The hedge fund gets the headlines. Its quieter sibling makes nearly as much money. Citadel Securities booked $2.3 billion in revenue for the first quarter of 2024, according to figures Bloomberg reported that May, and over the whole of 2023 it earned $6.3 billion, closing in on the $7 billion net return notched by the famous fund that shares half its name.
Ken Griffin built both. The founder ranked third among hedge fund managers by 2023 earnings, behind only TCI’s Chris Hohn and Millennium’s Israel Englander, but the market-making arm, set up in 2002 a dozen years after the fund itself, has become the quieter engine. It matches buyers with sellers across stocks, bonds and derivatives, and its algorithms harvest tiny price differences all day, a middleman business that scales. By 2015 it was already the biggest trader of interest-rate swaps by volume, ahead of the traditional Wall Street banks.
The human side of the machine matters here too. The market maker is led by Peng Zhao, who arrived in 2006 to do quantitative research and rose to the chief executive seat in 2017, and the people on the other side of its trades are ordinary retail investors, whose stock orders route through the firm in enormous volume. Bloomberg put its share of US retail equity orders at roughly 40 percent.
That dominance is what made regulators uneasy. SEC chair Gary Gensler has compared the firm’s position to that of technology giants like Amazon, and at his March 2021 Congressional nomination hearing he wondered aloud about the concentration. “One firm now has 40 percent to 50 percent of the retail order flow. What does that do to the pricing of capital in this country?” he asked.
GameStop and the Collusion Question
Peak attention arrived with the meme stock frenzy of 2020, when it emerged that Robinhood earned significant chunks of its revenue by selling customer orders to Citadel Securities while retail investors tried to squeeze the hedge fund arm’s bearish GameStop position. A Citadel 13F filing from just before the squeeze showed puts on the stock, a bet on a falling price, and the fund had also sunk $2 billion into Melvin Capital, which held shorts on the same name. When observers speculated the market maker had pressed Robinhood to halt GameStop trading to protect the fund, the firm called the idea “absurd”, and a judge later cleared it of collusion, finding no evidence of wrongdoing.
Gensler kept at the relationship anyway. He put the point to CNBC in October 2021: “They have information that the rest of the market may not have, at least for a short period of time. And even milliseconds matter in these markets.” Nor was the scrutiny new: the SEC had already fined the firm millions in 2017 and again in 2018, once for misleading statements about trade pricing and once for data errors that fed incorrect reporting.
The money kept flowing through all of it. In the first three months of 2024 its profit margin hit 54 percent, against 42 percent the quarter before and 40 percent twelve months earlier.
