Citadel still has no clothes was published on Reddit by legendary ape u/atobitt on the 28th February 2022 and is an extension to his original Citadel has no clothes DD which he published last year. We recommend reading this first if you don’t know what it’s all about. Apes Army takes no credit whatsoever from this post, and it is reproduced here in its entirety without editing so it can be preserved forever on the blockchain.
Citadel still has no clothes
Citadel Securities upped their short position during 2021 and Citadel Advisors is even more fuller of hot air than in 2020. They also had a FINRA orgy with 14 different exchanges over erroneous pricing practices between 2014 and 2020.
It’s FINALLY HERE..
At long last, Citadel Securities has published their financials for 2021 and I’ve done me a dabble or two. If you haven’t read Citadel Has No Clothes, please do so before reading on.
Before I go balls-deep into this b*tch, let me start off by updating our total brokercheck.finra.org report on Citadel Securities. At the time of writing my first piece back in March 2021, we were at 58 total violations. As of writing, Citadel Securities has achieved another 15 violations, bringing Kenny’s grand total to 73.
To be fair, 14 of these violations were for the same thing… they were just hit by 14 different exchanges at the same time… *Insert black guys & blonde girl meme*
- NASDAQ MRX, LLC
- CBOE EDGX Exchange, INC
- CBOE BZX Exchange, INC
- CBOE BYX Exchange, INC
- CBOE EDGA Exchange, INC
- NAXDAQ ISE, LLC
- NASDAQ Options Market, LLC
- NASDAQ GEMX, LLC
- NASDAQ Stock Market
- NASDAQ PHLX, LLC
- NASDAQ BX, INC
- NYSE ARCA, INC
- NYSE National, INC
Their other violation from 3/2021 was covered in my post ‘Walkin Like A Duck’.. Check it out.
If my maff is correct, that means Kenny G did himself a heckin’ naughty and racked up another 25.86% of his TOTAL violations in just one year.
*little bigger applause*.
Now let’s remember, although these violations were published in December 2021, they were an accumulation of issues from prior years. In fact, the earliest date I found was August 15th, 2014 and the most recent was in May or June 2020.. So that’s 1 issue, reported by 14 different exchanges, across 6 years, totaling… $225,000 *little fart noise*
Before I make anyone think the sky is falling- this is NOT a monumental fine.. This is just what has been reported by FINRA during 2021. I’ll explain why I find it interesting in a sec but I need to preface these things because I know someone out there will say “tHaTs NoT tHaT bIg Of A dEaL, RoBiNhOoD hAd A bIgG….”… I promise you, I know.
At any rate, here’s the violation:
Right off the bat, we have Citadel’s signature violation “IT FAILED TO ESTABLISH AND MAINTAIN REASONABLE RISK MANAGEMENT CONTROLS AND SUPERVISORY PROCEDURES” … BLAH BLAH BLAH.
Long story short, here’s why I think this matters:
When an option order is placed, Citadel has a price control mechanism that would reject orders priced at a “certain percentage” away from the NBBO. This makes sense.. no big deal.. You shouldn’t execute on trades that are too far outside of the best bid. However, if that order is cancelled and replaced, you should repeat this process… which clearly didn’t happen.
When an order is placed, it is often broken into several “child orders”. This allows trade blocks to execute and complete the order at the best price for the customer. If too many of those child orders are outside of the NBBO, the blocks should stop executing until either the order is cancelled or the NBBO is back at the appropriate price.. If this system doesn’t work appropriately, it will complete the order outside of the NBBO.. Hopefully you can see where this would be a major disadvantage to the customer.
What’s interesting here is the language “The firms erroneous order controls … included a price control that would reject limit orders that were priced at a certain percentage away from the NBBO”..
“However, when an option order was cancelled and replaced, the price control was NOT applied to the replaced option orders.”
So… all 14 of these exchanges would receive limit option orders from Citadel before the market opened. If Citadel replaced the original order after the orders were sent to those exchanges, ALL of those orders would execute without appropriately reviewing the new parameters set by the replacement order….
Even more alarming is the lack of documentation that their personnel were supposed to follow in these situations. I know things get hectic for traders and it’s hard to keep track of everything. We’re all human and sh*t happens, but SURELY someone at Citadel noticed this occurring before the hammer had to come down, externally. Every past violation seems to highlight Citadel’s lack of “give a f*ck” when it comes to these things. It just leaves a sour taste in the mouth..
I’m sure everyone knows about the DOJ investigations going on right now. These issues can have a direct impact on their ability to manipulate prices. Intentional or not, if you’re aware of these issues and fail to fix them, you’re guilty. PERIOD.
MEAT N’ POTATOES, TIME
Recall from Citadel Has No Clothes that Citadel ADVISORS had roughly $385,000,000,000 (that’s billion) in assets under management in 2020… That consisted of roughly 76.7% derivatives and less than 25% of actual, physical assets….
I was shocked to learn that initially, but after following their filings through 2021, I realized it was basically their bread n’ butter. According to the most recent report on https://whalewisdom.com/, their AUM as of 12/31/2021 had increased by over $100,000,000,000 (again, billion).
But that “increase” doesn’t really represent true value… In fact, it’s the highest-risk profile I’ve ever seen. Here’s the market value of their equities & derivatives on 12/31/2020:
Market value of physical equities is up 7.88%…. and their derivative values are up almost 37%?!?!
37%?!?!?!!?!! IN ONE YEAR?!?!?! THEIR ENTIRE PORTFOLIO IS NOW 82.59% DERIVATIVES…
I’ve waited an entire year for someone to show me one other firm that has this type of portfolio…. or WHY it would be a smart idea..
If you’re not sure what this means, I’m saying more than 80% of their portfolio is a STRAIGHT- UP gamble. Over 9% of their portfolio is a bet on Tesla… (they’re bullish FYI).
Hell, almost 7% of their portfolio are SPY PUTS.
THIS NOW MAKES TWO YEARS IN A ROW THAT I’M AWARE OF.. NOT ONE, BUT TWO….
WANNA KNOW SOMETHING ELSE THAT’S INTERESTING ABOUT THE NUMBER TWO? IT’S ALMOST THE SAME NUMBER OF PHYSICAL SHARES THAT CITADEL ACTUALLY OWNS..
Citadel Securities upped their short position to $65 billion this year. It’s the highest since……
which was the highest since……
which was the highest since…. here, just take a look at this:
Basically, Citadel Securities’ holds over 87% of their liabilities as short obligations. This is split between options and equities, which is nothing new for them…
Interestingly, they haven’t had this level of short liability since right before the financial crisis of 2008… If I were to make a guess, I’d say they are betting against….. well…. everything? I wish I had their whalewisdom.com reports so I could compare how Citadel Securities scales with their hedge fund’s prior filings. Would be interesting to see if the shorts are outgrowing their physical assets…
well that’s not a fair statement because anything can grow quicker than their physical asset portfolio.
But you know what DOESN’T have problems growing? Their #SHORTS
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