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Citigroup (C) to Sell Automated Trading Desk to Citadel?

Amid heightened regulatory scrutiny and focus on core operations, Citigroup Inc. C intends to sell its electronic market-making unit, Automated Trading Desk. Per a Bloomberg report, Chicago-based Citadel Securities has emerged as the potential buyer and Citigroup is in advanced talks with it.

Nonetheless, according to people familiar with the talks, the sale price hasn’t been disclosed as discussions with Citadel are still private and there are chances of the potential deal falling apart. Also, Citigroup had approached Two Sigma Securities before talks with Citadel began.

Founded in 1988, Automated Trading Desk calls itself “the true pioneer in automated trading” on its website. Notably, Citigroup had bought Automated Trading Desk in 2007 for approximately $680 million. If Citadel clinches the deal, it will enable the company to expand its market making operations further.

If the transaction is finalized, Citigroup will be a step ahead in its strategy to improve efficiency and close/divest non-core businesses. Notably, following the 2008 financial crisis, increased regulations have made this type of operations complex and costly. About two years ago, Bank of America Corporation BAC had closed its similar unit.

With banks gradually moving away from such businesses, several non-banking market makers have replaced them who use computers to automatically price trades at a very high speed. According to the U.S. stock trading data from the Financial Industry Regulatory Authority, Citadel and KCG Holdings Inc. KCG have emerged as leaders in the industry.

However, Citadel and KCG Holdings have come under regulatory scrutiny over several aspects of market making business. Reuters reported that a probe by the U.S. Department of Justice has the led to issuance of subpoenas related to their trading activities.

Currently, Citigroup carries a Zacks Rank #5 (Strong Sell). A better-ranked major bank is The Bank of New York Mellon Corporation BK, with a Zacks Rank #2 (Buy).

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