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Citadel Barred From Trading In China After Regulator Accuses "Automated Trading" Unit Of Manipulation

Tyler Durden's picture




 

Define irony: for the past 7 years, Wall Street's worst kept secret is that Citadel, the world's most levered hedge fund, has been the NY Fed's just slightly more than arms-length enforcer of market stability, by which we mean spoofer, buyer and otherwise "plunge protector" in the equity and E-mini futures markets. The secret got even less "secret" when of all the possible hedge funds blogger Ben Bernanke could have gone to, he picked the Chicago HFT powerhouse, confirming the cozy and tight relationship between the Federal Reserve and the firm which has been increasingly linked to market manipulation not only in equities but bonds and virtually all other asset classes.

Which is why Citadel must have been shocked to learn late last week that China had suspended trading at a brokerage account used by Citadel in China.

When the news first broke last Friday, we asked, somewhat rhetorically, the following question:

Today, the WSJ had more detail on the surprising snafu involving the Fed's favorite market intervention vehicle, confirming that Citadel said trading in one of its China accounts has been suspended, as Chinese regulators battle a steep slide in stock prices.

The reason: China’s securities regulator said Friday it has launched a probe into automated trading and has restricted 24 stock accounts suspected of influencing stock prices. The government didn’t name any of the companies behind the restricted stock accounts. Citadel said Sunday that one of its accounts was among them.

Of course, China's crackdown on foreign trading is not news, and had been reported about a week ago: in its endless list of scapegoatees, China had decided that blaming "evil", if faceless, foreign sellers would be just as effective to boost confidence in a rigged market as accusing "malicious" sellers. That remains to be seen, but what is surprising is that while Citadel is best known for propping the US market higher, China is suggesting that the same NY Fed Plunge Protection Team extension was implicated in the recent downward move, using "automated trading" or otherwise. Surely, China's regulator would not utter a peep if like in the US, Citadel had been used to support stock prices.

In comments on its website, the China Securities Regulatory Commission said it is investigating more than 50 instances of suspected securities violations and broken promises not to sell down share holdings as the country’s stock markets plunged in June and July. It wasn’t immediately clear why Citadel’s account had been targeted.

WSJ quotes a Citadel spokesman who notes that "We can confirm that while one account managed by Guosen Futures Ltd.—Citadel (Shanghai) Trading Ltd.—has had its trading on the Shenzhen Exchange suspended, we continue to otherwise operate normally from our offices, and we continue to comply with all local laws and regulations."

What a difference a year makes: recall that in May 2014, Citadel became only the first international hedge fund to complete yuan fundraising from Chinese wealthy individuals and companies through a local unit.

Citadel (Shanghai) Foreign Investment won regulatory approval for currency exchange on March 26, marking the first qualified domestic limited partner, or QDLP, to have successfully completed fundraising in China, according to a statement from the Shanghai government’s information office.

The irony:

China’s leaders have pledged to promote freer movement of capital in and out of the country and make the exchange rate more market-based for investment purposes. Shanghai started the QDLP program last year to allow international hedge funds to raise capital in the local currency in China for overseas investments, aiding the government’s experiment with capital account convertibility and advancing its plan to build Shanghai into a financial center.

Why irony? Because a little over a year later, we find out that China is only interested in "promoting freer movement of capital" as long as it involved its stock market going higher, and the capital flowing into China, not out of it at a record pace as we commented previously.

But still the question remains - how did Citadel attract attention to itself. The answer: "The firm has recently expanded its quantitative hedge funds there, and its securities trading business traded options this year in a trial program on the China Financial Futures Exchange."

Chinese media reported over the weekend that one of the restricted accounts was co-owned by Citadel and major Chinese brokerage firm Citic Securities. Citic Securities said Sunday it invested in the account in 2010, but it sold off its stake in November 2014 and no longer owns stock in the account, according to China’s official Xinhua News Agency. Citic Securities didn’t immediately reply to a request for comment.

And while a Citadel spokesman didn’t respond to a request for comment on which side of the firm’s business was affected by the suspension, it appears that Citadel's infatuation with market rigging via algos and "automated trading" is what set China off. Or rather the "selling" via automated trading.

Moments ago Bloomberg confirmed as much when it reported that an official Chinese regulator urges further algorithm trading regulation, adding that China should be prudent on developing algorithm trading, Shanghai Securities News cites an unidentified official with China Securities Regulatory Commission as saying.

Market stability were “seriously damaged” by algorithm trading combined with some abnormal trading activities, the official was cited as saying. Algorithm trading may lead to systematic risks and result would be catastrophic when algorithm trading was used to manipulate market, the official was cited as saying.

Why are none of these risks ever brought up vis-a-vis Citadel's market manipulation in the US? The answer is glaringly simple: because in the US, unlike China, Citadel always manipulates the market higher.

Which leads to an even more interesting, follow up question: if Citadel's HFT algos were indeed caught red-handed selling in China, then someone in the US must have given the local Citadel brokerage the green light to spoof Chinese stocks lower. And since by definition Citadel does not do anything market-moving without the Fed's preapproval, one wonders if China's paranoia that foreigners are eager to crush its market is not at least partially grounded in reality?

 

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Sun, 08/02/2015 - 21:06 | 6383216 pndr4495
pndr4495's picture

HFT = ICE 9

Sun, 08/02/2015 - 21:13 | 6383235 Publicus
Publicus's picture

Westerners have no future in a Chinese dominated world.

Sun, 08/02/2015 - 21:19 | 6383253 knukles
knukles's picture

Awesome!  Next watch Jon Kohn start on about the sanctity of free markets just like Hillary about freedom of speech 3 hours after Google was censored in China (Because Google is the NSA's public info skimming platform)   Good for the Chinese. 

Sun, 08/02/2015 - 21:48 | 6383337 localsavage
localsavage's picture

So...the Chinese manipulators don't want the Wall Street manipulators fucking up their program?

Sun, 08/02/2015 - 21:56 | 6383364 Money Counterfeiter
Money Counterfeiter's picture

When you put that coke and pussy in the face of a Wall Street trader they just cannot resist.

Sun, 08/02/2015 - 22:44 | 6383490 Perseus son of Zeus
Perseus son of Zeus's picture

"China's Dump Enforcement Team"

Wee tu lo, no shor selly!

Sun, 08/02/2015 - 22:55 | 6383521 7.62x54r
7.62x54r's picture

You don't do business in a country by annoying the rulers. Just sayin'.

A smart man would wait for this bubble to finish popping, and then buy in at the bottom and hold.

Sun, 08/02/2015 - 23:11 | 6383565 prefan4200
prefan4200's picture

Not typically a huge fan of the Chinese way of doing business, but China fucking with Citadel makes me smile.  Citadel and all the other HFTing market manipulating motherfuckers can go to hell.  Help send them there, China.  Well-played.

Sun, 08/02/2015 - 23:18 | 6383585 Perseus son of Zeus
Perseus son of Zeus's picture

"You break you buy. You buy, you buy or you get owwt"

Sun, 08/02/2015 - 23:39 | 6383634 TheLooza
TheLooza's picture

clearly part of Obama's follow through on his promise to reatliate against China for it's cyber attacks....Hitting people in the wallet is a sweet way to get revenge....

Mon, 08/03/2015 - 04:51 | 6383986 Eirik Magnus Larssen
Eirik Magnus Larssen's picture

The clear implication is that the People's Republic of China has greater respect for the rule of law than the United States does.

Sun, 08/02/2015 - 22:11 | 6383404 Dindu Nuffins
Dindu Nuffins's picture

Good thing most Chinese are illiterate farmers.

Sun, 08/02/2015 - 21:29 | 6383282 zorba THE GREEK
zorba THE GREEK's picture

After listening to the wise people on ABC NBC CBS and Fox, I think Gold and Silver are going

to Zero. But I will hold on to my PMs, just for nostalgia. I can always use them for fishing sinkers

or paper weights.

Sun, 08/02/2015 - 21:13 | 6383236 JustObserving
JustObserving's picture

Is Citadel not an unofficial arm of the US Fed?  Was Citadel's trading in China payback for Chinese hacking?

Former Fed Chairman Ben Bernanke hired by hedge fund Citadel


By Andre Damon 
18 April 2015

 

Ben S. Bernanke, the former Federal Reserve chairman who funneled trillions of dollars in government funds to Wall Street, has been hired by Chicago-based hedge fund Citadel LLC, where he will presumably make millions of dollars.

Bernanke’s new job constitutes little more than a kickback for services rendered to Wall Street and the financial elite more generally. As a result of policies he implemented during his eight years as Fed chairman, the profits of Wall Street banks and hedge funds, including that of his new employer, have soared to record highs.

If the United States were a genuine democracy, the announcement of Bernanke’s new job would prompt vituperative public denunciations by senators and congressmen; hearings would be held, documents would be subpoenaed, and federal bribery charges would be drawn up against him.

Yet, since the story broke Thursday, the silence has been deafening. Not a single public official has prominently commented on the development, and major newspapers responded to the news with, at most, a shrug of the shoulders.

While Bernanke’s pay package has not been publicly disclosed, commentators noted that it is likely to be at least seven figures. In the fourteen months since he left office, Bernanke has raked in hundreds of thousands of dollars in speaking fees, charging $200,000 per appearance, more than he made in a year at his job at the Federal Reserve.

https://www.wsws.org/en/articles/2015/04/18/bern-a18.html

Sun, 08/02/2015 - 21:28 | 6383276 nmewn
nmewn's picture

Can't wait for the Ben the Blogger to slow jam on this one...lol.

Sun, 08/02/2015 - 21:40 | 6383313 Bunghole
Bunghole's picture

To a sultry Clinton saxaphone background.

Sun, 08/02/2015 - 21:44 | 6383322 nmewn
nmewn's picture

Oh yeah baby, I can see it now...lmao!

Sun, 08/02/2015 - 21:12 | 6383237 buzzsaw99
buzzsaw99's picture

china and the usa fight like a couple of skanky girls

Sun, 08/02/2015 - 21:15 | 6383243 Bunghole
Bunghole's picture

But they are targeting our spy satellites.

60 Minutes just said so.

More tax donkey dollars for Space Command.

Sun, 08/02/2015 - 21:24 | 6383268 knukles
knukles's picture

Was that the 60 minutes where Dan Rather interviewed Brian Williams after Brian single-handedly saved Detroit from the Islamic peril's in-actionable importation of stained underwear right after stopping the Chinese launching of the anti-anti-spy destruction satellite with his iWatch after he coded the program himself inbetween questions to Hillary during her 3 second interview?

Sun, 08/02/2015 - 21:39 | 6383305 Bunghole
Bunghole's picture

You forgot he also stopped the importation millions of pirated professional sports jerseys and hats the evil Chicoms are producing depriving our sports stars and owners from their rightful inheritance.

Sun, 08/02/2015 - 21:15 | 6383247 Son of Loki
Son of Loki's picture

" Man who fish in other man's well, often catch crabs. "

 

 ~ Old Chinee proverb attributed to Hong Tiu Lo

Sun, 08/02/2015 - 21:47 | 6383331 Keltner Channel Surf
Keltner Channel Surf's picture

Give a man a spoof, and you've screwed him for a day.

Teach a man to spoof, and screw up markets for a lifetime.

Sun, 08/02/2015 - 21:23 | 6383267 Glass Seagull
Glass Seagull's picture

 

 

 

Who, Citadel?!?!  Surely not!!

 

Sun, 08/02/2015 - 21:28 | 6383278 Fukushima Fricassee
Fukushima Fricassee's picture

End the fucking FED

Sun, 08/02/2015 - 21:37 | 6383300 Latitude25
Latitude25's picture

Yup.  I knew that when the NYSE went down, that day we had a big cyberwar skirmish.  Things were pretty screwed up for a couple of days all over the web.  I work online and our servers crapped out too that day.

Sun, 08/02/2015 - 21:51 | 6383348 Latitude25
Latitude25's picture

China warns Russia that a state of war now exists with the US

http://www.eutimes.net/2015/07/china-warns-russia-that-state-of-war-now-...

Sun, 08/02/2015 - 21:51 | 6383349 Kavklov
Kavklov's picture

Fuck Citadel bitchesss

Sun, 08/02/2015 - 21:55 | 6383365 CHC
CHC's picture

Well - your theory might be correct.  China's stocks as of 2 minutes ago are going down the crapper. 

Sun, 08/02/2015 - 22:11 | 6383408 FrankDieter
FrankDieter's picture

Citadel are corrupt thieves.

Sun, 08/02/2015 - 22:34 | 6383463 Yen Cross
Yen Cross's picture

  This is priceless; If factual?

Sun, 08/02/2015 - 22:41 | 6383479 humblemechanic
humblemechanic's picture

 

Another nail in Dollar's coffin

Sweeping changes to Indonesia’s oil regulatory framework are likely to massively impact Southeast Asian tanker trades. Jakarta has moved today to make all contractors working on Indonesian blocks to not export the oil, but to send it to the domestic market. The move comes as a quickfire method designed to halt the sliding of the local currency, the rupiah, which has been in freefall in recent weeks.

 

IGN Wiratmaja, the director general for oil and gas at the Energy and Mineral Resources Ministry, said his office was now assessing the possibility of revising the current production sharing contract (PSC), particularly regarding sales destinations.

 

“We are still assessing the impacts of the changes, including on the current contracts. The volume [of oil sold overseas] is quite significant and we are expecting a strengthening of the rupiah [if it is sold domestically],” Wiratmaja said.

 

Approximately 111m barrels out of the 290m barrels of oil and condensate produced in Indonesia last year was shipped overseas.

 

Another law change that will make energy transactions in Indonesia far more tricky is that all transactions within Indonesia now have to be made with the rupiah, an attempt by the government to try to control the rupiah. Penalties for those that fail to comply with this new currency ruling include stiff fines or even a one-year jail sentence.

 

International businesses operating in Indonesia are not happy with this ruling given the volatility of the rupiah and the high interest rates for loaning the currency – 14% compared to 6.5% for the US dollar.

 

In the marine space, all tenders now have to be submitted with prices and rates in rupiah.

 

Sun, 08/02/2015 - 22:42 | 6383483 To Infinity And...
To Infinity And Beyond's picture

Put 2 & 2 together.

The administration said it would retaliate for the data hacking. They also said it had to be substancial.

Mon, 08/03/2015 - 03:58 | 6383989 SHRAGS
SHRAGS's picture

IV

Sun, 08/02/2015 - 23:47 | 6383645 goldman58
goldman58's picture

This is one of the things that Trump is going to stop.

The CHINKS like to take and take and take from the uSA but as soon as the going gets a little tough they restrict an American company

Right now there are thousands of CHINKS in this country fucking the system and making massive sums of tax free money doing it too

Our government allows it while middle class America dies.

The real enemy is our own government

They have allowed the CHINKS to fuck us over and over and over again.

Fucking CHINKS............

Mon, 08/03/2015 - 08:41 | 6384347 Wild E Coyote
Wild E Coyote's picture

You are quite right. But the Chinks you probably refer to are Elite White Americans who are transfering their assets out of US and into China for cheaper labor. 

Except for the President, all major players in the US Government are also white Americans, but of course not middle class

Mon, 08/03/2015 - 00:10 | 6383684 GRDguy
GRDguy's picture

Funny that Citadel acquired Ben Bernanke, AFTER this was released.

http://usa.chinadaily.com.cn/epaper/2014-05/23/content_17536700.htm

US hedge fund raises money from wealthy Chinese to invest abroad

Geez, talk about playing all sides against each other.

Mon, 08/03/2015 - 00:37 | 6383732 hedgiex
hedgiex's picture

This martial law imposed on China'e market will continue to reverberate across all financial products/services and those touted by their perpetrators.

Not so much that Citadel had ignored the systemic risk in the China markets but that the preys continue to be oblivious by still not yanking money away from papers, particularly those under different sovereignties. Still waiting for still existing windows to be closed in China and the EM markets ?

Citadel is just one in the crowd of money spinners/predators in this chain.

Gamble on the prospects of China, if you wish, but in physical assets that you have in full control. Even then it is not riskless.

Mon, 08/03/2015 - 01:13 | 6383809 Conax
Conax's picture

 

heheh.

Mon, 08/03/2015 - 01:24 | 6383834 q99x2
q99x2's picture

Arrest Lloyd Blankfein and Jamie Dimon prosecute them and sentence them to death.

Mon, 08/03/2015 - 04:10 | 6384003 gregga777
gregga777's picture

No, no, no.

Execute them and their families. Then arrest them and prosecute them.

Mon, 08/03/2015 - 04:50 | 6384029 sagitarius
sagitarius's picture

.....as restricted 24 stock accounts suspected of influencing stock prices......

then close the stock exchange. you buy/sell and influence the market, willingly or not, but you do.

 

on the other note: very good move from Chinese.

And charge them with criminal charges. Just to compensate the nonsense about chinese hacking into US networks. Let the puppet in WH know, where is his corner.

Mon, 08/03/2015 - 08:44 | 6384354 SMC
SMC's picture

China is putting the pieces together... "Just Us" economic warfare.  

They may show Obummer and company how retaliation is done...  LOL.

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