_Del_
Registered User
- Jul 4, 2003
- 15,426
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Citadel also makes money by processing it's own trades fractions of seconds before it makes RH trades for them. The data sell is part of their relationship. Citadel's algorithm uses the RH data, and depending on what the algorithm says will front run their own trade(s) microseconds before processing the RH trades. This is part of their partnership. Your data as a trader on RH (or the several other "free" aps for trading which process through Citadel and the like). As long as Citadel processes their trades at the same or slightly higher (even a penny) as the RH trades, they get in to the market and make their own profit, and it doesn't meet the legal definition of front-running. But that's exactly what it is.They share that profit with BD's like RH, its called POF or payment for order flow. The more action, the more they make, they really don't ever take a position, they are a middle man, I know them well.
So even while Melvin (which Citadel has a stake in) is losing money, they are making moves on their own end to take advantage of the squeeze. I'm sure they aren't the only ones doing this, but in this case, they can use the RH data to inform their own trades (algorithms) before they process. It's free to consumers because that information IS the product.
This is an incomplete answer, because what RH and others did was not initially pass that margin to end users by saying, "you must now cover 100% margin to make new purchases of these stocks", but instead halted buying.Raising that requirement is why RH and others stopped trading the stock until they could get sufficient capital to DTCC.
They did not "halt trading". You could still sell. They halted buying. That is blatant price manipulation.
They also liquidated some of their users' holdings, selling in bulk at the day's absolute low price point without consent of the users, which totally coincidentally helped out the hedges trying to close as many of their shorts as possible. And while this may be legal, buried in the terms and agreements as one possible way for RH to cover their increased margins, it strikes me as unethical as hell.
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