IEX, known as D-Limit, says the type of order is designed to help protect investors from predatory trading strategies. Short for discretionary limit, IEX says that D-Limit acts like a regular limit order, unless the stock market’s algorithms predict that a price is about to change. A limit order is an order to buy or sell a stock at a set price or better.
However, Citadel Securities argues that D-Limit does the opposite of protecting investors. In 77 pages of court documents filed Tuesday, Citadel Securities accused the SEC of “ignoring” evidence that the retail investors “caused harm” by the D-Limit order. The company cited its own analysis which found that more than half of its trading activity on IEX was on behalf of retail investors, not for its own profit.
To state its case on how retail investors could be harmed by D-Limit, Citadel Securities compares it to in-store shopping.
“Imagine a grocery store that deliberately put extra long conveyor belts on its checkouts,” the company claims in the submission. In theory, the store could use that extra time to determine if any items were sold out at competitors’ stores.
“If so, the store’s computers quickly increase its own price before your item reaches the cashier,” reads the documentation.
‘Robbery’ trading strategies
IEX’s D-Limit, along with other stock market technology, could “protect investors from predatory” trading strategies, Better Markets senior security policy adviser Lev Bagramian told CNN Business in an email.
Kelleher said D-Limit would specifically protect investors from Citadel Securities, hurting the company’s rapid earnings.
“This is probably why Citadel strongly opposed IEX’s order form D-Limit,” Kelleher said.
“Despite the current environment,” Katsuyama said in a statement to CNN Business, “Citadel has thwarted their efforts to thwart the SEC’s approval of an innovation aimed at protecting all investors from predatory trading strategies.”
A Citadel Securities spokesman said in a statement issued in October that the firm said the SEC “did not properly consider the costs and liabilities imposed by this proposal which would undermine the reliability of our markets and tens of millions retail investors will not be harmed. “
Although D-Limit received unanimous support from the SEC, some companies warned the agency in comment letters not to approve the rule.
Nasdaq, a competitive exchange with IEX, lamented D-Limit as “nothing more than a thinly veiled attempt by IEX to amplify the poor quality of the market for ordered orders.”
Elizabeth Warren asks questions about Robinhood, Citadel
Robinhood, who advocated the free-trade business model currently prevalent in the industry, has repeatedly said that its game restrictions on GameStop are driven by rising financial demands during market volatility, not instructed by Wall Street businesses which is hurt by GameStop not rally.
But Warren, a Massachusetts Democrat, said Robinhood’s trade restrictions on small investors “raise concerns about its relationship with large financial institutions that carry out its transactions.”
Warren specifically pointed to Robinhood’s ties to Citadel Securities.
‘You are the product’
Critics say it’s just free to trade on Robinhood, because the app sends orders to market makers, enabling them to trade before the retail streams.
“With everything that’s free, you’re the product,” hedge fund Morgan Creek Capital Management CEO Mark Yusko told CNN Business earlier this week.
Both Citadel Securities and Citadel the hedge fund deny any role in Robinhood’s decision to discontinue the purchase of GameStop.
In a statement, Citadel Securities said it had not instructed or otherwise stopped a brokerage firm, suspended or restricted trading or otherwise refused to do business. “