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Ken Griffin. Picture: MIKE BLAKE/REUTERS
Ken Griffin. Picture: MIKE BLAKE/REUTERS

Citadel Securities, the trading powerhouse founded by Ken Griffin, is partnering with two Silicon Valley investors in a deal that values the firm at $22bn and underscores its growing clout in world markets. 

The move, announced on Tuesday, pairs a huge — and, at times, controversial — piece of the billionaire’s financial empire with big names in technology and cryptocurrencies, Sequoia Capital and Paradigm, which are making the first outside investment in Griffin’s business. 

The $1.15bn cash injection could lead to an initial public offering (IPO), according to people with knowledge of the plans.

In the meantime, it places an exclamation point on a business that has helped power Griffin’s personal fortune, which before the agreement was estimated at $21bn, according to the Bloomberg Billionaire’s Index.

The unit also drew Griffin into a political firestorm in 2021, with legislators grilling him at a contentious House hearing over whether it makes money by taking advantage of mom-and-pop investors, claims he has aggressively rejected.

Trading leader

Chicago-based Citadel has become a corporate behemoth in trading, taking share from big banks and dominating the market-making business for stocks and options. 

A representative declined to comment on any IPO plans.

The firm’s institutional business has more than 1,600 clients, including sovereign-wealth funds and central banks. It’s active in more than 50 countries and is also among the largest designated market makers on the New York Stock Exchange, with more than 2,000 listed securities.

Trading apps including Robinhood Markets and E*Trade, which give everyday investors the ability to invest in the markets, are also clients. That side of the business took off during the height of the pandemic, when retail trading volumes soared. 

It’s also brought scrutiny, with increased attention from regulators and across Wall Street. In 2021, Citadel was caught up in a legal battle with a group of investors who accused the firms of colluding during January 2020’s meme-stock frenzy.

The suit, which was dismissed, called out the complex machinery behind the execution of trades. Robinhood sends customer orders to firms such as Griffin’s and accepts remuneration in what’s called payment-for-order flow. The practice, which is common on Wall Street, has brought controversy to Citadel over the years from critics who say investors are hurt. Despite the attacks, little has been done to change or regulate the system. 

Citadel   also benefited from the general market volatility sparked by the Covid-19 pandemic. 

It posted $6.7bn of net trading revenue in 2020, almost double the previous high in 2018, and saw $4.1bn of earnings before interest, taxes, depreciation and amortisation, also a record. The firm estimates that it commands 27% of equity volume market share in the US, according to a presentation to investors.

The new capital gives Citadel Securities room to expand both globally and across new asset classes. The possible IPO plans were reported earlier on Tuesday by the Wall Street Journal.

Sequoia, which led the investment, is one of Silicon Valley’s top venture capital firms having backed names such as Apple, DoorDash and WhatsApp. The firm, which also invested in Robinhood, has a history of taking companies public through IPOs. 

Sequoia partner Alfred Lin will join the board of Citadel.

“Many companies that have transformed the world have achieved their highest ambitions with Sequoia as their partner,” Citadel CEO Peng Zhao said in the statement. “We see enormous opportunities to meet the needs of our clients across more markets and more products.”

The deal also involves Paradigm, an investor in cryptocurrencies, which could signal a new stance for Citadel, which has previously steered clear of digital assets for lack of regulation. 

“We look forward to partnering with the Citadel Securities team as they extend their technology and expertise to even more markets and asset classes, including crypto,” said Matt Huang, co-founder and managing partner at Paradigm.

Bloomberg News. More stories like this are available on bloomberg.com

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