[taway789aaa6]

The "farce" is that when a market maker like Citadel purchase your order flow, the orders are typically not routed to the lit market (e.g. NYSE, IEX, etc) but instead routed to "alternative trading systems" (ATS) e.g. "dark pools" where your purchase has no effect on the price of the security.

This breaks the whole idea of a "market" where every buy puts upward pressure on a price and sales put downward pressure. Thus, a "farce".

That's not even getting started on the "farce" that is an ETF and how they are balanced/re-balanced.

Gotta love brokers that don't have your best interest in mind. Who needs best execution? /s

[gruez]

>but instead routed to "alternative trading systems" (ATS) e.g. "dark pools" where your purchase has no effect on the price of the security.

1. alternate trading systems are obligated to print their trades to the ticker, albeit at a slight delay compared to official exchanges

2. price is dictated by supply and demand, not the trade being publicly announced on exchanges. Trading volumes not being public probably has some non-zero effect on price discovery, but claiming that it has "no effect" is absurd.

[shred45]

Order flow in dark pools does impact the price of a security. The market maker will eventually need to trade out of that position. If there is aggregate buying pressure in the dark pool, they will adjust their quotes in both dark and lit markets.

[taway789aaa6]

> The market maker will eventually need to trade out of that position

This is why Citadel has $60+ billion dollars of "securities sold not yet purchased" on their financial statements.

They have sold $60+ BILLION of shares to investors and not yet bought the underlying securities.

So when exactly will that $60 billion of buy pressure hit the market?

[gruez]

>This is why Citadel has $60+ billion dollars of "securities sold not yet purchased" on their financial statements.

1. source?

2. supposing this is true, what's their daily turnover? "60+ billion" sounds like a lot, but if that's their daily turnover that shouldn't be anything out of the ordinary.

[Lionga]

1. Just look at their financial statements they , nobody is allowed this naked shorting but Cidatel is because they are a market manipu ahhh sorry maker.

Not that others won't naked short also, it is just they do not do it openly.

[gruez]

>nobody is allowed this naked shorting but Cidatel is because they are a market manipu ahhh sorry maker.

That's... working as intended?

> market makers provide a required amount of liquidity to the security's market, and take the other side of trades when there are short-term buy-and-sell-side imbalances in customer orders. In return, the specialist is granted various informational and trade execution advantages.

You can argue such a system is inegalitarian or whatever, but if you want a reliable provider of liquidity that won't instantly vanish when there's market turmoil (ie. when you need it the most), there has to be some mechanism to compensate market makers.

[slt2021]

Citadel is basically counterfeiting shares, just like the Fed is printing dollars.

its a scam and is a reason how Citadel makes $30,000,000,000 profit per year

[toast0]

> They have sold $60+ BILLION of shares to investors and not yet bought the underlying securities.

> So when exactly will that $60 billion of buy pressure hit the market?

Citadel needs to deliver the stock they sold on T+1 as of May 28, 2024. There's some allowance for failure to deliver, but the data is out there, if Citadel is routinely failing to deliver, you should be complaining about that, not about their financial statements.

Meanwhile, if Citadel wants to pay me fractional pennies more per share than a public exchange, and also my brokerage fractional pennies for the privilege, who am I to say no? Especially when the public exchange may charge me a fee to trade.

[slt2021]

they can keep failure to deliver forever until the market moves in their desired position to actually send orders to lit market.

they use derivatives and heavily recycle buy/sell shares to keep kicking the FTD can down the road for as long as the market returns to their desired position.

[wbl]

No they can't. They can keep a short position but that isn't failure to deliver.

[slt2021]

the T+1 timer can be easily reset every day, until the market price reverts back to the Citadel's modeled price at which it is profitable/least losses for them to send order to lit market

[snapcaster]

If you actually don't understand why that citadel statement said that you should read up on how market makers work. Any given snapshot in time for them would have enormous quantities of securities on both sides because they have to hedge all of their activities to remain neutral to any price movements.

>So when exactly will that $60 billion of buy pressure hit the market?

it probably did shortly after the statement, coupled with a likely similarly sized "sell pressure". They're constantly buying and selling things that's how the business model works

[jkulubya]

Leaving aside the veracity of that figure, if they've sold $60B of shares they don't own then they must've sold shares they borrowed in some way, and that shows up in the demand/supply. Someone (or someones) in the market would know.

[Lionga]

As a market maker Citadel is allowed to do naked shorting.

[jkulubya]

A naked short on their own account would be illegal. A time-bound naked short to fulfill their role as market maker would be acceptable.

But even then, all trades are either eventually settled at some time t, or fail to settle, e.g. if the seller is not good for the shares. Any of these 2 events happening is reported outside of a single broker-dealer, i.e. public info. And to settle a trade, you will need the actual shares, that you've either bought or borrowed.

All this info, settlements, failures, stock buys & loans is visible to other parties in the market.

If your point is that the Citadel is breaking the law, and not reporting what they should, when they should, then that's a problem. But there would be so many other parties discovering it way before their annual financials are published.

[taway789aaa6]

Well we all know financial institutions never do anything illegal.

https://www.sec.gov/newsroom/press-releases/2023-192 https://www.sec.gov/newsroom/press-releases/2017-11

> But there would be so many other parties discovering it way before their annual financials are published.

Looking at Bernie Madoff I'm not sure this is really the case...

[slt2021]

they kick the can down the road every day, until the market price returns to what they desire and only then they send order to a lit market.

also heavy usage of synthetic shares and derivatives to hide naked shorts

[shred45]

I don't think this really tells you anything, and it also will impact the quotes they are making, even if they are holding the position for now.

[BobbyJo]

> That's not even getting started on the "farce" that is an ETF and how they are balanced/re-balanced.

Have any pointers to info on this? I'm looking to buy into some ETFs but I've been unable to find much information on balancing (I'd like to selectively manage my exposure to some stocks that are heavy in indexes at the moment).

[taway789aaa6]

Schwab has a pretty good explainer: https://www.schwabassetmanagement.com/content/understanding-...

Ultimately the AP (authorized participant) is incentivized to make ETFs available because they get to use supply/demand imbalances as an arbitrage opportunity.

> The creation and redemption mechanisms help ETF shares to trade at a price close to the market value of their underlying assets. When ETF shares begin to trade at a price that is higher than the market value of their underlying assets (at a “premium”), APs may find it profitable to create ETF shares by buying the underlying securities and exchanging them for ETF shares, and then sell those shares into the market. Similarly, when ETF shares begin to trade at a price lower than the market value of their underlying assets (at a “discount”), APs may find it profitable to buy ETF shares in the secondary market and redeem them to the ETF in exchange for the underlying securities. These actions by APs, commonly described as “arbitrage opportunities,” help to keep the market-determined price of an ETF’s shares close to the market value of their underlying assets.

http://www.understandetfs.org/creation_redemption.html

My understanding is that volatility is good for ETF APs because there are more arbitrage opportunities.