The secret giant of finance

Katie Martin (0:06)

Pushkin. Now, if you keep half an eye on the nerdier bits of financial markets, then you will have heard about a spicy little scandal in Indian stocks. Earlier this month, the regulator there tore a strip out of a trading firm called Jane Street, accusing it of a, quotes, sinister scheme to manipulate the market. It also impounded over half a billion dollars of what it called illegal gains over the matter. Now, Jane Street, as you might imagine, has denied all this very firmly, saying it is beyond disappointed with what the regulator has said. It is all very much the talk of the town. And I mean, sure, this is a relatively small stock market, but today on the show, we're going to ask, what if anything does this episode say about how shiny new style trading firms operate and where could it all lead? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist here at FT Towers in London, where it's very much suns out, guns out. This is a hot country now and we need to get used to it. Now, joining me in the studio is a special guest all the way from Oslo, Robin Wigglesworth, editor of FT Alphaville, and one of the authors of a recent FT big read on the Jane Street snafu. Robin, this sort of stuff is like your entire personality, right? You love this sort of nerdy stuff.

Robin Wigglesworth (1:39)

Yeah, I mean, if we could have a title at the FT that was Chief Nerdy Finance Correspondent, then I think that would be my dream job.

Katie Martin (1:45)

So this is just like Christmas come early for you from a random pocket of finance.

Robin Wigglesworth (1:51)

I mean, this is my birthday. I mean, this is stuff that I look forward to. I go to work dreaming of situations exactly like this.

Katie Martin (1:58)

Listen, in Norway, this is the sort of thing that passes for like high excitement. So tell the masses what is going on here. First of all, a lot of people won't have heard of Jane Street. What is Jane Street?

Robin Wigglesworth (2:12)

Well, it's the street in New York is the succinct answer. It's a trading firm that essentially acts as what we call a market maker mostly. So whenever you buy and sell a stock in markets, there's usually like somebody who kind of buys and sells it to you. If you want to buy a stock, then they'll find it for you and deliver it. And if you sell one, they'll find a buyer for you.

Katie Martin (2:33)

For a lot of people, the only reason they will ever have heard of Jane Street is because this is where Sam Bankman Freed got his start in finance, right? Before he ended up running the big crypto exchange, FTX, and then going to prison. So this is like a story that is high finance in quite a kind of quirky little pocket that a lot of people haven't heard of. Massive stakes, huge amounts of money. What's going on here? If you can sum it up.

Robin Wigglesworth (2:59)

Well, Jane Street has been accused of market manipulation by the Indian stock market regulator. And that has frankly opened up a whole can of worms about what stock market manipulation is, when it happens. It has thrust a light on these incredibly successful trading firms that most people don't know, but are making more money than the likes of Goldman Sachs and Morgan Stanley in markets. And kind of raises questions about how resilient markets might be to one of these major new powerhouses coming in trouble. And now we're going to find out the answer to all that.

Katie Martin (3:34)

We certainly are. There's a few of these fancy pants trading firms out there. So normally, if you think of trading, you think of a big trading floor either at an exchange or at a big investment bank. Lots of people are sort of shouting at each other and waving their arms around or staring at massive banks of screens and pressing buttons. You know how Airbnb is the world's biggest hotel company that doesn't have any hotels and Uber is the world's biggest taxi company that doesn't actually have any taxis. These firms are the world's biggest trading firms that don't have any human traders or have very few comparatively actual human traders doing this stuff.

Robin Wigglesworth (4:11)

Well, I mean, Jane Street has fewer traders than, let's say, Goldman Sachs or Morgan Stanley, these kind of banks we associate with the trading of yore. But what does differentiate Jane Street from a lot of these other classic high-frequency trading firms that like all technology and algos essentially, is that they do have traders, hundreds of traders. Though they sit generally in shorts and T-shirts and they whisper very quietly whilst they do mental puzzles and math Olympiads in their spare time.