D-Street options under spotlight on US trading firm's $1 billion money-spinning strategy

US-based trading firm Jane Street Group's lawsuit against its two former employees is grabbing eyeballs as the courtroom drama over an Indian options strategy that allegedly made $1 billion for the Group is inviting attention all and sundry towards one of the world's fastest-growing derivatives markets.

Jane Street, which claims to trade in different asset classes at more than 200 venues in 45 countries through its five global offices, is fighting a case against two former employees and Millennium Management alleging that they stole a confidential and "immensely valuable" trading strategy earlier this month according to a Bloomberg report.

Millennium Management is a New York based investment management firm with a multi-strategy hedge fund offering.


The so-called trading strategy's focus on Indian options only became clear after lawyers for Millennium inadvertently identified the country in a hearing on Friday, the report said.

While several details of the strategy remain unclear as of now, the case offers an insight into how the profits are 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'," a Times of India report said quoting 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," the report said further.

The report further talks about discussions on the D Street growing louder over the nature of Jane Street's strategy with concerns being expressed over the firm's alleged outsized profits which might be coming at the expense of unsophisticated mom-and-pop traders.

According to the Indian market regulator the Securities and Exchange Board of India (Sebi) estimates over 90% of active retail traders lose money on derivatives. Retail investors account for about 35% of option trades in India.

"As retail participation in derivatives has gained traction in the post-Covid world, these players could be misled by complex market-maker positioning," the ToI report said quoting Tejas Shah who heads derivatives trading at Equirus Securities.

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