High Frequency Trading: Citadel Net's $1 Billion

Discussion in 'Stock picks and trading strategies' started by godoftrading, Oct 5, 2009.

  1. godoftrading

    godoftrading Member

    Citadel Investment Group LLC, known for its hedge funds, pulled in about $1 billion last year in a unit that does high-frequency trading.

    The figure, which emerged this week in a Chicago court battle involving Citadel, shows just how lucrative this often-secretive trading practice can be.

    High-frequency trading, in which traders use computers to make rapid-fire decisions to capture fleeting moves in the market, last year proved one of the rare successful market strategies, as traders capitalized on the market's volatility. But some of the most influential players, such as Goldman Sachs Group Inc., have kept results close to the vest.

    The court case in which the Citadel figure emerged involves allegations by Citadel that several former employees violated noncompete agreements when they set up a firm, Teza Technologies LLC, to trade securities this year shortly after leaving the Chicago hedge fund. The ex-employees denied the allegations in court filings.

    In testimony this week in the Chancery Division of Cook County, Ill., Circuit Court, Citadel senior investment manager James Yeh, along with former Citadel trader Mikhail "Misha" Malyshev, one of the defendants in the suit, revealed details about the unit's activities, which besides high-frequency trading also includes other strategies such as European options trading.

    Mr. Malyshev in testimony Thursday detailed the Citadel unit's growth in recent years. It posted returns of $892 million in 2007, up from $75 million in 2005 and about $3 million in 2004, according to Mr. Malyshev. Those figures didn't reflect costs such as compensation, according to a person familiar with the matter.


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