Jane Street ups its game in FX market-making

High-frequency trading firm now streaming bilateral spot FX liquidity to clients

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High-speed trading firm Jane Street has expanded its spot foreign exchange market-making services to include direct streaming of liquidity.

As of this year, the firm is distributing its spot FX pricing to certain clients via disclosed, bilateral workflows – both on its proprietary single-dealer platform (SDP), JX, and hosted on trading venues, says a person familiar with the firm.

Up until this year, JX had been Jane Street’s SDP for European Union, UK and US equities. It also operates a digital assets SDP called JCX.

The push has caught the attention of the wider FX industry, including bank providers of liquidity that are evaluating their relations with non-bank trading firms.

“They’ve been more liquidity-takers, but maybe that’s shifting,” says an e-FX trader at an international non-bank market-making firm. “It could be shifting to just hedging its ETF book passively – which could be considered market-making – or they could be trying to build a larger market-making business. I think the answer, from what I’ve heard, is somewhere in between.”

$4.4 billion

Jane Street’s trading revenues at the start of 2024

Jane Street has been making markets in spot FX and non-deliverable forwards anonymously on venues for around a decade and is now an active participant on a variety of trading venues, including CboeFX and Euronext FX, streaming both sweepable and full-amount quotes, the person familiar with Jane Street says.

Jane Street declined to comment.

One source at a large international bank says Jane Street is now a top three non-bank market-maker on some of these venues.

Sophisticated hedge funds and proprietary trading firms (PTFs) have always been able to provide liquidity in some fashion, even if tangentially. When one of these firms places an order passively on a trading platform, typically via an execution algo, it waits for the best price to match against. The reward is to earn the bid/offer spread instead of crossing it, as would happen with a risk-transfer trade.

The return of macro uncertainty, due to central bank policy divergence and shifting geopolitics, has made FX market-making a more interesting asset class for non-bank firms in 2024.

The international bank source says the presence of non-bank market-makers has been a constant for the past decade, but there has been an active rotation of the names involved as individual priorities change over time.

“It’s difficult to run a non-bank market-making business in FX,” says the e-FX trader. “I’ve seen a lot of market-makers come in as a kind of ‘flavour of the month’ and do a lot of volume. But the real question is will they last?”

According to the Bank of England’s semi-annual FX turnover survey, average daily spot FX volumes from non-bank financial institutions increased 20.5% between October 2023 and April 2024 to $299 billion.

Other non-bank market-makers that have become more prominent include Tower Research Capital and GSR, which acquired the FX business of HC Tech last year. Dutch-based high-frequency trading firm IMC hired Ramon Payne, the former UBS global head of exotic FX derivatives, as its head of FX trading in April.

Crossing the Street

The perspective that non-banks are predators of traditional liquidity providers is also changing. Instead, banks have warmed to using liquidity from proprietary traders as a supplement to their own through bilateral streaming arrangements. This gives banks a chance to hedge themselves or source liquidity for their clients without venturing onto a public venue.

Conversely, banks have developed solutions that give hedge funds and PTFs market-making capabilities, providing ways in which clients can interact with their internal liquidity, while also enabling them to earn a spread instead of crossing it.

Related

Keys to the kingdom: FX dealers open doors to passive trades 

Streaming with the enemy: banks turn to non-bank liquidity 

But Jane Street is already a prominent competitor of traditional banks in other asset classes, raking in billions of dollars from trading equities, exchange-traded funds (ETFs), credit bonds and crypto. It is also an active liquidity-taker across spot and currency derivatives markets, often hedging the FX risk on its global ETF and fixed income trading activities.

The firm grabbed headlines earlier this year when it was revealed that it generated $4.4 billion in trading revenues at the start of 2024, its highest level in the post-pandemic period.

Its market-making business leans on advanced quantitative and algorithmic research and techniques to profit on the smallest of asset class movements.

Details of its approach to trading were revealed during a hearing earlier this year, when it accused two former traders, who moved to hedge fund giant Millennium, of stealing its “immensely valuable” confidential Indian equity options strategy for their new roles.

Documents secured by the Financial Times revealed that Jane Street estimates it accounted for roughly 10% of all North American equities trading in 2023, and that it was responsible for over 2% of all trading in more than 20 countries.

Editing by Louise Marshall