Bridgewater's Head Of Trading Is Leaving The Company

One month after a major shake up at Bridgewater, which saw Ray Dalio step down as co-CEO, as well as the departure of the recently hired former Apple executive Jon Rubenstein, the world"s largest hedge fund has lost its head of trading, Jose Marques, who according to Business Insider is in the process of leaving the firm. Additionally, the head of front office transformation, Jeff Wecker, has already departed the firm. 

Prior to Bridgewater in 2015, Marques was the head of electronic trading at Deutsche Bank.

Wecker was previously CEO of Lime Brokerage, a major player in the HFT space, according to his LinkedIn page.

In a a statement last month, Bridgewater - which manages over $150 billion firmwide and has been one of the world"s most successful hedge funds in history - disclosed that Osman Nalbantoglu continues to oversee the firm"s portfolio implementation and trading and execution.

Meanwhile, Bloomberg reported that Bridegwater"s Pure Alpha II returned 2% percent this year through March, after rising 2.4% last year and holds the majority of the assets in the firm’s hedge fund strategy. A version of the strategy that targets lower volatility gained about 1.6% this year. At the same time, the company"s risk-parity All Weather fund, rose 3.6% YTD after gaining 11.6% last year.

It was not clear if the ongoing shake-ups at the top levels of Bridgewater"s organizational structure are the result of the company"s notoriously opaque, and difficult according to various press reports, culture, or if they are an indication of more acute, and recent, problems affecting the hedge fund - something which its attractive P&L would not suggest - where James Comey was famously employed prior to becoming head of the FBI.

Citadel Pays $22 Million Settlement For Frontrunning Its Clients

Last May we reported that, after years of railing against Citadel"s dominant position at the intersection of HFT trading and retail orderflow - Citadel was recently found to be the largest private US trading venue - Federal authorities were investigating the market-making arms of Citadel LLC and KCG Holdings looking into the possibility that the two giants of electronic trading are giving small investors a poor deal when executing stock transactions on their behalf.

As a reminder, Citadel is so big and its own private stock-trading platform is so large that, if it were an official exchange recognized by the Securities and Exchange Commission, it would one of the largest registered exchanges in the United States - bigger than Nasdaq. Citadel Execution Services, the firm’s wholesale market-making unit, recently executed 35% of all trades by retail investors in U.S.-listed stocks.

It was this retail trading giant that authorities were probing, and specifically looking at internal data concerning the firms’ routing of customer stock orders through exchanges and other trading systems, to see whether they are giving customers unfavorable prices on trades in order to capture more profit on the transactions.

In other words, the DOJ is looking into whether Citadel is frontrunning its clients, something we have claimed for years.

So what would happens if the DOJ did find what has been obvious to most market participants for years, namely that Ken Griffin"s firm was frontrunning retail orderflow fore years?

As we summarized at the time, if authorities do move ahead, they would be marching forcefully into the debate over high-speed trading. Critics of HFT, such as this website, have alleged that firms with the fastest trading technology are using speed to manipulate stock prices, giving investors a raw deal. The industry counters that its technology delivers cheaper and more transparent trades to investors.

It also delivers guaranteed profits to itself, because while on one hand Citadel is a massive market-maker, responsible for the biggest portion of retail flow traffic, on the other it happens to be the most leveraged hedge fund in the world in terms of regulatory to net assets.

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Or maybe nothing at all. Because fast forward to today, when without much fanfare at all, Citadel announced it would pay $22.6 million to settle allegations that it "misled clients about pricing trades", a euphemism for it was frontrunning its clients.

The Securities and Exchange Commission, soon to be run by a former deal lawyer who was particularly close to Goldman Sachs, said in a statement on Friday that Citadel, without admitting or denying the findings, had agreed to pay $5.2m disgorgement of ill-gotten gains, plus interest of $1.4m, in addition to a $16m penalty.

The SEC found precisely what we had said all along: that the company"s business unit handling retail suggested to its broker-dealer clients that it would internalize retail orders to provide the best price, but it used algorithms that failed to perform the task from 2007 to 2010; i.e. Citadel was actively trading against the best interests of its clients, and adverse in its own best interests.

"These two algorithms represented a small part of Citadel Securities" internalization business, but they nevertheless affected millions of orders placed by retail investors because of Citadel Securities" large role in that market," said Robert Cohen, co-chief of the SEC enforcement division"s market abuse unit.

Citadel, which has since discontinued use of the algorithms, said in a statement Friday that it takes legal compliance "very seriously." 

Today, Citadel Securities resolved an issue related to the adequacy of certain disclosures from late 2007 to January 2010. We take very seriously our obligations to comply fully with all laws and regulations. As the market leader we are committed to providing superior service and execution quality to our clients each and every day.

To those who want to see a Citadel internalizer algo in action, we recommend you read the following article by Nanex" Eric Hunsader, who explains the entire process: "Retail Trades Disadvantaged by Direct Feeds  Internalizers buy at the direct feed price, sell to retail at the SIP feed price."