Hedge fund billionaire Ken Griffin has sold a $1.2bn stake in Citadel Securities to venture capitalists Sequoia and Paradigm, paving the way for an initial public offering of one of the world’s biggest market makers.
The deal, which values the trading firm at about $22bn, marks a rare foray into the financial sector for Sequoia, the Silicon Valley group best known for its early bets on tech companies such as Apple and Google.
It is the first outside investment in Citadel Securities, which was founded in 2001 as a separate entity to Griffin’s $43bn hedge fund Citadel, and has emerged as a major player in global markets in its own right.
One of the biggest beneficiaries from the move to high-speed trading, Citadel Securities acts as an intermediary between sellers and buyers in stocks, bonds and derivatives. It has grown in the biggest market maker for US stocks, handling about 27 per cent of all US equities trading, by stealing market share from bulge-bracket banks.
Citadel Securities’ chief executive Peng Zhao said the company planned to use the investment to expand more aggressively internationally, and into new markets and asset classes. This includes expanding into crypto, said Matt Huang, who co-founded Paradigm with Coinbase co-founder Fred Ehrsam.
Griffin has been critical of cryptocurrencies in the past, describing them in October as “a jihadist call that we don’t believe in the dollar”. However, he added at the time: “Whatever the virtues are of that product, which I think are pretty nebulous, will become very different in a world of competitive exchanges and competitive pricing by tier-one market makers willing to put their best foot forward.”
The investment also prepares the ground for a future IPO, according to a person familiar with the situation.
Citadel Securities is the biggest market maker for ordinary American traders — accounting for about 37 per cent of all retail trading — paying various brokerages for the right to handle their orders. Trading platform Robinhood used this “payment for order flow” to offer its customers commission-free trading, helping usher in the era of free trading in the US in recent years.
Citadel Securities’ prowess has attracted envy from other parts of Wall Street, and increased attention from regulators and politicians. It was pushed uncomfortably on to the public stage last year during the market upheaval surrounding trading in GameStop and other meme stocks.
The firm was blamed by Redditors for Robinhood’s decision to curtail trading in GameStop at the height of the frenzy, and some of them argued that the firm benefits from trading at their expense.
Griffin was called to testify before the House of Representatives financial services committee in February 2021 following the GameStop frenzy. He defended his businesses and said he was convinced that the “incredibly positive impact” of Citadel and Citadel Securities would shine through.
Griffin owns about 85 per cent of Citadel Securities, which would value his stake in the business at about $18bn. Late last year Griffin beat a group of more than 17,000 retail traders at auction, buying a copy of the US Constitution for $43.2m. In 2019, he paid £95m for a London house near Buckingham Palace.
The venture capital investment was first reported by the Wall Street Journal.
Additional reporting by Philip Stafford in London