How Citadel Securities Became King
Ken Griffin's journey from failed investment bank to the top of market structure
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On January 22, 2021 Bloomberg published a piece about Citadel Securities that gave even seasoned Wall Street veterans reason to pause. The article, titled “Citadel Securities Reaps Record $6.7 Billion on Volatility”, speaks for itself. Ken Griffin’s market-making firm had traded more US equity volume in 2020 than Nasdaq & the NYSE, generated more revenue than half the S&P 500, and boasted EBITDA margins that dwarfed most dominant Big Tech firms.
On a normal day this news would’ve caused waves. January 22 was not a normal day. GameStop’s share price had begun its now famous surge from the low $40s to the upper $90s and beyond, Robinhood’s mobile app had hit #1 on the App Store, and headlines were breaking that hedge fund Melvin Capital was in trouble. Robinhood’s $3 billion DTCC margin call would come the following week. Retail investors were already setting Citadel Securities up for another record-breaking year of performance. The firm has now earned inconceivable, conspiracy theory & Congressional hearing-inducing profits not one, but two years in a row.
While Ken Griffin’s success may seem like a lucky break, like the case of an opportunistic firm cashing in a generational lottery ticket, I assure you it is not. Griffin & Citadel Securities have been laying the ground work for market maker dominance for decades, meticulously preparing for a year precisely like the ones we experienced in 2020 and 2021. One year as market structure’s top earner may be a fluke. Two years is a trend.
In my most recent post I took a look at Citadel’s near death experience in the depths of the 2008 financial crisis. Ken Griffin’s star-studded performance more than 20 years in the making came dangerously close to ending - it took quick action, difficult decisions (and perhaps a bit of help from the Fed) to survive. I believe this experience permanently changed the vision & makeup of Citadel. Griffin realized a hedge fund alone would not be enough to remain near Wall Street’s mountain top - it would take new ventures & sources of alpha to ensure a repeat of 2008 would never happen again. If the last two years are any indication, it seems Griffin has finally found a business that not only matches, but surpasses, the legendary fund he started so many years ago.
Here’s how it happened:
Breaking Into The Club
The winding road that took Citadel Securities from a small, out of the way piece of Ken Griffin’s empire to omnipresent market structure status was not a fast one, and it didn’t even start with much success. The business that would become the Citadel Securities we know today began as Ken Griffin’s vision for an investment bank that would break into the bulge bracket club.
In early 2009 Citadel Securities formally announced the launch of its investment banking arm with a flurry of high-profile executive hires from Merrill Lynch. The firm’s goal, according to Griffin, was to rival Goldman Sachs in size & stature within