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California Regulatory Action

California Department of Financial Protection and Innovation: What California Financial Regulators Should Do About Citadel

The California Department of Financial Protection and Innovation (DFPI) has jurisdiction to investigate Citadel Securities' payment for order flow practices affecting an estimated 8 million California retail investors — the largest single-state population of retail traders in the country. Here is what state regulators should do — and why.

The California Department of Financial Protection and Innovation's Authority

California Attorney General Rob Bonta and the DFPI are positioned to lead the nation's response to PFOF abuses. California's Unfair Competition Law (Business & Professions Code §17200) provides a powerful tool to investigate and enjoin deceptive payment-for-order-flow arrangements that harm California consumers.

The Harm Requiring Regulatory Response

California retail investors are the most heavily affected in the nation by PFOF arrangements. Robinhood, the poster child for PFOF, has millions of California users—all routing orders to Citadel Securities. The estimated annual transfer of value from California retail investors to Citadel through spread capture runs into the hundreds of millions.

What State Regulators Should Do

The California Department of Financial Protection and Innovation (DFPI), in coordination with the California Attorney General's office, should:

  • Open an investigation into whether broker-dealers serving California residents are meeting best execution obligations under state securities law
  • Issue a formal inquiry to major PFOF-dependent brokers about their routing arrangements with Citadel Securities and the execution quality they achieve for California residents
  • Contact NASAA to explore multistate coordination
  • Issue investor education guidance about PFOF practices and how California investors can protect themselves
  • Consider rulemaking under state securities law to require enhanced disclosure of PFOF arrangements affecting California retail investors

Contacting the California Department of Financial Protection and Innovation

California investors and advocates can contact the California Department of Financial Protection and Innovation (DFPI) at https://dfpi.ca.gov to report concerns and request regulatory action on PFOF practices affecting California residents.

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