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The market maker aiming to become a hot stock

Ken Griffin made billions of dollars executing the day trades of Gen Z and millennial speculators during the pandemic. Now he’s preparing to make billions more by selling them a piece of his market-making outfit, Citadel Securities.

The Chicago-based trading billionaire with a taste for trophy real estate and rare historical documents is priming his market-making outfit to be one of the biggest Wall Street listings since the flotations of Goldman Sachs in 1999 and Blackstone Group in 2007.

Citadel Securities yesterday announced it sold a $1.2bn stake to venture capital firms Sequoia and Paradigm — the latter of which specialises in cryptocurrencies and token-based apps (sometimes referred to as Web3) — at a $22bn valuation. Sources say it will pave the way for an initial public offering of the business that could be one of the biggest Wall Street listings on record.

Ken Griffin speaks at a conference
Ken Griffin’s stake sale of Citadel Securities will pay way for an IPO, sources say © REUTERS

If it were to price its offering at a premium to the private funding round, Citadel Securities could approach the $30bn valuations both Goldman and Blackstone fetched during their own IPOs.

Griffin’s trading outfit has made more money from the retail trading boom than any other firm on Wall Street by paying various brokerages for the right to handle orders and providing the financial muscle behind the controversial “payment for order flow” model that makes trading on platforms such as Robinhood and Charles Schwab commission-free.

Citadel Securities’ revenues more than doubled in 2020 to more than $6bn, according to a report from Bloomberg. The firm’s ebitda margins are often above 50 per cent, a source told the FT.

Monitors display Citadel Securities logo on the floor of the New York Stock Exchange
Citadel Securities’ revenues more than doubled in 2020 to more than $6bn, according to Bloomberg © Bloomberg

And at the start of 2021, Citadel Securities set new record trading volumes as day traders launched meme stocks such as GameStop and AMC Entertainment into orbit.

The speculative trading bonanza may now be on life support, making it a good time for Griffin to consider his options.

Revenues in smaller publicly traded competitor Virtu Financial, which has a market cap of nearly $6bn, dropped 17 per cent in the third quarter. A brutal sell-off in technology stocks to start 2022 may deepen the slump.

With venture backers Sequoia and Paradigm, Griffin is trying to bolster Citadel’s presence in cryptocurrencies, sources said. It’s something of an about-face just months after Griffin described cryptocurrencies as “a jihadist call that ‘we don’t believe in the dollar’”.

As shares in GameStop and AMC lose steam, DD can understand why Citadel might now be drawn to crypto, a market often containing even wider spreads and greater speculative activity than meme stonks.

Google heads up the Big Tech crusade in Brussels

Regulators in Brussels are coming up with new tools to tackle the ever growing power of Big Tech.

For too long, many in the EU believe, tech behemoths such as Apple and Amazon have been operating without a rule book — engaging in anti-competitive behaviour, cornering markets and buying rivals to eliminate competition.

Google, in particular, is worried about the mood changing. After all, the search giant recently lost a major case before the EU court and it has been designated a “gatekeeper” by the German antitrust watchdog, meaning it will have to comply with more stringent rules.

Montage of Thierry Breton and  Margrethe Vestager
EU internal market commissioner Thierry Breton and EU digital and competition chief Margrethe Vestager © FT montage; Bloomberg

The California-based company, along with its tech giant peers, also faces serious potential threats to its business in the upcoming Digital Markets Act, a draft policy proposal that seeks to curb the industry’s power.

EU officials met on Tuesday to discuss a common text, which will probably include tougher scrutiny in so-called killer acquisitions — potentially preventing a repeat of deals such as Facebook’s takeover of WhatsApp and Instagram — which critics argue have allowed tech giants to grow even faster and to buy out potential future competitors.

The new rules are set to also ban alleged anti-competitive behaviour whereby Google places preference on its own services over rivals on its platform.

Sundar Pichai speaks at a hearing in Washington
Sundar Pichai, chief executive of Google’s parent company Alphabet © Bloomberg

No wonder Google is ramping up its efforts in last-minute campaigns to try to influence the final text, which will be the first time the EU sets rules for the digital markets in more than two decades.

The tech company has utilised both direct lobbying and the help of several trade associations to campaign for a watering down of the new rules. Some of its techniques include siding with small businesses in Europe by arguing that tougher rules could potentially hit their growth.

It’s unclear whether Google’s efforts will have the intended effect.

“They are the bad guys at the moment,” a parliamentary assistant involved in the DMA discussions told DD’s Javier Espinoza. “Everything coming from them is a bit awkward and hard to justify why we would include it in the legislation.”

The borrowing binge is back

Companies rang in the new year with a bang, raising more than $100bn on the bond market in the first week of January. It makes sense. Bankers say finance chiefs are eager to lock in low borrowing costs before central banks begin raising short-term interest rates.

Global corporate bond issuance reached $101bn in the year to January 7, second only to last year’s blockbuster $118bn start, which was the highest on Refinitiv records going back 19 years, the FT’s Joe Rennison reports.

Column chart of Corporate bond issuance ($bn) showing Companies race to raise fresh funds in 2022

Royal Caribbean Group, hit hard by the pandemic, launched one of the first lower-rated junk bond market deals of the year last Tuesday with a $1bn issue.

The deluge of new deals is just the beginning, with a raft of new debt offerings scheduled ahead of what’s expected to be a slightly slower earnings season.

Adam Aron, CEO of AMC Entertainment, cited a new year’s resolution of his own that could test investor appetite for risky debt. Aron plans to refinance the cinema chain’s existing bonds in the hopes of cutting the company’s interest costs.

Volatile markets could pose challenges. Investors pulled some orders for new bond deals last Wednesday after the Fed released hawkish minutes from its December meeting, bankers said.

Not to mention that the average yield on investment-grade bonds has already risen from 2.36 per cent to 2.55 per cent since the start of the year, according to an index run by Ice Data Services.

Line chart of Yield for high-grade bonds* (%) showing US corporate borrowing costs have already started to rise

Hence why bankers are encouraging companies to secure funds now, before it gets harder.

Job moves

  • Facebook parent company Meta has appointed DoorDash co-founder and chief executive Tony Xu as a director on its board.

  • Japan’s Mizuho Financial Group is set to appoint senior executive Masahiro Kihara as its new president, per Nikkei Asia. He will replace Tatsufumi Sakai, who resigned in November after the government intervened following IT failures at the financial services conglomerate’s banking arm.

  • Moxie Marlinspike is stepping down as chief executive of encrypted messaging app Signal. He will remain on the company’s board, and will be replaced as CEO on an interim basis by WhatsApp co-founder Brian Acton.

  • Gary Lindsay and Tom Mitchell will become managing partners at TDR Capital, taking over management of the firm from its co-founders Manjit Dale and Stephen Robertson, TDR said in a note to investors. Dale will become chief investment officer. Thibaut Large will leave the firm and Jon Rosen will scale back his TDR responsibilities in order to spend more time on charitable activities, the note said.

  • Blackstone has appointed Jean Rogers, founder and former CEO of the Sustainability Accounting Standards Board, as global head of environmental, social and governance.

  • Jefferies has hired Thomas Blackmore as head of FIG debt capital markets for Europe, the Middle East and Africa.

  • Law firm Cooley has hired Tim Pitrelli as a partner in its capital markets practice, based in Singapore. He was previously an executive director and senior counsel at Goldman Sachs.

Smart reads

Selective admission Singapore has opened its doors to a new crop of cryptocurrency groups as it strives to become Asia’s most innovative financial hub. But not everyone is welcome, including the world’s wealthiest crypto mogul. (Bloomberg)

Bigger than burnout Well-paid lawyers chained to their desks for gruelling long hours are more likely to rouse a chorus of tiny violins than sympathy. But the plight of burnt-out professionals highlights problems that exist across all pay brackets. (FT)

News round-up

Buyout groups Bain and CVC team up for potential Boots bid (FT)

KPMG auditors forged documents to avoid criticism, tribunal heard (FT)

Buyout group Cerberus cuts bet on Deutsche Bank and Commerzbank (FT + Lex)

EU to block $2bn Korean shipbuilding merger between Daewoo and Hyundai (FT)

Japan’s Mizuho to acquire US private equity agent Capstone (Reuters)

AQR quant fund kicks off the year with 10% gain after 2021 rebound (FT)

UK energy supplier Bulb’s hedging strategy led to collapse, report shows (FT)

Activists target public relations groups for greenwashing fossil fuels (FT)

Bank of America scraps customer fees for bounced cheques (FT)

Gambling industry veterans turn tables and target investors for reform (FT)

South Korea’s LG Energy Solution IPO attracts about $80bn in bids (Reuters)

Due Diligence is written by Arash Massoudi, Kaye Wiggins and Robert Smith in London, Javier Espinoza in Brussels, James Fontanella-Khan, Ortenca Aliaj, Sujeet Indap, Eric Platt, Mark Vandevelde, Francesca Friday and Antoine Gara in New York and Miles Kruppa in San Francisco. Please send feedback to due.diligence@ft.com

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