Wall Street has been riveted by the trading firm’s suit against two former employees and Millennium Management, after Jane Street claimed earlier this month that they stole a confidential and “immensely valuable” trading strategy.The strategy’s focus on Indian options only became clear after lawyers for Millennium inadvertently identified the country in a hearing on Friday.
While many details of the strategy remain murky, the case offers a rare glimpse into the profits being made by secretive high-speed trading firms in a market that has soared over the past decade to become the world’s largest by number of options contracts traded. Jane Street competitors including Optiver, Citadel Securities, IMC Trading and Jump Trading have all been expanding in India, alongside a bevy of hedge funds and other players.
“Options market-making is a ‘winner takes all game’,” said Anant Jatia, the Mumbai-based founder and chief investment officer at Greenland Investment Management, a systematic investment firm that oversees more than $1 billion. “Market making in India has become very competitive where the fight is not even over microseconds, it’s nanoseconds.”
As market participants in Mumbai exchanged theories over the nature of Jane Street’s strategy on Monday, several expressed concern that the firm’s outsized profits might be coming at the expense of unsophisticated mom-and-pop traders.
Retail investors make up about 35% of option trades in India, with the markets regulator estimating that 90% of active retail traders lose money on derivatives.
“As retail participation in derivatives has gained traction in the post-Covid world, these players could be misled by complex market-maker positioning,” said Tejas Shah, head of derivatives trading at Equirus Securities.Bloomberg