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Business News/ Markets / Jane Street Group's $1 billion trade puts spotlight on Indian derivatives market options
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Jane Street Group's $1 billion trade puts spotlight on Indian derivatives market options

Reasons can be many for foreign firms to scale up in India, but local high-frequency trader Graviton Research Capital's success, which was established in 2014, and India’s push to develop GIFT City says everything.

A street sign for Wall Street is seen outside the New York Stock Exchange (NYSE) in New York City, New York, U.S., July 19, 2021. REUTERS/Andrew Kelly/File Photo/File Photo (REUTERS)Premium
A street sign for Wall Street is seen outside the New York Stock Exchange (NYSE) in New York City, New York, U.S., July 19, 2021. REUTERS/Andrew Kelly/File Photo/File Photo (REUTERS)

Days after US hedge fund firm Jane Street filed a lawsuit against rival Millenium Management for allegedly stealing a 'highly valuable, unique, and proprietary' trading strategy, reports emerged that it is drawing fresh attention to the Indian derivatives markets.

According to a report by Bloomberg, the courtroom drama where Jane Street sued Millenium Management and two former employees – Douglas Schadewald and Daniel Spottiswood – for allegedly stealing trading strategy, claimed it earned around $1 billion in the previous year, while the profits plunged 50 percent in March 2024.

The strategy's focus became clear after lawyers for Millennium inadvertently identified India in a hearing at the US District Court in Manhattan on Friday, where they said the strategy was deployed in Indian markets, added the report.

Citing media reports, the defendants' lawyers even said that derivatives trading in India is lucrative. “Millennium lawyer Andrew Levander likewise said the Indian government has promoted opportunities for traders there," Bloomberg reported.

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However, after the hearing, US District Judge Paul Engelmayer denied Jane Street’s request to prevent Millenium and the traders from using the strategy. It also put a trial date in July.

Details of the strategy remain murky and the case reveals how profits are being made by secretive high-speed trading firms that soared over the past decade. Other Jane Street competitors – including Optiver, Citadel Securities LLC, IMC Trading BV, and Jump Trading – have all been expanding in India.

"Options market-making is a ‘winner takes all game’. Market making in India has become very competitive where the fight is not even over microseconds, it’s nanoseconds,"  Mumbai-based founder and CIO at Greenland Investment Management, Anant Jatia, told Bloomberg.

Others opine Jane Street's outsized profits might be coming at the expense of unsophisticated mom-and-pop traders.

According to several reports, retail investors make up about 35 per cent of option trades in India, with the market regulator estimating that 90 per cent 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," Bloomberg quoted Tejas Shah, head of derivatives trading at Equirus Securities Pvt, as saying.

With all these happening, the love for India’s market remains strong for both domestic and foreign market makers.

Reasons can be many for foreign firms to scale up in India, but local high-frequency trader Graviton Research Capital's success, which was established in 2014, and India’s push to develop GIFT City says everything.

“The driving force is the liquidity that is now available in India. It has become one of the only markets besides the US that can offer that kind of opportunity," commented Vaibhav Sanghavi, a hedge fund manager at ASK Investment Managers in Mumbai.

With agency inputs.

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Published: 22 Apr 2024, 07:31 PM IST
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