market folly

Ken Griffin's Citadel Investment Group had recently announced that they would be selling up to 66.6% of their equity position in E*Trade Financial (ETFC). They will sell 120 million shares out of their current 166 million share position and it will be conducted through a stock trading plan registered with the SEC. Once Citadel is done selling in October (they won't sell below the price of $1.20 a share), they will be left with a 4% ownership stake. So far, the have already sold around 14 million shares. What is also interesting is that this move comes right after hedge fund Coatue Management disclosed a 5% ownership stake in ETFC. Citadel also holds debt of ETFC and plans to continue to hold that since Ken Griffin is now on E*Trade's board. You can read Citadel's press release in full here.

Additionally, we learn that Citadel had potentially struck a deal with E*Trade where Ken Griffin's shop would route 97.5% of Nasdaq stock and options trades customers place on E*Trade through Citadel's market-making setup. In the current incarnation, Citadel receives 40% of those orders. The proposed new deal would be exclusive for 6 years and Citadel would pay $100 million up front. HOWEVER, the deal is subject to E*Trade's regulator, the Office of Thrift Supervision (OTS). And, since these developments were first released, the OTS has just "suspended consideration of the application." So, we'll have to wait it out to see how the rest of this unfolds. Undoubtedly, concerns regarding high frequency trading (HFT) come to mind here and OTS wants to examine this deal more closely. We'll keep everyone posted regarding the developments.