The obscure Wall Street giant at war with the London Metal Exchange

·8 min read
wall street
wall street

Jane Street might be one of the most prestigious companies in global markets, but outside of the world of finance it is barely known.

Operating at the cutting edge of machine-driven trading strategies, the media-shy firm has become a cornerstone of Wall Street known for its big bets on ‘black swan’ events. Unusually, the company eschews job titles, and has cultivated its own niche computer code.

But in recent months, the normally low-profile company has flung itself into the City spotlight by launching a legal case against the London Metal Exchange (LME) over the nickel trading suspension in March. A decision on whether the case will be heard in court is expected within months.

Founded at the turn of the century by “a small group of traders and technologists in a tiny New York office”, Jane Street has risen to become a trading behemoth. It has an unconventional structure, steered by an inner circle of senior executives rather than having a chief executive or formal board.

At its heart is a hugely developed proprietary trading operation, meaning it makes bets with its own funds rather than those from investors.

It is best known for giving liquidity to assets by offering a guaranteed buy and sell price, particularly within the booming sphere of exchange-traded funds (ETFs) – pooled securities that track assets such as stocks.

The company doesn’t court publicity. However, in a rare occurrence, Jane Street hit the headlines in June after it sued the LME for $15.3m (£12.5m) plus interest in damages to make up for cancelled trades, claiming the decision to do so was a human rights violation.

The London Metal Exchange contests Jane Street’s claims. A decision whether the case will be heard in court is expected in months - LEON NEAL/AFP/Getty Images
The London Metal Exchange contests Jane Street’s claims. A decision whether the case will be heard in court is expected in months - LEON NEAL/AFP/Getty Images

The LME said its decision to freeze the nickel trading and reverse a morning’s worth of trade, which brought the contract to the brink of collapse, was “in the interests of the market as a whole”.

Yet in documents filed at the High Court, Jane Street said the cancellation was “inimical to the purpose of the Exchange, as a neutral trading venue”.

A spokesman said: “The LME’s arbitrary decision to cancel nickel trades during a period of heightened volatility severely undermines the integrity of the markets and sets a dangerous precedent that calls future contracts into question.”

Jane Street’s move followed Elliott Management, an investment group known for its aggressive pursuit of debts, which sued the 145-year-old exchange for $456m under the same claims.

The LME is contesting Jane Street’s claims and, in a document resisting Elliott and Jane Street’s applications for a judicial review, claimed the prop trader’s case rests on “a false premise” and “ignores the LME’s legitimate concern for the orderliness and proper functioning of the market as a whole”.

Its decision to suspend and reverse trades – which is being investigated by the Bank of England and the FCA – was a consequence of nickel prices surging to unprecedented levels above $100,000 a tonne, as supply fears spurred by the invasion of Ukraine developed into a run on investors betting the metal’s price would fall.

Several of the exchange’s core participants faced crippling losses as their broker made margin calls on short bets. The LME says the margin requirement would have totalled $19.7bn if it hadn’t undone the trades.

It ended the price crisis, but the backlash from traders was instant and unsparing. The LME was accused of undoing legitimate trades, and critics alleged the Hong Kong-owned exchange had shown favouritism towards the Chinese “whale” who was the most exposed to the short squeeze.

The LME has said it “did not act so as to favour or protect any particular cohort, or (for the avoidance of doubt) any specific market participant”.

Interns on £120,000-equivalent salaries

By joining Elliott – known for being outspoken in business activism – as one of just two Wall Street firms to sue the LME, Jane Street consciously took a step into the public eye. It highlights just how much maintaining an even playing field matters to the company.

Despite having fewer than 2,000 employees, the group is one of Wall Street’s banking titans, trading some $17bn of securities in 2020. Prospective applicants are told that “on busy days”, Jane Street engages in more than a million trades.

It operates in a fiercely competitive field – which is stunningly lucrative for those who can survive the cut-and-thrust of modern Wall Street trading.

The firm, which says it wants “smart people who enjoy solving interesting problems”, battles with tech giants like Google and Apple to scoop top graduates, focusing on fields such as computer science, mathematics, economics and physics.

“A profitable trading strategy is only as strong as the technology it runs on, and we consider ourselves as much a technology company as a trading firm,” says a recent job advert for a quantitative trader graduate role in Jane Street’s London offices.

The University of Cambridge – known for its prestigious Mathematical Tripos – is the most commonly listed alma mater for its employees on LinkedIn, ahead of Ivy League heavyweights Harvard, Massachusetts Institute of Technology, and Princeton.

Inside Jane Street's offices - Screengrab from
Inside Jane Street's offices - Screengrab from

If candidates are successful, one thing is for certain: Jane Street employees are very nicely paid.

Earlier this year Jane Street raised its global base pay by about 20pc, an inflation-dwarfing increase amid fierce competition for talent. That took typical starting salaries for graduate researchers and traders to about $275,000 (£227,000) and around $250,000 for software engineers – putting them near the top 1pc of earners in Britain.

Some hires manage even better: the company has been reported to have paid starting salaries of up to $425,000.  Even interns do well, raking in salaries equivalent to £120,000 per year for summer placements in London.

Accounts for Jane Street Europe, the group’s largely City-based European operation, show on average employees received $678k (£561k) through salaries, allowances and benefits in kind in 2021. This wing of the group, located at Devonshire Square, had 335 staff that year, split between technology, trading and infrastructure.

Remarkably, the pay in 2021 was notably lower than the previous year, when the average was a cool $1.15m. The drop reflects an 86pc fall in revenues, which the company cryptically pinned on “long exposure to certain emerging markets [and] short exposure to certain developed markets”.

Jane Street’s secret weapon

Jane Street offers its employees a simple proposition: you work hard, we pay well. Glassdoor reviews describe a culture of long hours and high pressure, yet employee reviews say the company has been able to foster a relatively nurturing environment.

Partially, that is down to its secret weapon: OCaml, a programming language made by French creators. “We build almost all of our software, including our critical trading and risk management systems, in-house using [OCaml],” the company’s website says.

The tool’s champion at Jane Street was Yaron Minksy, who heads up the company’s technology operations, and it has a key advantage for the company which gets its wins at the absolutely cutting edge of trading: speed.

Jane Street has made OCaml its own, contributing huge amounts of source code to the OCaml community – and reaping the benefit.

While this may seem obscure, it has a real world effect for Jane Street beyond the algorithmic sphere. Anyone applying to the company knows that getting to grips with OCaml is part and parcel of the job, and helps build a cohesive operating culture. Plus, once someone is hooked, they’re less likely to want to move to another firm with different systems.

It’s vital in a business that is centred around taking risks. Traders are all too aware of the fate of firms like Knight Capital Group, a leading algo trader which went bust in 2012 after a coding blunder reportedly down to an error by a single IT administrator. It caused the company to make 4m trades in 45 minutes – a “technology breakdown” that cost $460m and required it to be rescued.

Jane Street keeps failsafes in place to avoid such an outcome – including, reportedly, a big red stop button that shuts down swathes of machines.

With such paranoia about being caught off-guard, it is no wonder the company is keen to recoup losses it pins on the LME’s intervention.

A spokesman for the exchange said: “The action which the LME took was within its powers, and those powers were exercised fairly. At all times the LME sought to act in the interests of the market as a whole.

“The LME therefore continues to consider Jane Street’s grounds for complaint are without merit, and the LME will defend any judicial review proceedings vigorously.”

The stage has now been set for a complicated legal battle. Whoever wins, it will drive the divide between the City’s old guard and finance’s young tech rulers into even sharper relief – and pull Jane Street further into the light.