Citadel in Talks to Buy Citigroup’s Automated Trading Desk

Citadel has reportedly moved in on Automated Trading Desk in a move to expand its market-making operations.

Chicago-based hedge fund, Citadel, a key investor in the world’s major financial markets, is reported to be in talks to buy Citigroup’s Automated Trading Desk (ATD), an electronic market-maker, as it seeks to broaden its sizeable market-making operations, according to sources.

If Citigroup parts with Automated Trading Desk, it will be the latest bank to retreat from market making.

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No sale price or valuation has been disclosed for ATD, which was acquired by Citigroup for $680 million in 2007. The talks come as banks continue to veer away from striking deals with retail brokers to execute orders from individual investors. Bank of America Corp. dispensed with its own wholesale market-making unit two years ago. If Citigroup parts with Automated Trading Desk, it will be the latest bank to retreat from market making.

Citadel, founded by Ken Griffen, has built out its market-making capabilities through Citadel Securities. It has emerged as one of the key market makers in US stocks and options, as well as taking advantage of new rules affecting derivatives to trade interest rate swaps, credit default swaps and cash US Treasuries.

Banks have voiced their concerns regarding more stringent regulatory capital rules which have forced them to refocus on a reduced number of core business lines. This type of business is now complex and expensive to operate and as a result, non-bank market makers have emerged, using computers to automatically price trades at lightning-fast speeds.

For its part, Citadel is stepping away from paying retail brokers for orders, a contentious practice that has come under scrutiny over the last few years. The large banks have a problem equity market-making nowadays and even without cost-cutting, the ability to invest in very specific infrastructure at the banks is challenging to say the least.

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