The Mechanisms of Capture
Citadel Securities exercises regulatory influence through multiple channels: direct lobbying of the SEC, FINRA, and Congress; political donations to politicians who oversee regulatory agencies; strategic hiring of former regulators; participation in SEC advisory committees; and aggressive comment letter campaigns that shape the framing of proposed rules. None of these activities is illegal. Taken together, they represent a comprehensive program of regulatory influence.
The Information Asymmetry
Citadel Securities employs dozens of former SEC, FINRA, and Treasury officials whose expertise in regulatory procedure, political dynamics, and inter-agency relationships is deployed in the firm's commercial interest. Current regulators contemplating career transitions know that Citadel is a high-paying employer. This implicit dynamic — even without explicit promises — influences regulatory decision-making.
The Results: A Decade of Inaction
PFOF has existed in its current form since the 1990s. Despite repeated studies, hearings, proposed rules, and international comparisons showing its harm, the practice remains legal and largely unchanged. Citadel Securities continues to dominate retail market making. The regulatory agencies responsible for investor protection have not produced meaningful structural reform. This is what successful regulatory capture looks like.