(Bloomberg) — The allegedly secret trading strategy over which Jane Street Group is suing two former traders and Millennium Management involves options trading in India, lawyers inadvertently revealed at a court hearing.
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Jane Street, which sued Millennium as well as former employees Douglas Schadewald and Daniel Spottiswood last week, had sought to close the Friday hearing before US District Judge Paul Engelmayer in Manhattan. The judge denied that request but urged the parties to avoid mentioning any trade secrets.
According to Jane Street’s suit, Schadewald and Spottiswood stole a confidential and “immensely valuable” proprietary trading strategy to use in their new jobs at Millennium. At Friday’s hearing, a Jane Street lawyer said the strategy was one of the firm’s most profitable and expressed fear that even identifying the country involved would lead to others “picking apart” the details.
“This is something people want to know,” the lawyer, Deborah K. Brown, said.
Not So Secret
But lawyers for Millennium, Schadewald and Spottiswood identified the nation as India during their arguments, at multiple points apologizing to the judge for doing so. However, they downplayed the idea that there was anything secret about Jane Street’s strategy.
Rollo Baker, a lawyer for the traders, pointed to media reports on how lucrative trading options in India can be. Millennium lawyer Andrew Levander likewise said the Indian government has promoted opportunities for traders there.
Brown told the judge there were other aspects to the strategy besides the country. In the complaint, Jane Street said the “counterintuitive” strategy built “upon the years-long effort and findings of the algorithmic team.”
The judge denied Jane Street’s request for an order barring Millennium and the two traders from using the strategy, saying the firm could be compensated if it’s found to have suffered any harm. Engelmayer put the case on an expedited schedule, setting a trial date in July.
Textbook Strategies
Even as they suggested Jane Street’s strategy wasn’t so secret, defense lawyers argued that Schadewald and Spottiswood weren’t using it.
Levander compared the two traders to gold miners who “really know how to use a pickax,” saying they are using basic option trading strategies that have long been discussed in textbooks and articles. He said they “absolutely deny” using any data they took from Jane Street.
“There’s no secret sauce,” Levander said. “They can guess and take the risk based on the experience in their head of seeing a discrepancy between a stock and an option, for example, and they are willing to make a bet.”
Jane Street said in its suit that its profits from using the strategy fell 50% in March, which it said could only be attributable to “the entrance of a competitor using the same strategy.”
The case is Jane Street Group LLC v Millennium Management LLC, 24 cv 02783, US District Court, Southern District of New York (Manhattan).
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