Jane Street Capital

The New Player in Town

Jane Street Capital, also known as Jane Street is a global proprietary trading company established in the early 2000s in Manhattan, New York. This underdog of the trading world was well-hidden under the shadows of Wall Street until after years of minting money by trading in ETFs is now pitching itself to the biggest players in the market with an overall trade turnover of more than $1 Trillion in a year. In July 2020, S&P Global Ratings confirmed Jane Street moving in the direction of capital growth. They also stated that it is a “highly profitable trading business,” that “the company has generated very strong earnings so far in 2020 and that its trading has benefited from the market volatility related to the COVID-19 pandemic.”

Technology at Heart 

Jane Street is one of the rare companies on Wall Street that uses the OCaml programming language. It went ahead with  OCaml as its main programming language early on because the language’s functional programming style and clear expressiveness made it possible for code reviews to be performed by traders who were not programmers. Jane Street has stated that “OCaml helps us to quickly adapt to changing market conditions, and go from prototypes to production systems with less effort”. Furthermore, OCaml’s “rigor is like catnip to some people,… giving Jane Street an unusual advantage in the tight hiring market for programmers” that allows Jane Street to “lure a steady supply of high-quality candidates”. Jane Street plays to win the advantage of programmable hardware like FPGAs to solidify some of the logic and functions. It registered some open-source code on GitHub too including their versions of standard OCaml libraries. 

Using MarketXLS templates to trade like Jane Street Capital

Jane Street Capital is one of the world’s largest market-makers, trading more than $17 trillion worth of securities in 2020. It was considered to have helped keep bond ETFs liquid during the market turmoil in 2020. Talking about ETFs, MarketXLS can help you in assessing various STFs across sectors using their templates. One such template is the Intra Sector view on the basis of Market Cap.

Link to the template: https://marketxls.com/template/intra-sector-view-on-the-basis-of-market-cap-2/

Usage: Using the Intra Sector View template, the Investor can select the ETF and compare the companies that are part of that index. The investor can also modify the stocks/components of the ETF based on his requirement. The comparison is based on CMP, Market Capitalisation, P/E, Revenue, and Profit Growth, ROE, and ROC indicators.

Why Jane Street Capital chooses ETFs?

Since ETFs began to climb the ladder of popularity, they have accounted for one-third of the total market of all publicly traded equity instruments. This has caused a substantial decline in the trading of margins, spreads, etc. The uprising of ETFs created unfavorable conditions for the traders to profit from margin differences. The risky nature of the elements involved that ETFs track, such as junk bonds, emerging market stocks, derivative products, add extra spice to the mix. These dangers got highlighted last August when markets were shaken by China’s decision to devalue its currency; some of the largest ETFs sank by 50 percent or more. While traders at large investment banks watched their screens in horror, at Jane Street, a bunch of Harvard Ph.D.s swooped in action with a wave of buy orders. By the end of the day, the ETF shares had retraced their sharp falls.

“It’s remarkable what they can do,” said Blair Hull, a founder of an electronic trading firm who uses the services of Jane Street Capital to work through in the market of ETFs. Cantor Fitzgerald, the Knight Capital Group, and the Susquehanna International Group have all capitalized on the ETF explosion.

Jane Street Capital Overview

“As a trader, if you do well, you will retire before you turn 30,” said one employee on an industry message board of Jane Street Capital. In terms of the work, Jane Street uses quantitative methods to take advantage of an arbitrage situation. In conclusion, Jane street preys on an unsynchronized relationship between two instruments to create itself an opportunity for arbitrage.

Jane Street quotes, “On an average day, we trade over $13 billion in equities worldwide. We are also very active in the markets for options, futures, currencies, commodities, and fixed income. We are active participants in more than 200 electronic exchanges and other trading venues in about 40 countries worldwide. We traded over $4.8 trillion across all products in 2016.”

Conclusion 

Increasing competition has nurtured a whole new breed of traders on Wall Street. These are people who are not only good with numbers and writing codes but are also well versed with the game of noticing erratic behaviors in the stock market to lead a big capital play.  Here is a list of Jane Street’s main traders: Tao Wang (doctorate in philosophy and finance from the National University of Singapore), Min Zhu (master’s in chemistry, Columbia), Brett Harrison (master’s in computer science with a focus in artificial intelligence, Harvard) and Srihari Seshadri (bachelor’s in computer science, Carnegie Mellon).

For large asset management firms like BlackRock, Vanguard, and Invesco, the business of rolling out one ETF after another has become a significant profit center. In totality, most of the market is driven by prominent trading firms who know how to build a new one out of these securities. Jane Street has increased its shareholder’s equity, or net worth, to more than $1 billion today from $228 million in 2007.

Disclaimer

None of the content published on marketxls.com constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The author is not offering any professional advice of any kind. The reader should consult a professional financial advisor to determine their suitability for any strategies discussed herein. The article is written to help users collect the required information from various sources deemed authority in their content. The trademarks, if any, are the property of their owners, and no representations are made.

References

https://www.nytimes.com/

https://en.wikipedia.org/