Ben Bernanke's Employer Citadel Alleges That "Leveling The Playing Field" Will Actually Hurt Stock Markets

Tyler Durden's picture

The biggest debate currently roiling the field of equity markets revolves around the August 21, 2015 submission by the dark pool made famous by Michael Lewis' Flash Boys, IEX, in which it is seeking become a public trading venue that will compete with the New York Stock Exchange and Nasdaq Stock Market.

As many market structure pundits are aware, what makes IEX different from all other "lit" venues and markets is its embedded technology which implements a 350 microsecond order delay which makes HFT frontrunning, spoofing, and quote stuffing of orders impossible.

And in a marketplace where the true nature of HFTs has become well-known to most, namely to "provide liquidity" by frontrunning big block orders, many investors are increasingly gravitating toward IEX, as seen in the following chart showing the dramatic market share gains IEX which has risen to the third spot by total trade volume, is on pace to become the surpass UBS and Credit Suisse as the most popular ATS in the US.


The result: traditional HFT-based players such as the most prominent one, Citadel, are becoming very worried. As a reminder, Citadel is the hedge fund which the NY Fed uses in times of market stress to "prop" the S&P higher by spoofing, or outright buying E-minis at key downward infletion points.

And as a result of concerns that it will be no longer able to frontrun order flow, mostly on the retail said, Citadel has dramatically stepped up its criticism of IEX Group, with the amazing argument that, in the words of Bloomberg, IEX' "plans to start an exchange that tries to level the playing field between firms with the fastest technology and other traders will actually hurt stock markets."

In other words, making the markets again fair and efficient, would hurt the markets according to the company that may be the biggest abused of HFT practices.

As Bloomberg notes, in its second letter to U.S. regulators (which can be read here) addressing the "unfairness" of IEX,  Citadel said the exchange application lacks sufficient information and could “harm market quality.” Citadel took particular exemption with the disclosure around IEX’s trademark “speed bump,” a coil of wire purported to prevent faster traders from taking advantage of slower ones by delaying all incoming and outgoing orders by a fraction of a second.

Naturally, IEX has countered that its exchange would be an antidote to unfair practices that allow the fastest firms to get an advance look at market-moving orders and trade ahead of them.

Why is Citadel so worried? Because if everyone migrates to IEX as so many are clearly doing, HFTs will have no further advantage in the market and the "riskfree" frontrunning gains which HFTs have benefited from in the past few years, will evaporate.

The irony of Citadel's claims is exposed as particularly awkward when one considers how the Chicago hedge fund markets itself:


Perhaps Citadel can explain just how it "levels the playing field for retail investors" when one considers that as Nanex' points out, Citadel's own average execution delay is over 100 times worse than that proposed by IEX.


We don't expect Citadel will provide an answer, and we don't really need one: after all "internalizing" retail order flow, which is what Citadel does, in order to engage in bulk frontrunning takes time, and we appreciate it.

The question is whether the SEC does as well. Because as some have correctly pointed out, if the IEX application is declined, as we are confident it will, SEC will confirm two things: 1) they are a captured agency. 2) who exactly has captured them.

And when the SEC does reject IEX's application, maybe that most infamous recent employee of Citadel, Ben Bernanke, can pen a blog post about fair and efficient markets, or failing that, perhaps provide some color on just how the Fed has transacted with Citadel without disclosing it publicly in the time Bernanke was Chairman of the Federal Reserve.

Now that would make for a truly captivating blog post.

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The Pope's picture

Apparently, Citadel needs a more qualified jewish 'PEDRO' than Shalom

Noplebian's picture
Noplebian (not verified) The Pope Dec 5, 2015 3:12 PM

Can I interest you in some lovely fiat currency my boy already!


Escrava Isaura's picture




You don’t have a flying disk from Roswell to sell us, do you?


Truther's picture

Bennie ain't good enough. Too much hot air.

We've broken some folks.

Escrava Isaura's picture



Article: In other words, making the markets again FAIR AND EFFICIENT,………


I stopped reading the article.


Usurious's picture
Usurious (not verified) Dec 5, 2015 3:07 PM

'Sing a Song of Sixpence'............the hidden meaning....

'Peter picked a peck of pickled pepper.' The peck is the point. The Hebrew word neshek - usury, is from the root n-sh-k which means to bite. After that it all falls into place.'


Dragon HAwk's picture

fair and efficient... must be  key words for, new and improved scam nobody will notice for a while

Conax's picture

Our cash cow is going obsolete!  This injustice will not stand!

It is good they wrote the letter, to let the butthurt flow in public. The SEC is already in cahoots, so the letter must be a threat to air out the dirty laundry.

Jack's Raging Bile Duct's picture

It depends on what you define a market as being for. We plebs still use the definition where it's a place to exchange goods and service--a mechanism for price discovery. Enlightened minds like Citadel profess that markets are for skimming and fleecing the plebs.

Reichstag Fire Dept.'s picture

But...what about all that important market liquidity?! Who's going to save the liquidity??!

U4 eee aaa's picture

Translation: The worst thing that can happen to the free markets is competition

U4 eee aaa's picture

I prefer the playing field to be leveled when I'm not standing on it

VWAndy's picture

Becuse oh my god we might have to get a real job that involves working an stuff.

Grandad Grumps's picture

I agree, leveling the playing field so that price is not absolutely controlled would hurt price. Price must be controlled for price not to go down.

Does that mean that the market itself will be less "healthy"? Probably not. Price would go down, but the market would become an actual market ... not a policy and enrichment tool for insiders.

SubjectivObject's picture

Goddamnit ZH, proof the text for cripes sake.

There's a big difference in the contextual intent of meaning between "abused" and "abuser"; by ad infinitum example ...

[love yas though, and the illiterati can junk with abandon]

Excursionist's picture


- proud graduate of the Derek Zoolander Center for Kids Who Can't Read Good and Who Wanna Learn to do Other Stuff Good Too

TheDanimal's picture

I'm absolutely amazed that Citadel doesn't say anything about liquidity.  No shameless lie about how HFT increases liquidity?  They oughta hire me as a bullshitter.

Palladin's picture



It's a good idea to keep these time frames in perspective. The MSM pinheads on CNBC aren't going to discuss it in any detail, but I will.

Trading day = 6.5 hours

Number of minutes in a trading day is 6.5 hours x 60 = 390 minutes

Number of seconds in a trading day is 390 min x 60 = 23,400 seconds

Number of milliseconds in a trading day is 23,400 x 1000 = 23,400,000

Number of microseconds in a trading day is 23,400,000 x 1000 = 23,400,000,000

That's 23 Billion, with a "B" Microseconds in each trading day, or roughly three times the population of the entire planet.

And Citadel is complaining about 350 of them.

350 millionths of a second.

These time scales are incompressible in the real world.  Yet Wall Street and firms like Citadel talk about them as if it's a really big deal.

The discussion should be whether or not it makes any sense to be buying and selling stock in millionths of a second time frame. Maybe, just maybe, if these time frames are discussed more openly, the average person will realize that no people are involved in trading on Wall Street. It's only the machines that do the trading. Nothing is bought or sold in millionths of a second, millions of times a day, except on Wall Street.

And the MSM always refers to the activity as "Investors". Or "Stocks changing hands." What a crock.

Welcome to the Matrix.




GRDguy's picture

With almost all the sheep sheared, the sociopaths will just turn on each other.  I'd enjoy the show, but the popcorn's all gone.

gregga777's picture

It is abundantly cleat that Allan Greenspan, Ben Bernanke, Janet Yellen and the scum at the US Securities Exchange Commision are committed to stealing the wealth of the American People and giving it to their masters on Wall Street.

RMolineaux's picture

Bernanke has effectively destroyed his own reputation by taking a job at Citadel.

Not Goldman Sachs's picture

Ha, good one, as though this affects bennies rap sheet one bit.