For the world of finance, it was must-watch TV. A U.S. congressional committee summoned an odd assortment of Wall Avenue characters to testify a couple of saga that captured a lot public consideration it was mentioned on Good Morning America. How did novice merchants, billionaire hedge fund managers, social media posts, and an opaque market construction gas a dizzying surge, and sudden crash, within the shares of online game retailer GameStop Corp.?

However for Wall Avenue’s savviest, one individual particularly mattered most of all. It wasn’t social media star Keith Gill, also called Roaring Kitty or DeepF—ingValue, regardless of his viral memes and legions of Reddit followers. It wasn’t Gabe Plotkin, the hedge fund supervisor whose firm misplaced billions after its short-selling positions have been crushed. It wasn’t even Vlad Tenev, co-founder of retail brokerage Robinhood Markets Inc., who’d incensed clients by abruptly suspending buying and selling in GameStop.

As an alternative, Wall Avenue insiders tuned in to see how Ken Griffin, the gray-haired 52-year-old hedge fund billionaire, would deal with the glare. Over the previous 19 years, with little public consideration, Griffin has constructed his startup, Citadel Securities, into one of many world’s dominant buying and selling enterprises. The carefully held agency has change into a key a part of the plumbing underlying the U.S. inventory market and is quickly increasing into others. As lately as January, Goldman Sachs Group Inc. executives instructed colleagues at an inside buying and selling division city corridor that they considered Griffin’s agency as an even bigger aggressive menace than long-established European rivals, in accordance with individuals who heard the remarks however weren’t licensed to talk about them publicly.

Griffin might be greatest identified to the general public for his $34 billion hedge fund enterprise, his political clout, and his costly style in artwork and property. In the meantime, Citadel Securities rode a 2020 retail buying and selling surge to a report $6.6 billion in income, virtually double its earlier excessive, in accordance with an individual accustomed to the outcomes who wasn’t licensed to disclose them publicly. And if the meme inventory frenzy is any indication, 2021 income could also be quite a bit larger. Citadel Securities has grown from a small group constructed alongside Griffin’s hedge fund to a world buying and selling behemoth dominating not solely U.S.‑listed markets but additionally worldwide ones, and pushing into funding banks’ favored merchandise.

Helped by laws that curtailed banks after the 2008 monetary disaster, propelled by its state-of-the-art know-how, and pushed ahead by the ultra-ambitious Griffin, Citadel Securities isn’t within the shadows anymore. However because the congressional listening to revealed, the highlight brings its personal peril. As politicians and regulators look at how one firm got here to manage a lot of the market, and what dangers precisely that poses, Griffin and his agency will attempt to preserve the relative independence that has fueled Citadel’s development.

CITADEL SECURITIES began working as a registered ­broker-dealer in 2002, however a key turning level was the monetary disaster. The turmoil within the markets got here near destroying Griffin’s hedge fund, a multistrategy big he’d been working for nearly 20 years that was separate from Citadel Securities. The hedge fund was shedding tons of of thousands and thousands of {dollars} per week, and TV information vans sat parked outdoors its Chicago headquarters anticipating its imminent collapse.

The agency pulled by way of, and Griffin noticed an alternative. Politicians, alarmed by the bailouts required to avoid wasting Wall Avenue’s largest banks, handed the Dodd-Frank Act to make sure they’d by no means want such help once more, and regulators set about imposing new guidelines. So Griffin began a full-service funding financial institution that was largely outdoors the scope of that new regulation. Citadel Securities, which already made markets in equities and choices, expanded into analysis, underwriting, and mergers-and-acquisitions recommendation.

However the agency quickly realized that its edge in know-how and buying and selling wasn’t all that related to these companies and that the banks’ entrenched relationships with company clients have been laborious to displace. Griffin deserted the hassle after about two years to refocus the agency on digital buying and selling.

This plan proved extra fruitful. The post-crisis Dodd-Frank guidelines required banks’ buying and selling desks to put aside extra capital to cushion in opposition to potential losses, prohibited them from taking sure sorts of danger, and usually subjected them to extra oversight. Even paying annual bonuses to staff drew scrutiny from regulators, giving nonbanks together with Citadel Securities a hiring benefit. And guidelines that moved most interest-rate swap trades to clearinghouses helped to standardize that enterprise and make knowledge extra clear. That made it simpler for brand new firms to compete, and Citadel Securities moved in aggressively, seizing market share.

“Because of the nice work of the Home and Senate on the again of Dodd-Frank, we permitted competitors to exist within the interest-rate swap market,” Griffin mentioned at a ­congressional listening to on Feb. 18. “I’d like to specific my gratitude for Dodd-Frank’s derivatives reform.”

Citadel wasn’t the one nonbank to attempt to muscle in on the banks’ territory after the Dodd-Frank guidelines got here into impact, but it surely was by far probably the most profitable. Just a few months after Jon Corzine, the previous head of Goldman Sachs and New Jersey governor, took cost of futures and choices dealer MF International in 2010, he declared that “we’re a dealer on our solution to being a broker-dealer on our solution to being a full-line funding financial institution.” However the firm imploded in late 2011 after bets on European authorities debt went bitter.

Though Citadel’s development has benefited from the Dodd-Frank guidelines, they merely “leveled the enjoying area,” says Joe Corcoran, the agency’s head of markets. Some extra regulation of banks is affordable, he says, as a result of “as lenders and holders of deposits, banks are answerable for their very own capital and their systemic function within the financial system, which poses a novel set of dangers to the monetary system.”

Peng Zhao, beforehand Citadel Securities’ chief scientist, has led the general enterprise since 2017. It’s been one of the secure management intervals in its historical past: Every of his three predecessors lasted not more than a 12 months. Zhao and Griffin each declined to be interviewed for this story.

From its unique deal with equities and choices, Citadel Securities has expanded into international change, interest-rate swaps, institutional choices, and a greater variety of Treasuries—with plans to change into a major seller. It employs 1,100 folks and operates in markets in at the least 35 nations. The corporate’s 2020 internet buying and selling income was a couple of third the dimensions of Morgan Stanley’s or Goldman Sachs’s.

But it surely’s in U.S. equities markets, the place Citadel Securities has changed conventional inventory exchanges in executing orders for a lot of retail brokers, that its affect is best. The agency says it handles about 47% of all inventory buying and selling by retail buyers on a typical day.

These GameStop shares and choices that Gill and different Reddit merchants have been shopping for on Robinhood? Citadel was dealing with virtually half of these transactions. On Jan. 27, Citadel “executed 7.4 billion shares on behalf of retail buyers,” Griffin mentioned on the GameStop listening to, or “greater than all the common every day quantity of all the U.S. equities market in 2019.”

THAT DEGREE OF MARKET dominance is drawing the ­consideration of lawmakers and regulators. As know-how turns into extra vital, solely the largest firms will be capable of afford the massive investments wanted, shrinking the aggressive panorama. “The industrialized deployment of know-how in the end brings out a winner-take-all dynamic,” says Paul Rowady, director of analysis for Alphacution Analysis Conservatory LLC, a market construction analysis and advisory firm in New York. “It’s just like the Amazonization of listed markets.”

Up to now the Securities and Alternate Fee didn’t present a lot concern about market dominance, Rowady says. “That appears to me to be very harmful, not as a result of there aren’t any different gamers, however as a result of over time it weakens the opposite gamers that may very well be aggressive. It’s the essence of focus danger.”

The angle of regulators could also be altering. Gary Gensler, the Biden administration’s nominee to steer the SEC, raised the problem at a listening to in March to contemplate his nomination. If “one agency now has 40% to 50% of the retail order movement, what does that do to pricing of capital on this nation?” he requested. “What does it imply to be greatest execution on this context?”

Within the wake of the monetary disaster, lots of the establishments that Citadel Securities competes with, together with Goldman Sachs and Morgan Stanley, have been designated “systemically vital” below Dodd-Frank. That designation imposes extra capital necessities and Federal Reserve oversight due to the chance that an issue at any a kind of firms may jeopardize all the monetary system.

However in 2019 the council modified the way it analyzes ­monetary firms that aren’t banks. Now every of these entities is designated systemically vital solely as a final resort, after regulators have labored with the corporate to handle potential dangers. “The method would most likely take years and, in my opinion, most likely transcend a Biden first-term administration,” says Nathan Dean, an analyst at Bloomberg Intelligence.

Some politicians say that revision may go away systemically vital nonfinancial firms with out wanted oversight. Consultant Jesús García, a Democrat from Illinois and a member of the Home Monetary Companies Committee, says the rule change was pushed by a deregulatory impulse inside the Trump administration, enabling “their associates in finance to make as a lot cash as they will with the least quantity of accountability, disclosure, and regulation.”

However others say that Citadel’s deal with buying and selling liquid, centrally cleared merchandise is more likely to restrict the systemic danger the corporate poses. “There are an honest variety of nonbank monetary companies like Citadel Securities the place, if one in every of them had a problem, you could possibly see some short-term disruption to liquidity,” says Kevin McPartland, head of analysis in Greenwich Associates’ market construction and know-how group. “However that’s very totally different to the concept of a financial institution failure, which might see an enormous quantity of capital worn out in a single day.”

Politicians have raised two different regulatory points that would have an effect on Citadel Securities. Democrats similar to Senator Elizabeth Warren from Massachusetts and Consultant Alexandria Ocasio-Cortez from New York say the rebates that market makers similar to Citadel pay to retail brokers together with Robinhood for routing orders to them—often called “fee for order movement”—obscure the true value of buying and selling and provides the brokers an incentive to push their clients to commerce extra usually.

“When huge sharks like Citadel and Robinhood come out forward it doesn’t matter what occurs, and when the knowledge they collect isn’t disclosed, and when it’s secret how that info is used, it’s simpler for these giants to skim off the highest on the expense of small buyers,” Warren mentioned at a Senate banking committee listening to in March.

Griffin mentioned on the Home listening to in February that “with respect to order movement we merely play by the foundations of the street. Cost for order movement has been permitted by the SEC. It’s a customary follow inside the business. In the event that they select to vary the foundations of the street and we have to drive on the left facet as an alternative of the appropriate facet, that’s high quality with us.”

A tax on monetary transactions has gained some help from Democrats in Congress in addition to in state legislatures. In a testy change with Griffin on the Home listening to in February, Consultant Rashida Tlaib from Michigan mentioned taxing trades would “be sure that this monumental wealth generated on Wall Avenue really reaches the true financial system.” Such a transfer would most likely cut back the general quantity of buying and selling, hurting Citadel’s income and doubtlessly imperiling its high-frequency buying and selling methods. Griffin mentioned it could “injure People hoping to avoid wasting for retirement.”

Questions on these regulatory points have been additionally raised at affirmation hearings for Biden administration nominees together with Gensler and Treasury Secretary Janet Yellen, signaling {that a} Democratic administration may carry the comparatively constructive regulatory atmosphere for Citadel Securities to an finish.

IT DOESN’T HELP that Griffin, who owns at the least 75% of Citadel Securities, is one thing of a poster baby for inequality. With wealth of about $22.3 billion, in accordance with the Bloomberg Billionaires Index, he’s spent a fortune on trophy residential properties and artworks, in addition to philanthropy.

His profitable marketing campaign to struggle a proposed tax enhance on the rich in Illinois final 12 months angered proponents similar to García. “Our state is hurting. Revenues are down due to Covid—that hurts working-class communities, and but we noticed Ken spending $54 million to defeat a graduated tax enhance on the very wealthy,” García says.

However, because the Illinois tax marketing campaign confirmed, Griffin is aware of tips on how to use his cash to affect policymakers. Citadel Securities’ authorities and regulatory affairs workers has grown to 4 folks from one individual a decade in the past. Griffin’s political donations grew, too, from $2.6 million within the 2012 election cycle to $66 million final 12 months, making him the ­second-biggest conservative donor after Sheldon and Miriam Adelson, in accordance with the Heart for Responsive Politics.

A Citadel spokesperson says Griffin’s donations are private and never related to the corporate’s lobbying actions.

Up to now, Griffin’s donations helped him achieve extraordinary entry to political leaders. After giving greater than $1 million to elect Rahm Emanuel, a Democrat, as Chicago’s mayor, Griffin wrote to the mayor’s private e mail account about matters similar to gunshots close to a college and hard-to-see pace bumps that broken his automotive, in accordance with correspondence made public by Illinois’s Higher Authorities Affiliation. (After the emails have been revealed, Chicago banned municipal officers from utilizing their private e mail accounts for enterprise associated to town.)

Griffin may be very related in D.C. Republican circles. Early within the pandemic he spoke with then-President Donald Trump and Vice President Mike Pence about accelerating Covid therapies, and he helped Secretary of State Mike Pompeo facilitate the evacuation of greater than 800 folks from Wuhan, China. However Griffin says political affiliation isn’t vital: “What issues is the receptivity to resolving the issue.”

On the congressional listening to in February, Griffin acquired gentler therapy from Republicans in contrast with the charged exchanges he had with some Democrats. “I simply needed to verify, Mr. Griffin, you had that chance to really feel snug with the reason of that greatest execution,” Consultant Invoice Huizenga, a Republican from Michigan, mentioned at one level.

And Consultant Trey Hollingsworth, a Republican from Indiana, appeared eager to assist Griffin promote his ­firm’s contribution to the markets and society. “Actually there’s been a major quantity of proof supporting the benefits market makers provide retail buyers,” he mentioned. “Via subtle infrastructure and high-speed know-how, bid-ask spreads have decreased from 33¢ to lower than a penny over the past 5 many years and, in accordance with some analysis, saved retail buyers $1.6 billion simply within the first six months of final 12 months alone.”

Citadel, like many different monetary firms, has additionally cultivated high-level ties with its regulators. Former Federal Reserve Chairman Ben Bernanke is employed as a senior adviser to the hedge fund. Yellen, who was Bernanke’s successor on the Fed, collected greater than $800,000 in talking charges from Citadel between her place as Fed chair and turning into Treasury secretary. Citadel Securities additionally employed Steve Luparello, beforehand the SEC’s director of buying and selling and markets, as common counsel, and lately employed Heath Tarbert, former chairman of the Commodity and Futures Buying and selling Fee, as its chief authorized officer.

Citadel’s and Griffin’s extraordinary function within the GameStop buying and selling saga attracted the ire of novice buyers on Reddit and different websites. They thought they noticed one thing suspicious: one billionaire who managed each the corporate paying for therefore lots of their orders and the hedge fund investing in one of many GameStop quick sellers. They questioned whether or not Robinhood shut down GameStop buying and selling on Citadel’s orders. Citadel has strongly denied having any function in Robinhood’s determination, and Robinhood mentioned it halted buying and selling in GameStop due to collateral necessities.

QuickTake: How a Collateral Name Put a Pause in GameStop Mania

Citadel Securities’ place executing orders as an alternative of straight dealing with retail clients may work to its benefit. On the February listening to and on social media, politicians targeted their consideration on Robinhood—a shopper model identify that gained prominence with the surge in day buying and selling—as an alternative of Citadel. Citadel’s function stays one thing of a black field to outsiders. For policymakers, “it’s actually tough to see how the sausage is made behind the scenes,” says Consultant Cindy Axne, an Iowa Democrat and a member of the Home Monetary Companies Committee.

Thus far the GameStop episode has shed just a little gentle into the poorly understood a part of the monetary world that Citadel Securities has come to dominate. However even probably the most well-­related companies can’t keep away from regulatory scrutiny when the general public outcry grows too nice–simply ask Goldman Sachs and Wells Fargo & Co. The query stays whether or not Citadel, after benefiting from adjustments that policymakers and regulators have made in recent times, will discover itself of their sights. —With Sridhar Natarajan, Amanda L. Gordon, Annie Massa, and Nick Wadhams

Maloney is a reporter overlaying wealth in New York.