NEW YORK, March 27 (Reuters) - Citadel Securities, a top market maker in U.S. stocks and listed options, plans to shutter its Apogee “dark pool” to focus on another of its off-exchange stock trading venues called Citadel Connect, according to people with direct knowledge of the matter.
Apogee ranked 18th out of 37 U.S. dark pools - which like exchanges, match buyers and sellers of stocks, but without disclosing pre-trade information so that trading interests remain hidden - by volume in the latest statistics from the Financial Industry Regulatory Authority.
A little over 39 million shares were traded through Apogee in the week of March 2, FINRA said. Connect is averaging around five times the volume of Apogee, according to a person with knowledge of the matter, but who asked to remain anonymous because the information is not public. Unlike Apogee, Connect is not classified as an “Alternative Trading System” and does not report volumes to FINRA.
The person said there is no timetable yet as to when Apogee would be closed, but that Citadel’s customers have been informed of the plans to shut it down.
A Citadel spokeswoman declined to comment.
Off-exchange trading venues have come under increased scrutiny with several regulators actively investigating potential securities fraud and market manipulation inside of them. The pressures have added to increased costs for brokers, forcing them to rethink the value of running multiple trading venues.
Citigroup Inc and Wells Fargo & Co have both shut down off-exchange trading venues in recent months.
As a market maker, Citadel provides liquidity to the market by taking the other side of trades, executing around one of every four retail trades in U.S.-listed equities.
In Connect, Citadel makes active retail orders it has bought from retail brokerages available to institutional investors and other firms.
Very few stock orders that retail investors place with their brokers, such as Charles Schwab Corp, TD Ameritrade , or Fidelity, go through public stock exchanges, such as Intercontinental Exchange Inc’s New York Stock Exchange. Instead, the brokers send the orders to other brokerage firms like Citadel, or KCG Holdings, which trade against the incoming orders, and then send the leftovers to other internalizers, dark pools, or as a last resort, exchanges.
By doing this, the retail brokers not only avoid paying fees to the exchanges for active orders, but actually receive payments and trading rebates from the off-exchange trading venues. (Reporting by John McCrank; Editing by Chris Reese)
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