Josh Kulkin, Jane Street

Jane Street - Best North American ETF Market-Maker


2018 was a landmark year for ETFs, according to Jane Street’s global co-head of trading Josh Kulkin.

Jane Street has spent the last 20 years building expertise in ETF trading and market making. With 890 employees across offices in New York, Hong Kong, London, and a newly-minted post in Amsterdam, it operates around the clock and around the world.  In 2018 it traded USD8 trillion dollars across asset classes globally, with USD2.1 trillion of that in ETFs alone. 

Even with its long history in the space, Jane Street continues to see new developments in the ETF markets. Kulkin (pictured) identified significant advances in the scale and scope of the overall ETF landscape, the maturation of the Fixed Income ETF ecosystem, and the reflections of that evolution back onto the traditional corporate bond market.

2018 saw the largest single trade in the ETF market and Jane Street’s history, where an asset manager was able to transfer USD5 billion between iShares’ EFA and IEFA. 

“The idea that a customer can do a USD10 billion notional transition from one international ETF into another in a single trade seemed out of the realm of possibility three years ago” Kulkin says.

“It shows the evolution of liquidity provision in the ETF space and how we and the community of firms like us are growing in scale and size along with the ETF market,” he says. “This ability to efficiently transfer risk and switch large positions between two indices at a competitive level is incredibly compelling for end investors.”

Kulkin believes that the capacity for large trades like this is a gesture toward the increasing maturity of the ETF market. “The most encouraging thing to me is how much more investors today are accounting for the liquidity of the underlying basket when considering the liquidity available in the ETF. That level of sophistication is another sign of the maturation of the ETF product.”

The increasing adoption of fixed income ETFs is particularly exciting for Jane Street. This has been an area of monumental expansion in the last few years: market participants are now using fixed income ETFs for a range of ends from cash management to portfolio completion, and the products are trading tighter and with more liquidity than ever before. 

The development in the fixed income ETF market has also spurred an expansion of Jane Street’s core business. 

“Efficiently managing the risk of our ETF market making book leaves us with a portfolio of positions in the underliers. That means we end up with a corporate bond book which is similar in size to larger dealers in the US,” he says.

“One other satisfying thing for me is how the traditional corporate bond trading ecosystem has come to recognise some of the advantages of the ETF product. By trading a basket of bonds, rather than going line by line, counterparties can realise speed and cost advantages.” This development is particularly valuable to those who either can’t trade ETFs or have unique requirements around the specific basket of bonds to trade.” 

The demand is clearly there, with Jane Street reporting over USD12.5 billion in portfolio trading in the second half of 2018. 

As for what’s next for the firm, Kulkin is looking forward to leveraging Jane Street’s expertise from 20 years of trading across all asset classes. “We’ve built considerable technology and capabilities that will enable us to support the growth of the industry,” he concludes. 

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