How Jeff Yass’ firm makes money from companies like Trump’s Truth Social

Wall Street is a mansion with many rooms: Some capitalists start companies. Some invest in others’ companies, betting they’ll get more profitable. Some are proprietary traders, risking their own money on quick price movements.

And some of the biggest “prop” traders — like Jeff Yass’ Susquehanna International Group, based on City Avenue — also get paid by matching buyers and sellers.

These are the “market makers,” led by a handful of firms including SIG, which employs 3,000 traders and support staff worldwide, nearly half at its Bala Cynwyd offices; Florida-based Citadel, founded by billionaire Kenneth C. Griffin; and New York-based Jane Street.

The market makers are a key part of the stock, option, and futures market machinery that raises funds for and distributes profits from publicly traded companies — but they are just about invisible to outsiders, like warehouse workers to Amazon shoppers, only a lot better paid. Yass is the richest person in Pennsylvania, according to Forbes.

Ever so rarely a market maker makes the news — as Yass’ firm did when it showed up as the biggest of the early shareholders in the company that became Trump Media & Technology Group, in the weeks before it first traded on the Nasdaq stock exchange March 26.

The merger that enabled the stock to go public took place the same month that former President Donald Trump and Yass met briefly at a Club for Growth event (Yass’ people say they discussed education) and after Trump abandoned his support for a ban on TikTok, the China-based social media app in which SIG holds a large investment.

SIG’s holdings in the Trump company drew media coverage from The Inquirer, the New York Times, and even The Late Show with Stephen Colbert, after the shares showed up in year-end SEC reports.

SIG responded with a statement stressing it had “no economic interest” whether Trump Media shares rise or fall: It was just the market maker.

SIG and other market makers pick stocks they expect investors will want to buy — and options and futures in those stocks, which are ways to gamble on whether a stock will rise or fall over a given period at a fraction of the price of buying a share.

They buy these shares, not expecting that they’ll rise in value, but in order to have inventory to sell to buyers. So they also short-sell a similar number of the securities, betting they will fall, as a way to reduce the risk of holding a lot of shares that they expect may lose value.

To complicate the picture, market-making firms can also make their own bets on the securities, at public prices, so long as they don’t cut themselves special pricing deals not available to other buyers and sellers they service.

Like a pawnbroker or used-car dealer, market makers promise the public they will offer to sell a security at one price, while paying a lower price to buy it. They buy, and sell, and keep the difference as profit.

For shares of very popular stocks like Apple or Amazon, this “spread” between buyer “bids” and seller “offers” may be very small per share, though still profitable if the market maker can capture a lot of trades.

Market making can be more profitable with new, lesser-known, or more-volatile securities, where the bid/ask spread is wider and there’s more for the middleman to keep.

Securities and Exchange Commission records show SIG began collecting shares of Trump Media’s publicly traded predecessor, Digital World Acquisition Co., in 2021, the year Trump’s newly incorporated media and technology group announced its plan to merge with Digital as a way of going public.

By year-end 2021, SIG held Digital World shares valued at around $75,000. The Digital World-Trump Media plan to go public took three litigious years to consummate. For most of that period, SEC reports suggest SIG continued accumulating shares, options, and futures in Digital World, which held few assets beyond its plan to merge with Trump’s tiny company and effectively take it public.

By Sept. 30 of last year, SIG controlled Digital World stock with total estimated value of $35 million — offset, SIG says, by its short positions, which the SEC doesn’t track. The company sold some of its positions later that year in advance of the Trump Media deal but still held $25 million as of Dec. 31.

People familiar with SIG’s trading, speaking on condition of anonymity, said they expect the company’s March 31 SEC reports, reflecting what SIG owned soon after the sale share, will show it had reduced its holdings toward zero by that date. Reports are typically released about a month and a half after the quarter ends.

A handful of institutional investors also showed early accumulations of Trump Media stock in their Dec. 31 reports, including Atika Capital Management, a New York hedge fund; Sapient Capital LLC, an Indianapolis investment adviser targeting rich people; and LPL Financial LLC, a network of local investment brokers.

But big asset managers like Vanguard, BlackRock, and Fidelity, which have a history of making early bets on acquiring shares of promising tech start-ups even before they “go public” on the stock markets, hadn’t reported significant positions in Trump Media before it went public.

An investor who’s convinced a security is likely to rise will “go long,” buying shares without paying the extra it costs to hedge their bets. Similarly a bearish investor might short a stock — sell shares and pledge to buy them back at a future time for an expected lower price then pocket the difference.

But a neutral market maker can make money just collecting their bid/ask spread without benefiting or losing from a big change in price. If the shares they are selling are balanced by short agreements, whether the price rises or falls, the market maker still gets paid from every trade it handles.

Trump Media lost half its value in the two weeks since it went public. But market makers can still profit until a share price falls towards zero, with no hope of recovery, and investors stop trading it altogether.