How Ken Griffin’s Citadel transformed financial markets — Quartz

Hedge fund boss Ken Griffin is more than a little paranoid. He’s been panned by reporters for the barrage of security checks needed to get to Citadel’s trading floor in his Chicago office, and lampooned for the hyper-stringent nondisclosure agreements he requires of exiting employees. He is loathe to talk to the press, and fiercely protective of his personal life.

Living in the shadows has been time well spent. Over the past four decades, he has quietly but methodically built a financial powerhouse intended to rival the likes of Goldman Sachs or Morgan Stanley, with grand ambitions to transform America’s financial landscape with a relentless technical edge.

But Griffin’s business ventures are too big to fly under the radar now. Behind the sparkly quant hedge fund that launched his Wall Street career stands his inconspicuously profitable trading operation, Citadel Securities. The firm is largely responsible for the rise of online brokerages and frenetic trading apps like Robinhood, whose pandemic stock-trading boom culminated in a Reddit-fueled short squeeze that rocked financial markets and stirred up a torrent of investor anger, fear, and conspiracy theories. That the palaver was enough to promptly warrant Congressional hearings is testament to just how removed the investing public is from today’s market mechanics.

Citadel Securities, which now handles roughly 40% of US retail trades, is key to understanding those mechanics, since it had a large hand in creating them. Through a series of fortuitous events and technological coups, Griffin has turned himself into one of the stock market’s most powerful middlemen, steadily replacing banks as the go-to matchmaker for all manner of institutions, from hedge funds to pension funds and most notably of late, of burgeoning retail brokers. “The way to think about Citadel is as the Amazon of trading,” says Spencer Mindlin, a capital markets technology analyst at Aite Group. In an industry that relies heavily on technology, Citadel has forged ahead by playing “a game of scale. You reach a point where it’s impossible for others to compete,” he says.

And just like Amazon, Citadel Securities likes to point out that the little guy has reaped the rewards of its technological lead. It’s never been cheaper for retail investors to trade. And yet, the system that those cheap trades rely upon, whereby Citadel pays retail brokers for customers’ orders, has raised questions about potential conflicts of interest among trading firms whose main customer is the brokers they serve, not small investors. It has also drawn attention to the scope of Griffin’s business affairs as an architect of financial markets who happens to also trade on the outcome, and to whether we want our financial titans to do both.

Who is Ken Griffin?

In keeping with his hedgie mystique, rare peeks into Griffin’s dealings tend to center on his personal art and real-estate splurges, as well as titanic donations to museums and universities. As a teen of the aughts, he spent his free time grilling local Computerland store employees and as a part-time debugger for IBM, Fortune wrote in a 2007 profile. In college, he moved on to trading convertible bonds from his third-floor Harvard dorm room against the university’s wishes, jerry-rigging a satellite dish to the side of the building to speed up his stock quote intel. A prominent Chicago hedge funder hired Griffin out of Harvard to run a $1 million portfolio, and after a year, in 1990, he went out on his own to start Citadel.

Three decades later, Griffin’s hedge fund is a global financial juggernaut based out of a 37-story office tower in Chicago’s Loop. With more than $30 billion in capital, Citadel touches just about every corner of the financial system. The trading firm came along a decade later on the back of the dot-com boom, as online trading exploded at discount brokerages like E*Trade and TD Ameritrade.

Not known for his people skills…