Citadel Securities, the market-making and trade execution division of Citadel Investment Group, has taken a majority stake in alternative trading venue Equiduct, just four months after the platform launched in late March.
Although Citadel has taken a controlling shareholding in Equiduct, the platform’s parent firm, German exchange Börse Berlin, will continue to run it.
As well as ending speculation over Equiduct’s future, Citadel’s investment will spur a renewed focus on attracting retail order flow to the platform, according to Equiduct’s co-CEO Artur Fischer. The venue, which originally planned to launch at the end of 2008, struggled to get off the ground because of market conditions, cost-cutting and the resulting lack of member readiness to connect and trade.
“We had been looking for other investors for a while, but Citadel’s expertise and experience with trading platforms, such as Direct Edge in the US, made the combination ideal,” Fischer told theTRADEnews.com. “We have met with many institutional buy- and sell-side firms in recent months, but we are now planning to build our institutional business at a later date when retail flow is at a good level.”
As part of the deal, Citadel will provide market-making services to Equiduct and use the platform for internal trades.
“We were planning to launch a systematic internaliser, but having a recognised exchange will allow us to cross our own order flow in a more transparent way,” said Matteo Cassina, president of European execution services at Citadel. “It will allow us to reduce risk by using a central counterparty clearer and eliminate issues around price quality that are sometimes raised with systematic internalisers as we will be able to use Equiduct’s volume-weighted best bid and offer (VBBO).”
Equiduct provides two execution facilities: HybridBook and PartnerEx. HybridBook is an electronic order book that includes market-maker quotes for each available instrument, while PartnerEx allows market-makers and order flow providers to trade bilaterally at Equiduct’s VBBO or better. The PartnerEx Internaliser service enables users to internalise trades without having to build their own matching engine.
Citadel’s investment will ensure Equiduct can continue to be funded, although Citadel has said it expects to partner with other market participants and flow providers to further enhance the trading venue’s offering.
In addition to Citadel, Equiduct counts US agency brokerage Knight Capital and bulge-bracket firm Goldman Sachs among its investors, although Cassina stated that further investment from similar firms would be encouraged.
“We are welcoming other retail liquidity providers and market-makers before we start to build a compelling offering for the buy-side,” he said.
Citadel is building up its European business, which it launched in Italy and the UK last September. It hopes to replicate its success in the US market, where it executes 2 million off-exchange retail orders a day and accounts for over 40% total US retail order flow.
In addition to its investments in Direct Edge and Equiduct, Citadel has a stake in pan-European multilateral trading facility (MTF) Chi-X Europe. It is also among the six initial liquidity providers in Turquoise’s dark liquidity aggregation service.