A Million HFT Algos Suddenly Cry Out In Terror And Are Suddenly Silenced As Citi Announces 1 For 10 Reverse Stock Split

Tyler Durden's picture

While the wacky desperation antics of America's nationalized bank (that would be Citigroup for the cheap seats) enter the surreal zone, after the bank just announced a 1 for 10 reserve stock split (finally returning the stock price to Al Waleed's cost basis, if not entrance market cap) and a 1 cent dividend (which effectively means the Fed can now exit the prop each failing bank game... but won't), the bigger question is what happens to the momentum algos that traditionally traded 500 million shares of Citi stock, providing a supporting base for the market courtesy of massive momentum surges that provided a buying feedback loop mechanism driven out of pure churn volume. Those days are now over, as the volume will plunge pro rata from half a billion to a measly 50 million shares. Furthermore, with algos receiving liquidity rebates on a volume basis, it is conceivable that the biggest piggy bank to the 3 man Ph.D. HFT operations is about to break, as exchanges cut their rebate payouts by 90%. And with the stock market these days being far more a function of volume churn than technicals or, heaven forbid, fundamentals, what happens with the natural HFT support to the market is anyone's guess. One simple assumption: the next time the S&P does a May 6, or a USDJPY flash crash, the liquidity providers will pull out that much faster, leading to a massive freefall without any of the foreplay.

Full release:

Citigroup Inc. today announced a 1-for-10 reverse stock split of
Citigroup common stock. Citi also announced that it intends to reinstate
a quarterly dividend of $0.01 per common share in the second quarter of
2011, following the effective date of the reverse stock split.

“Citi is a fundamentally different company than it was three years ago,”
said Vikram Pandit, Chief Executive Officer of Citigroup. “The reverse
stock split and intention to reinstate a dividend are important steps as
we anticipate returning capital to shareholders starting next year.”

Citi anticipates the reverse stock split will be effective after the
close of trading on May 6, 2011, and that Citi common stock will begin
trading on a split adjusted basis on the New York Stock Exchange (NYSE)
at the opening of trading on May 9, 2011. When the reverse stock split
becomes effective, every ten shares of issued and outstanding Citigroup
common stock will be automatically combined into one issued and
outstanding share of common stock without any change in the par value
per share. This will reduce the number of outstanding shares of
Citigroup common stock from approximately 29 billion to approximately
2.9 billion. Citigroup common stock will continue trading on the NYSE
under the symbol “C” but will trade under a new CUSIP number.

No fractional shares will be issued in connection with the reverse stock
split. Following the completion of the reverse stock split, Citi’s
transfer agent will aggregate all fractional shares that otherwise would
have been issued as a result of the reverse stock split and those shares
will be sold into the market. Stockholders who would otherwise hold a
fractional share of Citigroup common stock will receive a cash payment
from the proceeds of that sale in lieu of such fractional share.
Additional information on the treatment of fractional shares and other
effects of the reverse split can be found in Citi’s definitive proxy
statement filed with the Securities and Exchange Commission on March 12,

Citi is executing its strategy of focusing on its core businesses in
Citicorp to support economic growth including banking, providing loans
to small businesses, making markets and providing capital, while
continuing to wind down Citi Holdings in an economically rational
manner. At the end of 2010, the U.S Treasury sold its remaining shares
of common stock, earning in total a $12 billion profit for taxpayers on
its investment in Citi. 2010 was Citi’s first year of four profitable
quarters since 2006, with $10.6 billion of net income. Citi's capital
strength is among the best in the industry and the bank is focused on
putting its unmatched global network to use for its clients to foster
sustainable and responsible growth.