Citadel Is Said to Take U.S. Stock Exchange Strategy to Europe

Date: Tuesday, July 21, 2009
Author: Edgar Ortega, Bloomberg

Citadel Investment Group LLC, the $12 billion hedge fund firm founded by Ken Griffin, is seeking to replicate in Europe the success of its four-year-old strategy of investing in U.S. equity markets.

The firm will buy a majority stake in Equiduct, a London- based electronic market that started trading five months ago, the Financial Times reported, citing Matteo Cassina, president of Citadel’s execution business in London. Katie Spring, a spokeswoman for Chicago-based Citadel, didn’t immediately comment when reached outside of normal business hours.

Citadel earned as much as $122.5 million from its 2005 investment in the Philadelphia Stock Exchange, which Nasdaq OMX Group Inc. bought last year, and still owns a stake in Direct Edge Holdings LLC, now the third-largest U.S. stock market. Direct Edge has forced larger rivals Nasdaq and NYSE Euronext to slash their trading fees to remain competitive.

Founded by Griffin 18 years ago, Citadel trades everything from stocks to energy contracts and weather futures. It also makes markets in stocks and equity options, using low-cost venues to profit from minute movements in prices by quickly buying and selling securities.

The hedge fund plans to boost business on Equiduct by selling stakes to brokerages, the Financial Times reported.

Internal Trading

In Europe, Equiduct is seeking to capitalize on rules that went into effect in November 2007 that give brokerages more latitude to pair off orders among their own clients. The rules also made it easier for new trading systems to challenge incumbents such as the London Stock Exchange Group Plc. Boerse Berlin AG, which competes with Frankfurt’s Deutsche Boerse AG, acquired control of Equiduct in September 2007.

Even with backing from Citadel and other brokerages, Equiduct will have to fend off the 311-year-old LSE, as well as new platforms from Nasdaq OMX and Bats Global Markets.

The Philadelphia Stock Exchange stake cost Citadel $7.5 million. Nasdaq OMX bought the company last year for $652 million. In 2007, Citadel acquired a minority stake in Jersey City, New Jersey-based Direct Edge from Knight Capital Group Inc.

To contact the reporter on this story: Edgar Ortega in New York at ebarrales@bloomberg.net.