The Crypto Market-Making Expansion
In 2022, Citadel Securities joined a consortium with Fidelity Digital Assets and Schwab to launch a cryptocurrency exchange. The move brought Citadel's market-making expertise and retail order flow relationships to the digital asset space. Given Citadel's history in equity markets, the concern is that similar PFOF-based conflicts will be embedded in the crypto market-making structure from the outset.
Regulatory Gap in Crypto
Cryptocurrency markets in the United States currently lack the comprehensive regulatory framework that governs equity markets. There are no crypto equivalents of SEC Rule 606, Rule 605, or FINRA Rule 5310. This regulatory gap means that PFOF-like arrangements in crypto markets would face even less oversight than the equity PFOF practices Citadel already employs.
What Investors Should Watch For
Retail investors who trade cryptocurrency through discount platforms should understand that many of these platforms route orders to wholesale market makers — including Citadel — through arrangements similar to equity PFOF. As Citadel expands in crypto, investors should demand the same disclosure standards that (imperfectly) apply to equity trading.