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Report: Feds investigating market-making ops at Citadel, KCG Holdings

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Report: Feds investigating market-making ops at Citadel, KCG Holdings

The market-making operations of Citadel LLC and KCGHoldings Inc. are under investigation as federal authorities try todetermine whether the companies offered clients unfavorable prices on trades togenerate more profit from transactions.

The U.S. Department of Justice sent subpoenas to the companiesfor internal data on routing of customer stock orders through exchanges and othertrading systems. Federal authorities are going through the information that thecompanies provided to determine if there were violations of SEC rules related tostock trade execution, Reuters reported May 10, citing "people familiar withthe investigation."

"A person familiar with the KCG probe" said documentsthat the company was asked to provide were related to its market-making activitiesfrom 2009 to 2011. In connection with the investigation on Citadel, federal authoritiesappear to be interested in what happens between the time Citadel received an orderfrom a retail brokerage and its trade execution on behalf of a client, accordingto the report.

The news outlet reported that there is no assurance that theinvestigation will result in an action. Citadel anticipates that the departmentwill not recommend any action after the investigation ends.

Citadel and KCG did not immediately respond to S&P GlobalMarket Intelligence's request for comment.