Bloomberg News

Citadel Says Lewis Book Tars Markets That Are Better Than Ever

April 29, 2014

Author Michael Lewis

Michael Lewis, author, speaks during a Bloomberg Television interview in New York. The publication of Lewis’s “Flash Boys” has sparked a month of debate over whether, following more than a decade of regulatory and technological changes, the $22 trillion American equity market is fairly structured. Photographer: Chris Goodney/Bloomberg

Michael Lewis produced a top-selling book by arguing that the U.S. stock market is rigged. To one of hedge-fund operator Citadel LLC’s top executives, small investors have never been more fortunate.

“It’s one of the few markets in the world where the little guy gets a better deal than the big guy,” Jamil Nazarali, the head of Citadel Execution Services, said yesterday during a panel discussion at the Milken Institute Global Conference in Beverly Hills, California. “Things are much better today than they were 10 to 15 years ago.”

The publication of Lewis’s “Flash Boys” has sparked a month of debate over whether, following more than a decade of regulatory and technological changes, the $22 trillion American equity market is fairly structured. Citadel’s role in that discussion stems from Nazarali’s unit, which pays brokerages including TD Ameritrade Holding Corp. for the right to execute orders placed by their customers, who tend to be individuals.


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Lewis critiqued that practice, known as payment for order flow. Citadel’s rivals in that business include Citigroup Inc. (C:US), UBS AG (UBSN) and KCG Holdings Inc. (KCG:US) All are bound by rules meant to ensure they get the best price possible for investors.

Nazarali said yesterday that small investors often get better prices for their trades than the biggest firms.

That’s not fair, according to Seth Merrin, whose Liquidnet Holdings Inc. pitches its dark pools as havens for institutions to buy and sell large blocks of shares.

‘Screwed Up’

“If you are going to buy in bulk, you should get a better price than someone buying retail,” Liquidnet Chief Executive Officer Merrin said during a panel discussion with Nazarali. Giving the smallest investors a better deal than the biggest investors is “screwed up,” he said.

Man, Machine and the U.S. Stock Market

Merrin isn’t alone in arguing that large investors aren’t adequately served by the market’s current structure. Fidelity Investments, the second-largest mutual fund company, is exploring the creation of a U.S. stock trading venue along with other investors.

The venture under consideration would aim to “address today’s market structure, and provide higher levels of transparency, liquidity and control for the benefit of all fund shareholders,” Vincent G. Loporchio, a senior vice president at Fidelity, wrote in an e-mail on April 10.

‘Food Fight’

IEX Group Inc. has created its own platform designed to blunt advantages its founders believe the fastest trading firms enjoy. Its shareholders include some of the world’s biggest investors, including David Einhorn’s Greenlight Capital Inc., Bill Ackman’s Pershing Square Capital Management LP, Capital Group Cos. and Brandes Investment Partners.

IEX’s CEO, Brad Katsuyama, served as one of the heroes in “Flash Boys.” A day after the book was published, he engaged in a heated debate on CNBC with Bats Global Markets Inc. President Bill O’Brien, whose firm’s exchanges were criticized by Lewis.

Asked how to improve the perception among investors that the equity market is broken, Citadel’s Nazarali said yesterday that more cohesion is needed.

“The most important thing that the market can do is stop the food fight where everyone is pointing fingers at everyone else,” he said.

TD Ameritrade’s CEO, Fred Tomczyk, agreed that small investors are well-served by equity markets.

“The retail investor today is better off than they have been in history,” he said during the Milken conference panel. There is “a lot of noise around Michael Lewis’s book,” he added. “We have 6.1 million customers. We’ve had 70 phone calls” regarding the accusations in the book, he said. “This is a lot more of a Wall Street issue than a Main Street issue.”

To contact the reporter on this story: Matthew Leising in New York at

To contact the editors responsible for this story: Nick Baker at Chris Nagi

The Good Business Issue

Companies Mentioned

  • C
    (Citigroup Inc)
    • $54.43 USD
    • -0.11
    • -0.2%
  • KCG
    (KCG Holdings Inc)
    • $11.84 USD
    • -0.09
    • -0.76%
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