Citadel Buys Assets From Citigroup Trading Pioneer ATD

  • Goldman Sachs, Bank of America have exited similar businesses
  • Citigroup acquired ATD for about $680 million in 2007

Citadel Securities agreed to buy a stock-trading business from Citigroup Inc., the latest bank to retreat from equity market making.

Citadel is acquiring the equity-trading operations of Citigroup’s Automated Trading Desk division, one of the pioneers of high-frequency trading. Terms of the deal weren’t disclosed in a statement released Monday. Bloomberg first reported last week that Citadel was in negotiations for ATD, which Citigroup bought for about $680 million in 2007.

Banks once ruled wholesale market making, the business of carrying out stock orders for retail customers. Under increased regulatory pressure, Goldman Sachs Group Inc., Bank of America Corp., Credit Suisse Group AG and Wells Fargo & Co. have all squashed U.S. equity market-making businesses in recent years.

“Many banks just can’t compete,” said Jamil Nazarali, head of execution services at Citadel Securities. “Competitive pressure has been strong over the past few years.”

Citadel isn’t purchasing the part of ATD that trades options, he said.

Ceding Turf

Banks are ceding turf to companies that specialize in electronic trading technology, like Citadel and KCG Holdings Inc., the two largest players in electronic market making. In the fourth quarter the firms handled about one-third and one-quarter of U.S. wholesale market volume, respectively, according to data from research firm Tabb Group LLC. With Citigroup’s exit, UBS Group AG is the only bank remaining in U.S. wholesale market making, with a 17 percent market share in the period, according to Tabb.

“There’s fierce competition and it requires some balance-sheet usage,” said Andrew Upward, head of market structure at Weeden & Co. LP. “It’s a part of the business that’s under scrutiny now.”

State and federal authorities are looking into trading practices at two of the largest market-making firms, Citadel Securities and KCG, people familiar with the situation said last week. Separate inquiries by the U.S. Justice Department and New York Attorney General center on the market-making units of these businesses and whether customers have received the best prices for trades carried out by the firms, the people said. The agencies have sent subpoenas and information requests to the two trading operations, the people said.

Banks have also retreated from another corner of stock trading: serving as market makers at the New York Stock Exchange floor. After a series of deals for those floor businesses, high-frequency traders manage nearly all the stocks there. Earlier this year, Citadel Securities and Global Trading Systems LLC both agreed to buy so-called designated market-making businesses on the NYSE floor.

(Corrects story originally published May 16 to remove a reference to ATD co-founder Steve Swanson.)
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