Jane Street’s $1 billion trade puts spotlight on Indian options

Wall Street has been riveted by the trading firm’s suit against 2 erstwhile employees and Millennium Management, aft Jane Street claimed earlier this period that they stole a confidential and “immensely valuable" trading strategy. The strategy’s absorption connected Indian options lone became wide aft lawyers for Millennium inadvertently identified the state successful a proceeding connected Friday.

While galore details of the strategy stay murky, the lawsuit offers a uncommon glimpse into the profits being made by secretive high-speed trading firms successful a marketplace that has soared implicit the past decennary to go the world’s largest by fig of options ­contracts traded. Jane Street competitors including Optiver, Citadel Securities LLC, IMC Trading BV and Jump Trading person each been expanding successful India, alongside a bevy of hedge funds and different players.

“Options market-making is simply a ‘winner takes each game’," said Anant Jatia, the Mumbai-based laminitis and main concern serviceman astatine Greenland Investment Management, a systematic concern steadfast that oversees much than $1 billion. “Market making successful India has go precise competitory wherever the combat is not adjacent implicit microseconds, it’s nanoseconds." 

As marketplace participants successful Mumbai exchanged theories implicit the quality of Jane Street’s strategy connected Monday, respective expressed interest that the firm’s outsized profits mightiness beryllium coming astatine the disbursal of unsophisticated mom-and-pop traders.

Retail investors marque up astir 35% of enactment trades successful India, with the marketplace regulator estimating that 90% of progressive retail traders suffer wealth connected derivatives.

“As retail information successful derivatives has gained traction successful the post-Covid world, these players could beryllium misled by analyzable market-maker positioning," said Tejas Shah, caput of derivatives trading astatine Equirus Securities Pvt.

Jane Street claimed it earned astir $1 cardinal from the strategy past year, the justice said during Friday’s hearing. The institution reeled successful much than $10 cardinal successful nett trading gross past year, Bloomberg reported successful January.

Despite the risks, the allure of India’s marketplace imaginable remains beardown for some home and overseas marketplace makers.   

The occurrence of section high-frequency trader Graviton Research Capital, which was established successful 2014, and India’s propulsion to make GIFT City, a fiscal hub that rivals Dubai and Singapore, are seen arsenic reasons for overseas firms to standard up. 

“The driving unit is the liquidity that is present disposable successful India," said Vaibhav Sanghavi, a hedge money manager astatine ASK Investment Managers successful Mumbai. “It has go 1 of the lone markets too the US that tin connection the benignant of opportunity." 

--With assistance from Ashutosh Joshi.

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