The Setup: Structural Relationships in January 2021
At the time of the GameStop frenzy, Citadel Securities was the primary PFOF recipient from Robinhood, processing the vast majority of Robinhood's customer orders. Separately, Citadel Advisors — the hedge fund affiliated with Kenneth Griffin — had invested approximately $2 billion into Melvin Capital, a fund with a substantial short position in GameStop. These are documented facts. Citadel Securities and Citadel Advisors are legally separate entities.
The Trading Halt
On January 28, 2021, Robinhood halted purchases (but not sales) of GameStop and several other heavily-shorted stocks. Robinhood cited elevated DTCC margin requirements as the reason. The halt came as retail investors were driving GME's price to extraordinary heights, causing large losses for short sellers including Melvin Capital. The decision to halt purchases — while allowing sales — exclusively benefited sellers of GME and harmed buyers.
Congressional Findings
The House Financial Services Committee held hearings with Kenneth Griffin, Robinhood CEO Vlad Tenev, and others. Griffin testified that Citadel Securities played no role in Robinhood's decision to halt trading. A subsequent House committee report found no evidence of direct coordination between Citadel and Robinhood about the halt. The report did identify concerns about the PFOF system and market structure more broadly.
Unanswered Questions
While Congressional investigation found no evidence of direct coordination, the structural conflict — Citadel as market maker for the broker whose customers were buying the stock that the Citadel-affiliated hedge fund's investee was short — was never fully resolved. In The Ethics Reporter's view, the episode illustrated why structural conflicts in financial markets deserve ongoing regulatory attention, even absent evidence of specific wrongdoing.