On March 18, a weird thing happened at the New York Stock Exchange. It was near the end of trading for the day, one minute before the closing bell had rung, when the price of Shopify’s stock went haywire, shooting up about $100 per share to $780 before immediately crashing down again in post-market trading. There was no sudden revelation about the business that would have caused it to jump. Wall Street was confused. Reddit was baffled. What happened?
That’s what NYSE management is trying to find out, and they’ve launched an investigation into the matter, according to sources familiar with the probe. At the center of it appears to be Citadel Securities, a trading firm owned by billionaire Ken Griffin which sold the shares at the close. Citadel Securities is not a broker, but a designated market maker — essentially, a firm that oversees trading on certain stocks and is supposed to balance out the billions of trades that happen every day. No one is accusing Citadel of breaking any rules — in fact, the rules explicitly allow for the trades — but the exchange is trying to understand how it happened.
On March 18, Citigroup had an order from its Wall Street clients to buy 600,000 shares of Shopify, a block so big it could cause prices to wobble in the open market. So the bank split it up — a standard way for brokers to handle large trades. The first trade for half the order was put in before 3 p.m. The second half of that was put in about ten minutes before the close of trading.
Here’s where things get disputed. NYSE rules largely restrict some orders that can be brought in during the final minutes of trade, except for those that even out imbalances. Because the amount of buy orders was so out of whack, Citadel was able to sell into the market — a move that’s allowed by the exchange. Other Wall Street players have said that Citadel could have done more to bring more sellers into the market. Either way, the price of the shares rocketed up about 13 percent in the final minute of trading, before immediately tumbling down in after-hours trading. On the NYSE, where about 2,800 companies’ shares trade every day, the spike was unusual and soon caught the attention of the internal watchdog group at the nearly 230-year-old exchange. Citi, Citadel, and NYSE all declined to comment. So far, there’s no indication that the Securities and Exchange Commission, which oversees the Big Board, is investigating the matter.
The trades have set off a blame game on Wall Street. It’s not clear who the end buyer — or buyers — were, but the immediate losses would have been in the ballpark of about $18 million in the immediate aftermath of the spike. Still, one person I spoke with said it was Citigroup’s fault for putting in the order at the last minute.
Update: This story was updated to more clearly explain the role of designated market makers and the New York Stock Exchange’s rules for selling.