Citadel’s shutdown playbook a success during pandemic
U.S. stock trader copes with crisis thanks to ample cash stockpile and automation
It took a thousand extra servers, new trenches for fibre-optic lines and a bunch of rooms at the Four Seasons resort in Palm Beach, Fla., for one of the world’s biggest trading shops to cope with the pandemic — all accomplished in less than a week.
That’s part of how Ken Griffin’s Citadel Securities has kept humming at a record pace as COVID -19 upends finance, mostly abandoning its New York and Chicago offices and shifting dozens of employees and their families to a work-from-resort bubble. Others are at another emergency facility in Connecticut. The company doesn’t appear to have missed a beat, in March trading 3.3 billion U.S. shares a day and digesting a 90-per-cent jump in electronic Treasuries volume even as liquidity dried up in many places.
Griffin, the billionaire founder and CEO of Citadel, speaking in a rare interview, says his firm and others kept capital markets working in a way that those of yesteryear — dominated by voice-based brokering — could not have in the face of a crisis of this magnitude. Citadel Securities was aided by an ample cash stockpile to pay for those trenches and all the rest of the necessary accoutrements to create a full-fledged trading floor in Florida.
“It’s infinitely easier for us to manage our affairs as a market-making community in a world of distributed computing, the internet and electronic exchanges, he said. “At 100,000 feet, our customers’ experience was as close to flawless as you can get across markets,” he said of the company’s trading in recent weeks. “Giving people a fair and transparent price every day is our mission, and we accomplished that.”
The fleet-footed response to the historic disruption shows why Citadel Securities ranks among the largest traders of stocks, bonds and derivatives: It’s deployed automation as much, or more, than anyone else. Conventional players and their humans struggled to keep up during normal times; today, when trading firms can sidestep the virus turmoil by running off computers in data centres — rather than physically jockeying for position in a trading pit or even hawking assets on the phone — the company’s competitive advantage is likely extra worrisome to the rest of Wall Street.
Of course, running multiple trading floors — including one at a luxury five-star hotel that in normal times boasts yoga classes, poolside cabanas and private surf lessons — doesn’t come cheap. But doing so has paid off for Citadel.
March was an enormously busy month in markets as the coronavirus panic spread quickly through markets, and Citadel Securities seems to have kept up with it. U.S. stock volume amounted to more than 15.5 billion shares a day, with the company accounting for about a fifth of that. Its monthly average was about 65 per cent higher than its busiest day in 2019.
For employees who aren’t hunkered down in Florida, working from home or from an emergency office in Greenwich, Conn., it’s now the norm. When they’ll return to New York and Illinois is very much up in the air. New York, the centre of the U.S. outbreak, remains under lockdown until at least May 15. A separate stayat-home order in Illinois won’t expire until May 30. “Currently, the vast majority of our workforce is working remotely.”
That was already the reality for many market makers and banks when the Treasuries market got especially hairy in March. It was the hardest period to trade U.S. debt since the 2008 financial crisis, in part because so many traders were out of the office. The Federal Reserve stepped in to backstop that market by purchasing as much as US$75 billion a day in debt.
Nevertheless, Citadel Securities handled a surge in volume, and about 80 per cent of its trading was in off-the-run Treasuries — which even under normal conditions are harder to trade, and in March bore the brunt of the liquidity drought.
Electronic trading has slowly become more key in the world’s biggest debt market. Even the U.S. Treasury department has given a nod to the role of electronic trading firms in that business, having named several of them in recent years to have a stint on their debt-advisory committee.
Citadel Securities, along with other large U.S. stock traders, also has combined forces to start a new equity market that will compete with the New York Stock Exchange and Nasdaq.
The Members Exchange, which in April delayed its launch to later in the third quarter due to the pandemic, on Tuesday won approval from the Securities and Exchange Commission to open the new venue.
“There are moments when we all have to put our commercial interests aside for the health of our fellow Americans,” Griffin said. “As soon as things normalize, they will be ready for a successful launch.”
Bloomberg