Market-maker of the year: Jane Street

Asia Risk Awards 2019

Jeff Nanney, Jane Street

Versatility and efficiency has given the 19-year-old alternative market-maker, Jane Street, victory over its peers this year.

The firm has excelled in the exchange-traded fund (ETF) sector in Asia-Pacific (Apac), where it has supported the development of new products and trading protocols. In addition to the ETF market, Jane Street has enabled the growth of electronic trading in the fixed-income space and leveraged its global presence to offer all-day trading capabilities for its clients.

“Growth in the Asian markets and at Jane Street is exciting,” says Jeff Nanney, head of trading, Asia, at Jane Street. “Our ETF survey last year showed that investors in Asia are embracing new trading protocols and have a lot of interest in trading with independent market-makers. This presents many unique opportunities for us to work with clients and grow our business.”

Over the past year, Jane Street has helped to seed 16 new ETFs in Apac, including growth and fixed-income funds. It also partnered with younger issuers, such as Premia Partners, and supported trading in secondary markets early in the lifecycle of the new ETFs.

“We trade across all asset classes and work with a broad range of investors, including large institutional asset managers, insurance companies, custodians and pensions and endowments,” Nanney says.

Stepping into a market where more traditional broker-dealers and banks have often been engaged historically has required the firm to educate clients and counterparties to highlight the advantages of trading against an electronic market-maker.  This has been a journey the firm has also experienced in the US and Europe, he says.

“In Asia, ETFs are commonly transacted on an agency basis,” says Nanney. “We’ve learned that investors sometimes choose this execution approach out of convenience as it is how common stocks are often traded, but it often means they are losing immediacy or not taking advantage of market-makers’ balance sheets.”

Our ETF survey last year showed that investors in Asia are embracing new trading protocols and have a lot of interest in trading with independent market-makers. This presents many unique opportunities for us to work with clients and grow our business

Jeff Nanney, Jane Street

Jane Street has been helping its clients explore alternative execution methods, such as net asset value or risk pricing. These methods have often resulted in “meaningful improvements” in execution, Nanney says.

Several of the ETFs that Jane Street has seeded and supported in Apac have been fixed-income funds. Bond ETFs are particularly useful for institutional investors where the ETF can provide liquid access to a basket of instruments, which can then be redeemed by the buyer in order to get access to otherwise illiquid assets.

In fixed-income markets, where liquidity is more commonly an issue than in other asset classes, this mechanism has proven notably popular with investors working with both traditional and alternative market-makers.

In the region, Jane Street claims to have set benchmarks for bond ETF trading volume in Korea, which supported greater activity by other market participants. Its experience in seeding activity from other geographies for fixed-income ETFs allowed it to underpin the launch of similar products in the region.

By engaging in this market, Jane Street has supplemented its ability to make markets in fixed income, where it has been active in custom portfolio construction, and bond liquidity provision via Bloomberg’s ALLQ electronic trading platform to Jane Street’s ETF clients.

That allows it to provide liquidity to issuers who construct fixed-income ETFs, and in turn increases electronic trading activity. This capacity to make prices also supports portfolio trading, as the firm has a constant flow of prices, making it reliable for clients who are trying to access optimal pricing and timing in international markets, but avoid trading overnight.

“The conversation has shifted a lot in the last few years where investors are looking at alternative liquidity sources and more efficient ways to trade,” Nanney observes. “Our clients are turning to innovations like bond portfolio trading where they can tailor a basket and get a single price on 10 to 1,000 individual bonds in one clip, saving themselves time and often reducing their transaction costs.

“We are uniquely positioned here given our basket-driven bond inventory from ETFs and our ability to bring together liquidity across products, markets and time zones.”

Tapping its global experience and buoyed by its technology and a skilled team, the firm has built strong market share in several regions including Hong Kong, Taiwan and Australia.

“One thing that stands out to me is our culture of collaboration,” Nanney asserts. “It’s quite central to our Asia offering: we can offer 24-hour trading by leveraging our existing global presence and integrated structure, which is centred on inter-desk and inter-office collaboration. This allows us to seamlessly service our clients out of all of our offices.”