities to Receive First Outside Investment
    Sequoia Capital’s and Paradigm’s $1.15 billion investment values the electronic-trading firm at around $22 billion

    [​IMG]
    Hedge fund billionaire Ken Griffin has a majority stake in Citadel Securities, which is set to receive a $1.15 billion investment from Sequoia Capital and Paradigm.
    Photo: mike blake/Reuters
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    Updated Jan. 11, 2022 1:10 pm ET
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    Citadel Securities is set to receive its first outside investment in a deal valuing the electronic-trading firm majority-owned by hedge fund billionaire Ken Griffin at around $22 billion.

    Venture-capital firm Sequoia Capital and cryptocurrency investor Paradigm have agreed to invest $1.15 billion in the Chicago-based firm, the company told The Wall Street Journal. Sequoia partner Alfred Lin will also join Citadel Securities’ board.

    Citadel Securities is managed separately from Citadel, the $43 billion hedge fund on which Mr. Griffin built his fortune, estimated by Forbes at $21.3 billion. Founded in 2002, Citadel Securities has grown into a global giant that trades equities, options, futures, bonds and other assets, handling about 27% of the shares that change hands in the U.S. stock market each day, according to its website. Much of that volume comes from processing trades for online brokerages such as Robinhood Markets Inc.

    The deal will give Citadel Securities capital to continue expanding globally, the company said, and could be a precursor to an initial public offering for the business. There is no guarantee the firm will go ahead with a listing, and there are no plans to launch one imminently.

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    Sequoia, one of the country’s largest venture firms with roughly $80 billion under management, has backed companies including Airbnb Inc. and Google before they were publicly traded. Paradigm is focused on crypto and Web3, a reimagining of the internet, areas Citadel Securities is likely to incorporate in the future as they become more regulated.

    To date, Mr. Griffin has been a crypto skeptic and avoided trading digital currencies in his businesses even as they have soared in price and popularity. In October, he said Citadel Securities didn’t trade crypto because of a lack of regulatory clarity.

    The explosion in trading volumes and volatility across financial markets during the coronavirus pandemic boosted Citadel Securities’ revenue. In 2020, net trading revenue was $6.7 billion, almost double the previous high in 2018. Net trading revenue in 2021 was even higher, according to a person familiar with the matter. Citadel Securities has been led by Chief Executive Peng Zhao since 2017.

    Last year’s Reddit-fueled trading frenzy in GameStop Corp. and other so-called meme stocks drew attention to Citadel Securities’ relationship with online brokerages.

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    Following the GameStop trading frenzy, the SEC is expected to take a fresh look at payment for order flow, a decades-old practice that’s at the heart of how commission-free trading works. WSJ explains what it is, and why critics say it is bad for investors. Illustration: Jacob Reynolds/WSJ
    Some small investors active on social media have accused Citadel Securities of masterminding the Jan. 28, 2021, trading restrictions in which brokerages limited customers’ ability to buy GameStop and a number of other stocks. Citadel Securities has denied any role in the trading restrictions, which punctured a huge rally in meme stocks. Brokerages have said they imposed the curbs to address large margin calls from the clearinghouse for U.S. stock trades. In November, a federal judge dismissed a lawsuit accusing Robinhood and Citadel Securities of colluding to stop investors from buying meme stocks, citing a lack of evidence.

    Still, the episode fueled regulatory scrutiny of the firm and its business practices. Securities and Exchange Commission Chairman Gary Gensler has floated the idea of banning payment for order flow, the practice in which trading firms pay brokerages such as Robinhood and TD Ameritrade for handling their customers’ orders. Citadel Securities paid more than $1.1 billion for order flow during the first nine months of 2021, making it the biggest source of such payments, Bloomberg Intelligence data shows.

    Mr. Griffin has considered deal making previously. The Journal reported in 2015 that Citadel was considering going public, a move that the hedge-fund firm had also weighed before the financial crisis. The Journal in 2019 reported Blackstone had been in talks to buy a stake in both Citadel Securities and Citadel, with firm executives estimating at the time the hedge fund had a value of between $5 billion and $7 billion.

    Write to Cara Lombardo at cara.lombardo@wsj.com and Alexander Osipovich at alexander.osipovich@dowjones.com
     
    zdreg and Nobert like this.
  4. ajacobson

    ajacobson



    KG at the Economic Club of Chicago about a week ago.
     
  5. newwurldmn

    newwurldmn

    I didn’t realize they started in 2002. When I was on the ISE desk in 2004 they were supposedly earning 700mm in that business.
     
  6. ajacobson

    ajacobson

    I used to be there a couple of times a month overseeing the ISE exam. They were the only Chicago shop with Chocolate milk in the fridge.
     
  7. newwurldmn

    newwurldmn

    we interviewed a guy solely because he interned there. That’s how ahead of the game they were than us.

    perhaps it was that not only did we not have chocolate milk but we had to buy our own tea from the commissary while the flavia coffee was free!
     
  8. VicBee

    VicBee

    And another:

    This isn't about retail investors or even Robinhood. It's about Griffin's real rival: Goldman Sachs.

    When you add more than a billion dollars' worth of liquidity to a market maker that already executed more than one of every four trades in the U.S. markets on a daily basis, while simultaneously giving it bleeding-edge access to the fastest-growing asset class in modern financial history, that's not a bailout. It's a warning.

    Citadel Securities announced a $1.15 billion investment from venture-capital giant Sequoia and cryptocurrency investment outfit Paradigm early Tuesday, and it blew a lot of minds, even if some were clearly blown in the wrong direction.

    Social media immediately lit up in response to the announcement with speculation among retail investing "Apes" that the funding is an emergency measure taken by the Citadel Securities founder -- and meme-stock archvillain -- Ken Griffin, who, in their minds, is in need of huge amounts of cash to stave off the MoASS or "mother of all short squeezes."

    Those theories looked like this:

    And on Reddit, where the word "bailout" broke out like a rash, users leaned hard into what we would best describe as " wishful thinking."

    "Sounds like Citadel is falling apart," wrote one user on the subreddit r/GME. "Those puts expiring this month is gonna f-- them hard, hence the bailout."

    "This is like when Citadel and SAC 'invested' in Melvin," said a different user on the subreddit r/Superstonk, referring to Griffin's hedge fund pouring millions into the infamous short seller Melvin Capital just before the short squeeze on stocks like GameStop (GME) and AMC Entertainment (AMC) came to a sudden and controversial halt almost one year ago. "Bullish."

    We get that Griffin is reviled by the Ape community and that he has come to epitomize everything they see as unfair and rigged about the American financial system -- and buying the Constitution didn't help at all -- but Griffin doesn't need more money when he operates a market-making operation that is now valued at $22 billion and a hedge fund with roughly $43 billion under management.

    Any talk of "bailouts" or liquidity crises inside Citadel are not based in reality, which is a real shame because the reality of this deal is so much more interesting and should be dominating every meme-stock discussion on social media.

    See, this deal is not about retail investors. It's about the rest of Wall Street. And Griffin could really use an extra $1.15 billion to show his real rivals that he means business.

    It's been an open secret for years that Griffin wants Citadel to be the next Goldman Sachs (GS), a financial-services superpower with a global reach that can make markets, dominate equity trading and fund deals of spectacular size.

    This deal gives him the liquidity to go bigger, and abroad.

    And with Goldman Sachs no longer "Goldman Sachs," Griffin just took on his first investment to make clear to all observers that Citadel is ready to take on that mantle. (So, fair warning, Morgan Stanley (MS).)

    Sequoia has invested in some companies you might have heard of -- Apple (AAPL), Google (GOOGL), Instagram (FB) and LinkedIn (MSFT), to name a handful -- and its reach in the fintech space is borderline infinite.

    Paradigm invests entirely in crypto and Web3 startups, giving it a key insight into where that space is going as opposed to where it is, which is an interesting wrinkle for Griffin, who has been publicly cynical about crypto but might become more open to it now that Paradigm is in his ear as to how to leverage the future by making markets that haven't yet been invented.

    Citadel's getting into crypto would enrage the people who got into crypto to avoid the Citadels of the world, but we can only imagine how angry they'll be once Citadel does enter that market and blurs the line of every asset class into one mayonnaise.

    An alliance with Sequoia and Paradigm now is akin to how fellow market maker Virtu Financial (VIRT) received backing from private-equity titan Silver Lake Partners years ago, if way more forward thinking ... and on steroids.

    It should, of course, be mentioned that Sequoia is also a key investor in Robinhood (HOOD), another wrinkle that drew conspiratorial groans from the Apes but is actually something that should be of far more interest to the aforementioned Goldman Sachses and Morgan Stanleys of the world.

    Incidentally, or not, Virtu's stock (VIRT) closed up more than 2% on the day.

    Now, Morgan Stanley jumped into the retail trading pool with its $13 billion acquisition of E-Trade in early 2020, while Goldman, which is still seemingly intent on building out its consumer product Marcus, does not have such a toy at its disposal.

    So, if Ken Griffin is going to take Silicon Valley's money and influence to expand, should Goldman maybe start kicking the tires on Sequoia's biggest fintech toy and the company that receives hundreds of millions from Citadel via payment for order flow?

    Considering that Robinhood's market cap is hovering around $14 billion, it might make sense. And that might not be an original idea, considering Robinhood closed up more than 5% on Tuesday, its best day in a while.

    This deal is not a bailout but a moment for many on Wall Street to look at what the meme-stock trading boom has done to Citadel and start fundamentally rethinking Griffin's new power.

    There's also chatter that the venture deal presages an IPO for Citadel, but no one seems to think that's happening anytime soon, and why would it?

    For retail investors blinded by their animus towards "Kenny G," we offer this final piece of advice: When you look at Griffin and see the emperor from "Star Wars," trying to crush the noble rebellion, don't interpret this investment as an opportunity to attack a weakened emperor on an uncompleted Death Star.

    See it for what it is: a Death Star that just got a little bigger and whole lot more operational.

    When it's capable of blowing up bulge-bracket banks with the force of its own power, that's when it will go public.

    -Thornton McEnery

    (END) Dow Jones Newswires
    01-11-22 1838ET
    Copyright (c) 2022 Dow Jones & Company, Inc.
    I bolded the section I found most interesting because I think it sheds light on the open conflict between Mark Andreessen and Jack Dorsey over the future of blockchain/cryptos and the meaning of Web3. Paradigm funding Citadel is a key element of Web3 product development opposed by Dorsey whose vision of crypto is more rebellious and idealistic than what big tech and big finance have in mind.
    There was a time in my life when I would have fully supported Dorsey's vision but I've become more pragmatic with age and seeing a viable Web3 product line to market will probably lead to a better and sooner return on my crypto investments.

     
    zdreg likes this.
  9. newwurldmn

    newwurldmn

    Or perhaps those companies have too much cash to invest and citadel fits the profile of a growth company. Perhaps Ken will ipo it at a future time.

    I doubt he can’t find 1bn for development or that they even need 1bn in investment capital to grow the business in the first place
     
    george_the_second likes this.
  10. zdreg

    zdreg

    That fact was probably not on the internet. Someday an aspiring trader, before making a decision which firm to join, will ask which trading firm has the best fridge will find an answer, thanks to you
     
    Last edited: Jan 12, 2022
    #10     Jan 12, 2022