Dear Reader,

The renowned US Hedge Fund firm Jane Street has recently garnered significant attention within Indian financial circles, overshadowing its prominence in its home market. This sudden interest stems from a legal dispute initiated by Jane Street against rival Millenium Management, alleging the misappropriation of proprietary trading strategies. Amidst the legal battles, revelations surfaced regarding Jane Street's substantial profits, totalling a staggering $1 billion, derived from trading activities within the Indian market.

The ensuing chatter across social media platforms painted a picture of perceived exploitation, with various market participants pointing out what they perceived as profiteering at the expense of unsuspecting retail traders. However, before passing judgment based solely on social media discourse, it is imperative to contextualise Jane Street's activities within the broader landscape of options trading.

Jane Street is but one among many trading entities, both domestic and international, that have capitalised on options trading to generate substantial returns. Notably, a significant portion of the options market comprises institutional traders, with retail traders constituting a mere 35 percent.

Moreover, the utilisation of High-Frequency Trades (HFTs) and Market Making strategies facilitated by sophisticated computing technologies is not unique to Jane Street but a prevalent practice employed by numerous trading firms globally, including domestic and international firms operating within India.

While it's undeniable that HFT traders and Market Makers possess a competitive advantage over retail traders and other institutions lacking similar technological infrastructure, they play a vital role in providing liquidity to the market.

Additionally, it's essential to recognise that trading strategies, particularly short-term trading, are subject to constant change. What may yield profits today could become obsolete tomorrow as traders innovate to exploit emerging market dynamics.

Criticism directed towards Jane Street's profits from options trading warrants scrutiny. Firstly, whether these profits stem from a singular strategy or a diverse array of trading approaches remains unclear. Even if it does, so what?

The selective outrage towards HFT traders contrasts with the acceptance of profits garnered through other investment avenues, such as Foreign Portfolio Investments (FPIs) or investments in illiquid small-cap stocks by fund houses and Portfolio Management Services (PMSs).

The contention surrounding Jane Street's activities underscores the competitive nature of short-term trading. Rather than lamenting the success of these traders, the focus should shift towards equipping oneself to compete effectively in the global marketplace.

Already, several algorithmic trading platforms exist in India that are trying to help retail traders equip themselves with the latest technology at a low cost to gain a competitive edge. This may not be enough to tackle HFT traders, but it is better and faster than manual trading.

Calls for the prohibition of HFTs and Market Making based on perceived advantages mirror debates in the political domain. Some parties advocate abolishing Electronic Voting Machines (EVMs) in favour of traditional ballot voting.

Jane Street's success in Indian markets is a testament to the vibrancy and attractiveness of India's financial landscape. If anything, Jane Street making money in Indian markets is the best advertisement that Indian markets could hope for. Even the government of India, SEBI or exchanges could not have attracted attention to Indian markets like Jane Street.

If we want to be the best in the world, we need to equip ourselves to compete with the best rather than complain about it.


Investing insights from our research team

Mahindra Finance: Is the stock correction an opportunity to add?

Cyient DLM: Defence demand fuels solid numbers

Rallis India finishes Q4 FY24 on a weak note

MC Pro Quick Take | Tata Consumer: Premium products, softer input costs drive up margins

What else are we reading?

MC Inside Edge: BSE rides high on colo story, bulls perch atop Indus Towers, fund managers’ brotherly love, broking’s comeback

The mixed message from the global flash PMIs

Chart of the Day: Does the crash in India VIX suggest the market has cast its vote?

Decoding Economics | AI is a magic bullet to increase productivity, finds BIS research

RBI’s State of the Economy makes a dash for long-term high growth

Regulatory risk in sight for FMCG companies

Changing contours of India’s commercial real estate market

Tesla’s Model 2 launch expectations cheer investors, but Q1 a disappointment

Vodafone Idea FPO's success buys it two years of talk time

The tricky judgments on when to loosen (republished from the FT)

Personal Finance

Sensex at all-time high: Why active funds work better than passive funds at this point

Technical Picks: Sobha, Indian Hotels, IRCTC, ACC and Crude oil


(These are published every trading day before markets open and can be read on the app)

Shishir Asthana
Moneycontrol Pro