Credit Suisse exits US retail market making business

[NEW YORK] Credit Suisse Group is getting out of the US equity retail market making business by the end of the first quarter after failing to gain enough scale to make a go of it, the bank confirmed on Tuesday.

The decision was part of Credit Suisse's ongoing review of its investment banking business and does not affect the rest of its retail execution services operations, the Swiss bank said in a statement. Credit Suisse also runs Crossfinder, the largest non-exchange US stock trading platform, or "dark pool." "Credit Suisse is constantly assessing how to best create efficiencies for our franchise and our clients. We remain committed to continuing to provide our clients with a top tier offering," the bank said.

Retail market makers facilitate trading by using their own capital to buy stock orders from retail brokerages while attempting to profit off of the spread between the bid and offer prices, often earning just pennies at a time, making scale important. Market makers usually pay to access retail orders because executing those orders tends to be more profitable than making markets for professional traders. But if the price of a stock moves in the wrong direction before the market maker can offload it, the profits evaporate.

Regulators have been probing whether retail brokers have been sending their clients' orders to the market makers willing to pay them the most money, rather than those that will give the best price to the end client.

A Credit Suisse spokeswoman said the scrutiny around payment for order flow had nothing to do with the bank's decision to exit market making.

Credit Suisse entered retail market making in 2011, but never managed to break into the ranks of the top market makers, which include KCG Holdings, Citadel, UBS Group AG, Citigroup, Susquehanna, and Two Sigma Securities.

There were only five employees in Credit Suisse's retail market making division, and they will be moved to a new agency-led unit that will act as a middleman for clients, taking their orders and shipping them off to firms that do make markets.

While big retail brokerages like TD Ameritrade, Charles Schwab Corp, and E*Trade did not use Credit Suisse's market making services in the fourth quarter of 2014, several smaller firms did send the bank a significant portion of their retail orders, according to regulatory filings.


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