Regulators ram Citadel’s gate

August 14, 2009

The Office of Thrift Supervision isn’t known as the world’s most aggressive regulators. In fact, the Obama administration wants to merge it out of existence.

So I was quite surprised when the OTS late Friday decided to suspend consideration of an application that would have enabled Citadel Investment Group to get control over virtually all of E*Trade Financial customer trades–what’s known as order flow on Wall Street.

I wrote about this move by Citadel earlier today and how it would have been a big boon to Citadel’s highly-profitable high-frequency trading business. And I urged the OTS to move cautiously on this application.

OTS spokesman William Ruberry said the agency has decided to “suspend consideration of the application while we examine certain issues.” He declined to elaborate on the regulator’s action. He added that a confidential “policy and law” letter about the decision to suspend the application had been sent to the parties.

I had been expecting the OTS to approve the deal, since E*Trade desperately needs the $100 million in cash that Citadel was prepared to pay it for access to the customer trades. But maybe this is an indication that regulators are finally starting to take a close look at high-frequency trading and the ramifications it has on the markets.

And how ironic that it’s the least respected regulator that may have taken the first bold step towards controlling the rapid spread of HFT.

Mary Schaprio and the SEC, are you paying attention.

One comment

Comments are closed.