Citadel's Sentinel: CIO Tom Miglis Aims to Do the Impossible

Doing the impossible as a technologist starts with a deep understanding of the business. “I was in a meeting at Salomon Brothers, next to the technologist for the funding desk, and John McFarlane [then head of the firm’s finance desk and previously COO for Tudor Investment] was explaining something,” Miglis recalls. “I asked him, ‘Do you understand what he said?’ and told him to figure it out in a week. It just isn’t possible to build a system if you don’t know the business. It sounds counterintuitive, but technology people have to understand the trading better than the traders, even if they aren’t transacting.”

“It’s amazing how quickly a young college student is at the head of the table, running the group,” says Belluardo, describing Citadel as a “well-funded incubator” for technology talent.

“We embrace hardcore technologists because we’ve got hardcore problems,” Miglis adds. “We need developers who understand networking at the packet level, operating systems fine tuning, assembler code, electrical engineers, device driver writers, kernel hackers.” He also knows to find them before they head to Silicon Valley.

Griffin says, “Citadel’s long track record of success is what attracts and retains the most gifted system engineers and developers in the industry,” and nowhere is that record more evident than in the firm’s execution arm, Citadel Execution Services (CES), initially developed in 2004 with the firm’s options market-making business.

Eight years later, CES executes 21 percent of US listed options, 13 percent of consolidated equities volume, and is the country’s largest retail execution venue. Chinese walls separate CES, based in New York, from the asset management side, CES head Jamil Nazarali explains, who himself is an example of Citadel’s ability to attract new, top-tier talent. But Miglis oversees technology across the entire firm. “Tom was able to help build the CES team with hedge fund DNA,” Nazarali says, describing the firm’s rapid rise in execution as “unprecedented.”

Much of that rise is down to commitment to investor protection, with technology serving not just as a catalyst for faster execution or better price improvement, but as an intuitive firewall. Nazarali, who joined CES from Knight Capital about a year ago, says a proprietary “fusebox,” which sits outside the firm’s trading software, is just one safeguard Miglis implemented years before the industry became painfully aware of kill switches. “We fine-tune it every time we have a mistake. It has limits built in—whether exceeding average daily volume (ADV), or risk parameters on a position in any single name, aggregate book or a market exposure gets too large. It’s gone off a number of times, certainly. But that’s why we’re not in the news,” he says.

The Day After Tomorrow
When Nazarali attended the Securities and Exchange Commission’s (SEC’s) roundtable on technology in September, few at Citadel were surprised that it was Miglis “in the weeds,” combing though every detail of the firm’s letter to the regulator. But details are what Griffin and Miglis are about; indeed they are why Citadel, as a hedge fund, can enter markets that are formerly old boys’ clubs with technology, and thrive.