Citadel to expand U.S. exchange strategy to Europe
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 money manager will buy a majority stake in Equiduct, a London-based electronic market that started trading five months ago, Equiduct Chief Executive Officer Artur Fischer said in an interview today. He declined to comment on the price Citadel paid. Katie Spring, a spokeswoman for Chicago-based Citadel, confirmed that the transaction will take place.
Equiduct is seeking to capitalize on European 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.
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.
Philadelphia, Direct Edge
The Philadelphia Stock Exchange stake cost Citadel $7.5 million. Nasdaq 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.
Equiduct has struggled to compete both with traditional exchanges and alternative trading systems. Chi-X Europe started in March 2007 and was the first multilateral trading facility to challenge Deutsche Boerse, LSE and NYSE Euronext by offering lower fees and faster trades.
Other MTFs include Bats Europe, Turquoise and new ventures from NYSE Euronext and Nasdaq. Chi-X is now the second-largest market by share of trading for stocks listed on Deutsche Boerse, LSE and NYSE's Europe markets.
"This shows that competition is spreading," said Mamoun Tazi, an exchange analyst at MF Global UK Ltd. He has a "sell" rating on LSE and a "buy" on Deutsche Boerse. "As far as Equiduct goes, they will have to wait for a while before gaining share," Tazi said.
Equiduct will maintain its emphasis on small investors, Fischer said.
"Our main focus is a retail offering, so this is where we are quite different from Chi-X and others," Fischer said. Asked how much business Equiduct had done since it started in April, he replied "not a lot."
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.