Positioned for quick response to market needs: Jane Street – Best Market Maker/Authorised Participant - Commodity ETFs

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By Philippa Aylmer – Chris Brennan, Co-Head Commodities Trading at Jane Street explains that the firm’s 20 years of expertise in trading ETFs helped their clients navigate through the volatility that engulfed markets in the spring and summer. 

“All the market dynamics you would expect to see amid extraordinary volatility such as wider bid-ask spreads and less depth in the order book were present in March and April,” says Brennan.

But despite that, “we continued to provide liquidity to our clients and to markets generally. Whether it was responding to crude oil prices in April or the recent popularity of precious metals ETPs, we facilitated large-scale risk transfer at competitive prices.”

As investors turned to commodity ETFs to gain exposure to precious metals, the firm saw increased inflows to these products. US-listed commodity ETPs have taken in nearly USD50 billion in net new assets so far in 2020 compared to just over USD10 billion in the three previous years combined.

“For our part, we ramped up our trading operations to service the market’s increased liquidity needs. As a result, we saw our volumes across all asset classes nearly double,” he says.

And as liquidity became scarce and some market participants stepped back during key trading days, Jane Street was able to do the opposite. 

“Thanks to our risk-consciousness and flexible integrated trading strategies, we had already prepared to hold new risk, updated our pricing models for uncertain markets and were positioned to respond to the market’s needs,” states Brennan.

Jane Street is one of the largest liquidity providers in the world and its seasoned traders have a long history in ETFs, dating back to the 1993 launch of SPY, the first-ever ETF in the United States. Today, the firm is active in over 4,500 ETFs worldwide. 

Clients range from insurance companies, global asset managers, pensions and retirement systems to wealth managers, all of whom rely on the firm’s ability to provide efficient risk transfer at competitive prices. 

The company invests heavily in technology, but people remain at the heart of the business. 

“People are often surprised to hear that we have more than 80 professionals supporting trading in commodities and fixed income products across our offices in New York, London and Hong Kong. Having people who can think through situations as they occur real-time on the desk gives us an advantage particularly when markets are volatile,” says Brennan. 

“Our technology personnel did a tremendous job enabling and supporting various work-from-home and work-from-office configurations as COVID-19 spread to different parts of the world. Their agility and innovative thinking allowed us to seamlessly interact with our clients and with each other despite being physically separated.” 

Jane Street is constantly striving to improve pricing and risk management in order to be more efficient in calm markets, and also handle the surges in activity that occur when markets get more volatile.

“During this period of volatility, ETFs allowed investors to add or reduce exposure even in markets where the underlying liquidity was constrained. As such, we believe investor adoption of ETFs will continue to grow and that new, innovative structures will emerge,” adds Brennan. n

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