Gensler raises concerns about its impact on the Citadel Securities market

Gary Gensler, the new chairman of the Securities and Exchange Commission, has expressed concern about the important role that Citadel Securities and other large trading companies are playing in the U.S. stock markets, warning that “healthy competition” could be in jeopardy.

In released testimony Before appearing before the House Financial Services Committee on Thursday, Gensler said he has directed his staff to consider whether policies are needed to address the small number of market makers who are taking on a larger share of retail trade volume.

“One company, Citadel Securities, has publicly stated that it executes about 47% of its total retail volume. In January, all two companies, except for all exchanges, executed more volumes than Nasdaq,” Gensler said.

“History and economics tell us that when markets are concentrated, those companies with the largest market share tend to have the ability to profit from that concentration,” he said. “Market concentration can also lead to fragility, hinder healthy competition and limit innovation.”

Gensler will appear in the program third hearing in January at GameStop and other so-called meme stock trades.

U.S. trading volume increased that month as retail investors moved into markets, as brokers such as Robinhood angered investors and attracted the attention of lawmakers to impose trade restrictions.

Market activities encouraged Washington politicians and investors. Lawmakers have focused a lot of attention on “demand flow payments,” as brokers like Robinhood pay to direct orders to market makers like Citadel Securities and Virtu.

This practice has benefited brokers. According to Piper Sandler, it generated nearly $ 3 million in the first quarter from Robinhood, Charles Schwab and ETrade.

Gensler noted that other countries, such as the United Kingdom and Canada, do not support payment of the demand flow.

“Higher professional volumes create more payments for the flow of demand,” he said. “This raises a number of questions: Do brokers have inherent conflicts of interest with vendors? If so, do customers get the best execution in the context of that conflict?”

Gensler said he has directed his staff to consider recommendations for full exchange returns (derivatives used by the Archegos family office). The vehicle driven by trader Bill Hwang crashed in March after a series of concentrated bets against the group, and more than banks have held back Losses of $ 10 billion therefore.

Market watchdogs have expressed concern that regulators had little or no view of the huge trades the Archegos are pursuing.

“Whenever there are major market events, it’s a good idea to consider what risks they may pose to the entire financial system, even if the system is maintained,” Gensler said.

“Concentration issues, between market makers or clearing brokers, can increase the potential risks of the entire system if a holder with a significant size or market share fails.”