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Because Citadel attempts to mitigate macro risks, it feels comfortable using leverage. "Rewards can be small [with arbitrage], so we do utilize leverage. We really work to keep the portfolio hedged."

UNENCUMBERED BY BUREAUCRACY

Griffin says decision making is pushed down from the top. There are approximately 80 investment professionals who make decisions. "I want those nearest the information to be unencumbered by bureaucracy. They make the decisions."

The investment committee, consisting of a handful of senior portfolio managers, meets collectively, depending on the underlying volatility of the markets. Griffin says in 1998, they met several times a day. In 2000, they meet less frequently, perhaps once a week. The shifts in the underlying environment drive the frequency and duration of the meetings.

In describing the firm, Griffin provides an airplane analogy. The quantitative research group is responsible for building the engines. The technology team builds the plane's airframe, and the traders are the pilots in the cockpit.

Organizationally, there are five groups: (1) The Quantitative Research Group develops and enhances proprietary mathematical models to service Citadel. Numerous PhDs—mostly physicists—work on building models of the markets. They provide tools for portfolio management, stress testing of trades, and stress testing the portfolio under various market conditions. (2) The Investment and Trading Group identifies investment opportunities around the world using mathematical and statistical methods, proprietary valuation techniques, and fundamental analysis. (3) The Information Systems people provide the information technology that drives Citadel. They write and maintain code to keep systems current. They design the trading systems that support the analytics and trading efforts. (4) The Portfolio Finance Group is responsible for managing counter party and liquidity risk. (5) Operations, Legal and Accounting consists of approximately 80 people who monitor the transactions and positions. They are responsible for regulatory and financial compliance, and oversight of procedures. Every trade is reconciled every day.