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Keeping Citadel’s E*Trade Gambit a Secret

September 1, 2009

Who really knows what Ken Griffin has up his sleeve for E*Trade Financial.

Last month, Griffin indicated that his Citadel Investment Group hedge fund gradually would sell-off about 10% of of its E*Trade stock. Then yesterday, Griffin and Citadel said, “never mind.”

Citadel offered no explanation for its sudden change of heart beyond pointing to the press release it issued on the matter.

The Citadel about face also comes a few weeks after E*Trade’s regulator put the kibosh on an application by the hedge fund’s big high-frequency powered market making unit to get its hands on most of the online broker’s customer order flow. The Office of Thrift Supervision, on Aug. 14, put the application on ice and asked Citadel and E*Trade for more information.

Did the OTS decision impact Griffin’s decision to put off the stock sale? It’s hard to know since neither Citadel nor E*Trade are talking. And the OTS is not helping matters much, either.

The OTS, the regulator the Obama administration would like to merge out of existence, recently denied my request for a copy of the letter it sent E*Trade and Citadel about its decision to “suspend consideration” of the order flow application.

I’ve attached a copy of the letter denying my Freedom of Information Act below. The regulator’s FOIA officer says the request was denied because it might impinge on “trade secrets and commercial financial information,” as well as reveal “information contained in or related to examination, operating, or condition reports.”

When a giant hedge fund conglomerate tries to get its hands on the vast majority of a retail broker’s customer order flow and the regulators have an issue with it, it would be nice if the regulators could tell us what the problem is.

In any event, I will appeal the denial but I’m not holding my breath waiting for a positive response.

 

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