Ken Griffin: Don't Rethink the Stock Market

Changes may be coming to the U.S. stock market. Gary Gensler, the chairman of the Securities and Exchange Commission,  has repeatedly said since being sworn in April that he is concerned that there is not enough transparency and too many conflicts in how stocks are traded. 

“We cannot take for granted that the U.S. equity markets will always be considered the most efficient, the most liquid in the world,”  Gensler told Barron's this past summer. “We have to be realistic that technology changes, and we’ve got to update things.”

One powerful person in the market, Ken Griffin, the billionaire founder of the investment firm Citadel and market maker Citadel Securities, which handles about a quarter of the stock trades in the U.S., is wary of too much change. 

The U.S. "has the most efficient equity market in the world," he told the New York Times DealBook Online Summit today. 

Griffin was asked about being "on the other end of a meme barrage" this year. The Citadel CEO  has been a target of criticism and abuse from the "Reddit Army" of young traders, many of whom see the role of market makers and hedge funds in the stock market as manipulative, particularly when it comes to meme stocks. The experience,  Griffin said,  "was like a bad comedy joke." 

More substantively,  he pushed back on the argument that payments to brokers like Robinhood from market makers like Citadel Securities that handle the trades  -- known as payment for order flow -- are bad for investors.

"Most of the 20-year-olds that I know are really grateful for the current market structure in America," Griffin said.  "They make a point that when I go to trade,  I can trade far cheaper on Robinhood or on Schwab's platform or Fidelity or Etrade  than I can trade on the New York Stock Exchange." 

"You don't get price improvement on an exchange-based world," he added. 

The prospect of an overhaul of market structure alarmed him.

"Are we going to go back to re-regulated markets and taking back the competition that has allowed Americans to save so much money when trading?"  If Gensler does that, Griffin said, it would be "a tragedy."

Still, Griffin acknowledged that the market regulation could be "fine tuned."  As an example, he pointed to allowing highly liquid names to be traded in half-cent spreads, instead of in penny spreads. 

About the current stock market, Griffin said it was "really frothy," citing the recent swing in Tesla's stock price as an example of  "pretty significant stock price moves on relatively small events. "