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Case Study: History of Jane Street

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    Company Profile

  • 125 Pages
  • May 2020
  • Alphacution Research Conservatory, LLC
  • ID: 5124986
Description Jump to:

Volatility. It’s like the highest-octane fuel in the engine of every proprietary trading and market-making firm – and it is very difficult to capture, harvest or extract from an incessantly violent onslaught of data. Moreover, it is exceedingly – if not, impossibly – difficult to predict (over any time frame) with consistency. The exception – the only exception – to this axiom is to be consistently positioned to benefit from shifts in volatility, and nimble enough to react favorably when those shifts occur.

Now, many – certainly, dozens of – trading firms have satisfied these criteria to a wide spectrum of success. The most prominently distinguishing factor among them – like the achievement of karate’s grandmaster black belt level – is scale; a factor that has paradoxically established a fault line between those who navigate to scale and those who do not. As the wielding of technology – and the absence of regulatory impediments to buffer its impact on market macrostructure – promotes winner-take-all (WTA) competitive dynamics in the ecosystem, market makers either battle in the Octagon for each increment of scale or risk existential threats. It is no longer enough to passively tread for a tide of benevolent volatility to lift your brand of boat unless you are content to remain in your basement where the clock is accurate at least twice per day.

Today, there are five factors that must be mastered to maximally scale a trading operation in closest possible proximity to the sources of listed transactions – arguably, for each product class. In addition to volatility, these include inventory, liquidity, information asymmetry, and processing. Adding an extra alley-oop to the magnitude of the challenge: There’s only one of these factors that can be controlled. And, it has potential to represent the Everlasting Gobstopper of special sauces.

Top Proprietary Firms

Among the global roster of proprietary trading and non-bank market making firms, the publisher has identified twelve that epitomize the successful navigation of the contemporary gauntlet required to achieve scale.

For now, the point is to remain focused on the objectives – the DNA – of a successful scaling strategy under conditions of finite alpha capacity and WTA competitive dynamics: The inventory of suitable products. The liquidity spectrum of those suitable products. A favorable disposition to a myriad of fleeting information asymmetries. And, a favorable disposition to volatility [which has little in common with information asymmetries given our post-Global Financial Crisis (GFC) era of aggressive interventionism].

The only aspect of these objectives that can be controlled in service of growth is one’s response to them. Like a stem cell, processing – a maniacal sensitivity to detail – is the source of all responses; and thus – in this game – all competitive advantages. Among the upper echelon of firms in this space, the publisher ranks Jane Street among the top three.

Scope of Jane Street

What originally appears to have started out as Henry Capital in August 1999, has become one of the most successful proprietary trading firms in the world today. It’s a very short list of those who have forged success across regions, product and asset classes, strategies – and time.

Not much is known about the origins of Jane Street – officially or unofficially among the mythologies that tend to travel the backchannels of trading lore – other than occasional media reports about its prowess as one of the largest ETF market makers. Though some mythologies – as if fossilized in amber – have been suspended in time due acquisitions, those that remain can be roughly bifurcated between those where the founders contributed, wittingly or unwittingly, to the mythology and those who did not. Think Ken Griffin, Jim Simons, or Cliff Asness in the contemporary cases where the founder has become synonymous with the brand. And then, try to conjure up the founders of Susquehanna International Group (SIG). For most, you can’t do it.

That’s the old-school prop world.


Table of Contents

1. Introduction
  • Top Proprietary Firms
  • Scope Of Jane Street
  • Data  Sample
  • Research Mission
  • Glossary
2. Table Of Contents3. Table Of Exhibits
4. Landscape
  • Alpha Capacity Elasticity
  • Historical Perspective
  • Key Landscape Drivers
5. Storyboard
  • European Risk
  • US Risk
  • US Equity Strategies
  • US Option Strategies
  • Select Competitor Analysis
  • Revenue Estimation Model
6. Conclusion
  • Making Market History Market Making
  • Next Steps
7. Vignettes
  • Speed: Implied Strategy Turnover Frequency
  • Position Concentration Risk
  • Cryptocurrency Trading
  • Focus On GFC
  • OTC Derivatives
  • Global Balance Sheet
  • Enterprise Value
8. Supplemental Exhibits
  • European Entities: Operations
  • US Entities: Trading And Operations
9. About The Publisher
  • Author
  • Contact
Table  Of Exhibits
Exhibit 1: Origins of Top Global Proprietary Trading and Market Making Firms, by Founding Year
Exhibit 2: Jane Street Group, LLC – Affiliated Operating and Holding Entities by Region, 2019
Exhibit 3: Annotated Framework Hypothesis – Technical and Human Capital Leverage Benchmarks
Exhibit 4: Converting Framework Hypothesis into Map of Strategy Categories, Manager Coordinates
Exhibit 5: Top 100 Players in US Listed Market Structure  – Structural Alpha Zone,” 2019
Exhibit 6: Asset Management Ecosystem Map With Liquidity Pools (V11)
Exhibit 7: Market Ecosystem Information Consumption-Dissemination Mechanism
Exhibit 8: Information Asymmetry Waves and Alpha Capacity Elasticity
Exhibit 9: Non-Bank Proprietary Trading Firms Segmented by Home Country
Exhibit 10: Top Global Proprietary Trading and Market Making Firms, Key Attributes (By Founding Year)
Exhibit 11: Jane Street Group – Europe Gfv by Entity (% Gfv), 2012 - 2018
Exhibit 12: Jane Street Group – Europe Gfv by Entity and Product Class ($Millions), 2012 - 2018
Exhibit 13: Jane Street Group – Europe Gfv by Product Class (% Gfv), 2012 - 2018
Exhibit 14: Jane Street Group – Europe Nfv by Product Class ($Millions), 2012-2018
Exhibit 15: Jane Street Group - Europe Nfv by Product Class (% Gpfv), 2012-2018
Exhibit 16: Jane Street Group - Europe Gfv by Product Class and Entity ($Millions), Nfv (%), 2012-2018
Exhibit 17: Jane Street Group – Europe Nti by Entity ($Millions), 2008 - 2018
Exhibit 18: Jane Street Group – Europe Nti by Competitor Comparison ($Millions), 2006 – 2018
Exhibit 19: Jane Street Group – Total US Assets by Entity ($Billions), 2001–2019
Exhibit 20: Jane Street Group – Gfv by Entity ($Billions), 2001-2019
Exhibit 21: Jane Street Group – US Gfv by Product Class ($Billions), 2008-2019
Exhibit 22: Jane Street Group – Gfv by Product Class (% Gfv), 2008-2019
Exhibit 23: Jane Street Group – US Nfv by Product Class ($Billions), 2008-2019
Exhibit 24: Jane Street Group – Nfv by Product Class W/O Cash Equities ($Millions), 2008-2019
Exhibit 25: Jane Street Group – Nfv by Product Class (% Gpfv), 2008-2019
Exhibit 26: Jane Street Group – Dollar Neutrality by Entity (% Entity Gfv), 2001-2019
Exhibit 27: Jane Street Capital / Jane Street Options – US Equity Nfv Combinations (% Gpfv), 2001-2019
Exhibit 28: Jane Street Capital – US Equity Nfv W Etf Breakout (% Gpfv), 2008-2019
Exhibit 29: Jane Street Group – Business Activity by Leading Broker-Dealer Entity, 2019
Exhibit 30: Jane Street Group – Exchange and Regulatory Approval Chronology by Entity, 2000 - 2019
Exhibit 31: Jane Street Group – 13F Reporting Manager Chronology
Exhibit 32: Jane Street Group – 13F Position Count by Entity, Q1 2003 – Q4 2019
Exhibit 33: Jsg Reporting Managers – Avg Product Concentration by Positions (%), Q1 2003 – Q4 2019
Exhibit 34: Jsg Reporting Managers – 13F Gross Value by Entity, Q1 2003-Q4 2019
Exhibit 35: Jsg Reporting Managers – Avg Product Concentration by Gross Value, Q1 2003-Q4 2019
Exhibit 36: Jsg – 13F Position Count (Top) / Position Breakdown (Bottom) by Pc, Q1 2003 - Q4 2019
Exhibit 37: Jsg – 13F Gv by Product (Top) / Product Breakdown, %Gv (Bottom), Q1 2003 - Q4 2019
Exhibit 38: Jsg – 13F Gv (Top) / Avg Position Value, %Gv (Bottom) by Pc, Q1 2003 - Q4 2019
Exhibit 39: Jsg - 13F Gv (Top) / Avg Pos Value, %Gpv (Bottom) by Pc (Wide Scale), Q1 2003 - Q4 2019
Exhibit 40: Jsg - 13F Gv (Top) / Avg Pos Value, %Gpv (Bottom) by Pc (Mid Scale), Q1 2003 - Q4 2019
Exhibit 41: Jsg-13F Gv (Top) / Avg Pos Value, %Gv (Bottom) by Pc (Narrow Scale), Q1 2003 - Q4 2019
Exhibit 42: Jsg – 13F Option Position Count (Top) / Put-Call Ratio by Pc (Bottom), Q1 2003-Q4 2019
Exhibit 43: Detailed Strategy Clues - 13F Etf Position Counts by Pc and Entity, Q3 2008 – Q4 2019
Exhibit 44: Detailed Strategy Clues - 13F Stock Position Counts by Pc and Entity, Q3 2008 – Q4 2019
Exhibit 45: Jsc/Jso – Net Stock Option Positions* (Top) / Put-Call Ratio (Btm) by Entity, Q3 2008-Q4 201
Exhibit 46: Jsc/Jso – Net Etf Option Positions* (Top) / Put-Call Ratio (Btm) by Entity, Q3 2008-Q4 2019
Exhibit 47: 13F Opt Pos (P1) / Net Opt Positions* (P2)/ Put-Call Ratio (P3) by Pc and Entity, Q3 08-Q4 19
Exhibit 48: Jane Street Group – Total 13F Gross Option Value Bias* ($Billions), Q1 2003 – Q4 2019
Exhibit 49: Jsc/Jso – 13F Gross Option Value Bias* by Product and Entity ($Billions), Q1 2003 – Q4 2019
Exhibit 50: Jsg – Combined 13F Gross Option Value Bias* by Product and Entity ($B), Q1 2003 – Q4 2019
Exhibit 51: Jsc/Jso - “Unbiased” Vs Biased* 13F Stock Option Gv by Entity ($B), Q3 2008 – Q4 2019
Exhibit 52: Jsc/Jso - “Unbiased” Vs Biased* 13F Etf Option Gv by Entity ($B), Q3 2008 – Q4 2019
Exhibit 53: 13F Opt Pos (P1), Put-Call Ratio (P2), Gv Bias (P3) by Product and Entity, Q1 2003 – Q4 2019
Exhibit 54: Jsc/Jso – Average Etf Option Position Value by Side and Entity (%Gpv), Q1 2014-Q4 2019
Exhibit 55: Case Study Subjects – 13F Gross Value, Q3 2008 – Q4 2019
Exhibit 56: Case Study Subjects - 13F Gv by Pc (Ranked by % Option Gv), Q4 2019
Exhibit 57: Case Study Subjects – Total 13F Position Count, Q3 2008 – Q4 2019
Exhibit 58: Case Study Subjects – 13F Positions by Product (Ranked by % Options), Q4 2019
Exhibit 59: Case Study Subjects – 13F Position Count by Pc, Q3 2008 – Q4 2019
Exhibit 60: Case Study Subjects – Avg 13F Stock Pos in Shares by Entity, Q3 2008 – Q4 2019
Exhibit 61: Case Study Subjects – Avg 13F Etf Positions in Shares, Q3 2008 – Q4 2019
Exhibit 62: Case Study Subjects – Estimated Europe Nti ($Millions), 2006 – 2018
Exhibit 63: Jane Street Financial Ltd – Average Headcount by Workflow Position, 2009 - 2018
Exhibit 64: Jane Street Group – Est Global Headcount by Workflow Position (% Total), 2008 - 2019
Exhibit 65: Jane Street Group – Agg European Payroll, Avg Comp and Revenue Per Employee, 2008 - 2018
Exhibit 66: Jane Street Group – Estimated Global Headcount by Region, 2008 - 2019
Exhibit 67: Jane Street Group – Estimated Global Revenue and Revenue Per Employee, 2008E – 2019E
Exhibit 68: Jane Street Group – US and Europe Consolidated Shareholder’s Equity ($B), 2001 – 2019E
Exhibit 69: Jane Street Group – Average Cash Position in Shares, Q1 2003-Q4 2019
Exhibit 70: Jane Street Group – Average Stock Position in Shares by Entity, Q1 2003-Q4 2019
Exhibit 71: Jane Street Group – Average Etf Position in Shares by Entity, Q1 2003-Q4 2019
Exhibit 72: Jane Street Group – Avg Cash Position Value by Product Class ($Millions), Q1 2003 – Q4 2019
Exhibit 73: Jane Street Group – Average Stock Position Value by Entity ($Millions), Q1 2003 – Q4 2019
Exhibit 74: Jane Street Group – Average Etf Position Value by Entity ($Millions), Q1 2003 – Q4 2019
Exhibit 75: Jane Street Group – Position Concentration by Value (%Gv), Q1 2003 – Q4 2019
Exhibit 76: Jane Street Capital – Position Concentration by Value (%Gv), Q3 2008 – Q4 2019
Exhibit 77: JSCT Europe Ltd (Jscte) – Cryptocurrency Trading Income Statement ($000’s), 2019
Exhibit 78: Jane Street Group – FocUS on GFC: 13F Gv by Reporting Manager, Q3 2008 – Q4 2014
Exhibit 79: Jane Street Capital – Ratio: Short Fair Value / Long Fair Value by Product Class, 2008-2019
Exhibit 80: Jane Street Group – Gfv by Region ($B), 2001–2019 (US), 2012–2019E (Europe)
Exhibit 81: Jane Street Group – Gfv by Region (% Global Gfv), 2001–2019 (US), 2012–2019E (Europe)
Exhibit 82: Jane Street Group – Europe Consolidated Shareholder’s Equity ($Millions), 2007-2019E
Exhibit 83: Jane Street Group – US Consolidated Member’s Equity ($Billions), 2001 - 2019
Exhibit 84: Jane Street Europe Ltd – Operating Margin (%), 2008 - 2018
Exhibit 85: Jane Street Europe Ltd – Average Headcount by Workflow Position, 2008 - 2018
Exhibit 86: Jane Street Europe Ltd – Workflow Segmentation (% Total Average Headcount), 2008 - 2018
Exhibit 87: Jane Street Europe Ltd – Total Payroll ($ Millions), 2008 - 2018
Exhibit 88: Jane Street Europe Ltd – Avg Annual Compensation Per Employee ($000’s), 2008 - 2018
Exhibit 89: Jane Street Financial Ltd – Operating Margin (%), 2009 - 2018
Exhibit 90: Jane Street Financial Ltd – Average Headcount by Workflow Position, 2009 - 2018
Exhibit 91: Jane Street Financial Ltd – Workflow Segmentation (% Total Average Headcount), 2009 - 2018
Exhibit 92: Jane Street Financial Ltd – Tot Payroll ($M), Avg Ann Comp Per Employee ($000’s), 2009-2018
Exhibit 93: Jane Street International Trading Ltd (Jsit) – Net Trading Income ($ Millions), 2014-2018
Exhibit 94: Jane Street International Trading Ltd (Jsit) – Avg Headcount by Workflow Pos, 2014-2018
Exhibit 95: Jane Street International Trading – Workflow Segmentation (% Total Headcount), 2014-2018
Exhibit 96: JSIT – Total Payroll ($Millions), Avg Annual Compensation Per Employee ($000’s), 2014-2018
Exhibit 97: Jane Street Group – Estimated Net Securities Fair Value by Entity ($Billions), 2001 - 2019
Exhibit 98: Jane Street Group – Estimated Gross US Equity Options Fair Value ($Billions), 2008-2019
Exhibit 99: Jane Street Group – Estimated Net US Equity Options Fair Value ($Millions), 2008-2019
Exhibit 100: Jane Street Group – Est US Equity Options Nfv (% Options Gfv), 2008-2019
Exhibit 101: Jane Street Group – Est US Equities Gfv by Entity (% US Equities Gfv), 2001-2019
Exhibit 102: Jane Street Group – Total 13F Long Shares and Share Equivalents, Q1 2003 – Q4 2019
Exhibit 103: Jsg Reporting Managers – Avg Product Class Concentration by Shares, Q1 2003 – Q4 2019
Exhibit 104: Jsg – Avg Position Value by Product Class (% Tot Product Class Value), Q1 2008 - Q4 2019
Exhibit 105: Jane Street Group – Total 13F Option Gross Value by Product Class, Q1 2003-Q4 2019
Exhibit 106: Jane Street Group – Average 13F Option Position Gv by Product Class, Q1 2003 – Q4 2019
Exhibit 107: Jane Street Group – Average Adr Position in Shares by Entity, Q1 2003-Q4 2019
Exhibit 108: Jane Street Group – Average Adr Position Value by Entity ($Millions), Q1 2003 – Q4 2019
Exhibit 109: Jsg – Consolidated Avg Option Position in Share Equivalents by Pc, Q1 2003-Q4-2019
Exhibit 110: Jsg – Gross Option Value Bias by Product Class (% Total Option Gv), Q1 2003-Q4-2019
Exhibit 111: Jsc/Jso – Avg Gross Position Value by Stock Product Class and Entity, Q1 2013-Q4-2019
Exhibit 112: Jsc / Jso – Average Gross Position Value by Etf Product Class and Entity, Q1 2013-Q4-2019
Exhibit 113: Jsg – Net (Long) Option Share Equivalents by Product Class and Entity, Q1 2003-Q4-2019
Exhibit 114: Jsg – Avg Net Option Position in Shares by Product and Entity (Narrow), Q1 2003-Q4-2019
Exhibit 115: Jsg – Avg Net Option Position in Shares by Product and Entity (Wide), Q1 2003-Q4-2019
Exhibit 116: Jane Street Group – Estimated Global Headcount by Workflow, 2008 - 2019
Exhibit 117: Jane Street Group – Total 13F Positions Ranked by Value, Q3 2004 – Q4 2019 (5Y Interval)
Exhibit 118: Jane Street Capital – US Securities Fair Value ($Billions), 2001 - 2019
Exhibit 119: Jane Street Capital – Gfv by Product Class (% Total Gfv), 2008-2019
Exhibit 120: Jane Street Capital – 13F Portfolio Fair and Estimated Notional Values, Q3 2008 – Q4 2019
Exhibit 121: Jane Street Capital – Dollar Neutrality by Sector (% Gross Sector Value), 2010-2013
Exhibit 122: Jane Street Capital – Nfv by Product Class (% Gross Product Class Fv), 2001-2019
Exhibit 123: Jsc – Net Debt Securities Fv (% Total Gross Product Class Fv), 2008-2019
Exhibit 124: Jane Street Capital – Percentage of Total 13F Gv by Product Class, Q3 2008 – Q4 2019
Exhibit 125: Jane Street Capital – Short Puts Asset Coverage, 2011-2019
Exhibit 126: Jane Street Capital – Equity Derivatives Volume, 2009-2019
Exhibit 127: Jane Street Capital – Futures Volume by Asset Class, 2009-2019
Exhibit 128: Jane Street Capital – Commodity Option Volume (# Underlying Securities), 2009-2019
Exhibit 129: Jane Street Capital – Gross Technology Assets, 2010-2019
Exhibit 130: Jane Street Capital – 13F Position Count by Secondary Product Classes, Q3 2008 – Q4 2019
Exhibit 131: Jane Street Capital – 13F Position Count by Pc (% Total Positions), Q3 2008 – Q4 2019
Exhibit 132: Jane Street Options – Gfv by Product Class ($Billions), 2006-2013 / 2014E-2019E
Exhibit 133: Jane Street Options – 13F Gross Value by Product Class (% Total Gv), Q3 2008-Q4 2019
Exhibit 134: Jane Street Options – Average 13F Cash Position Value by Product Class, Q4 2014 – Q4 2019
Exhibit 135: Jane Street Options – Avg Option Position Value by Product Class, Q3 2008 - Q4 2019
Exhibit 136: Jane Street Options – Net Fair Value by Product Class ($Billions), 2006-2013 / 2014E-2019E
Exhibit 137: Jane Street Options - 13F Portfolio Fair and Estimated Notional Values, Q3 2008 – Q4 2019
Exhibit 138: Jane Street Options – Nfv by Product (% Gross Product Fv), 2006-2013 / 2014E-2019E
Exhibit 139: Jane Street Options – 13F Position Count by Product Class, Q3 2008 - Q4 2019
Exhibit 140: Jane Street Options – Net Fair Value by Sector (% Gross Sector Fv), 2010-2013
Exhibit 141: Jane Street Options – Total 13F Shares and Share Equivalents by Pc, Q3 2008 – Q4 2019
Exhibit 142: Jane Street Options – 13F Position Concentration Analysis by Gnlmv, Q4 2014 - Q4 2019
Exhibit 143: Jane Street Options – Est Annual Equity Option Contract Volume, 2009-2013 / 2014E-2019E
Exhibit 144: Jane Street Markets – US Equities Fair Value ($Millions), 2001-2013
Exhibit 145: Jane Street Markets – Net US Equities Fair Value (% Gross Equities Fv), 2001-2013
Exhibit 146: Jane Street Markets – Dollar Neutrality by Sector (% Gross Sector Fv), 2010-2013
Exhibit 147: Jane Street Trading – Total Assets ($Millions), 2003-2008
Exhibit 148: Jane Street Execution Services – Total Assets ($Millions), 2013-2019
Exhibit 149: Jane Street Execution Services – Due to Parent ($Millions), 2013-2019

Samples

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Companies Mentioned

  • Jane Street Group, LLC
  • Jane Street Capital, LLC
  • Jane Street Options, LLC
  • Jane Street Global Trading, LLC
  • Jane Street Execution Services, LLC
  • Jane Street Europe Ltd
  • Jane Street Financial Ltd
  • Jane Street International Trading Ltd
  • Citadel Securities, LLC
  • Citadel Securities (Europe) Ltd
  • Susquehanna International Group, LLP
  • Susquehanna Securities, LLC
  • Susquehanna International Securities Ltd
  • G1 Execution Services, LLC
  • Two Sigma Investments, LP
  • Two Sigma Securities, LLC
  • Two Sigma Securities UK Ltd
  • Virtu Financial, Inc.
  • Virtu Americas, LLC
  • Virtu Financial BD, LLC
  • Virtu Financial Ireland Ltd
  • Flow Traders BV
  • Flow Traders US, LLC
  • Hudson River Trading, LLC
  • HRT Financial, LLC
  • Hudson River Trading Europe Ltd
  • Tower Research Capital, LLC
  • Latour Trading, LLC
  • Tower Research Capital Europe BV
  • Optiver BV
  • Optiver US, LLC
  • Optiver UK Ltd
  • IMC Trading BV
  • IMC-Chicago, LLC
  • DRW Securities, LLC
  • DRW Europe Derivatives BV
  • DRW Holdings, LLC
  • DRW Investment (UK) Ltd
  • Gair Loch Enterprises Ltd.
  • Jump Trading, LLC
  • Jump Trading Europe BV

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