(Bloomberg) — Citadel Securities LLC, the trading powerhouse founded by Ken Griffin, is partnering with two Silicon Valley investors in a deal that values the firm at $22 billion and underscores its growing clout in world markets.
The move, announced Tuesday, pairs a huge — and, at times, controversial — piece of the billionaire’s financial empire with big names in technology and cryptocurrencies, Sequoia Capital and Paradigm, which are making the first outside investment in Griffin’s business.
The $1.15 billion cash injection could lead to an initial public offering, according to people with knowledge of the plans.
In the meantime, it places an exclamation point on a business that has helped power Griffin’s personal fortune, which prior to the agreement was estimated at $21 billion, according to the Bloomberg Billionaire’s Index.
The unit also drew Griffin into a political firestorm last year, with lawmakers grilling him at a contentious House hearing over whether it makes money by taking advantage of mom-and-pop investors — claims he has aggressively rejected.
Chicago-based Citadel Securities has become a corporate behemoth in trading, taking share from big banks and dominating the market-making business for stocks and options.
A representative declined to comment on any IPO plans.
The firm’s institutional business has more than 1,600 clients, including sovereign-wealth funds and central banks. It’s active in more than 50 countries and is also among the largest designated market makers on the New York Stock Exchange, with over 2,000 listed securities.
Trading apps including Robinhood Markets Inc. and E*Trade, which give everyday investors the ability to invest in the markets, are also clients. That side of the business took off during the height of the pandemic, when retail trading volumes soared.
It’s also brought scrutiny, with increased attention from regulators and across Wall Street. Last year Citadel Securities was caught up in a legal battle with a group of investors who accused the firms of colluding during January 2020’s meme-stock frenzy.
The suit, which was dismissed, called out the complex machinery behind the execution of trades. Robinhood sends customer orders to firms like Griffin’s and accepts remuneration in what’s called payment for order flow. The practice, which is common on Wall Street, has brought controversy to Citadel Securities over the years from critics who say investors are hurt. Despite the attacks, little has been done to change or regulate the system.
Citadel Securities also benefited from the general market volatility sparked by the Covid-19 pandemic.
It posted $6.7 billion of net trading revenue in 2020, almost double the previous high in 2018, and saw $4.1 billion of earnings before interest, taxes, depreciation and amortization, also a record. The firm estimates that it commands 27% of equity volume market share in the U.S., according to a presentation to investors.
The new capital gives Citadel Securities room to expand both globally and across new asset classes. The possible IPO plans were reported earlier Tuesday by the Wall Street Journal.
Sequoia, which led the investment, is one of Silicon Valley’s top venture capital firms having backed names such as Apple Inc., DoorDash Inc. and WhatsApp Inc. The firm, which also invested in Robinhood, has a history of taking companies public through IPOs.
Sequoia partner Alfred Lin will join the board of Citadel Securities.
“Many companies that have transformed the world have achieved their highest ambitions with Sequoia as their partner,” Citadel Securities Chief Executive Officer Peng Zhao said in the statement. “We see enormous opportunities to meet the needs of our clients across more markets and more products.”
The deal also involves Paradigm, an investor in cryptocurrencies, which could signal a new stance for Citadel Securities, which has previously steered clear of digital assets for lack of regulation.
“We look forward to partnering with the Citadel Securities team as they extend their technology and expertise to even more markets and asset classes, including crypto,” said Matt Huang, co-founder and managing partner at Paradigm.
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