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Case Study: How Jane Street Approaches Market Making

Jane Street quotes prices in thousands of ETFs, bonds and options across the world, and in July 2025 it became the most talked-about trading firm in India when SEBI's interim order accused it of manipulating Bank Nifty. This case study takes the firm apart as a market maker: how a quote is priced, skewed for inventory and protected from toxic flow, how ETF creation and redemption keep prices honest, and how options market making works on NSE's index options, the busiest derivatives market in the world. It then reads the SEBI order carefully, separating what is alleged from what is proven while the matter is before SAT, and closes with a Python market making simulator, risk limits, and what prop shop interviews actually test. Built for quant researcher aspirants, prop trading applicants and systematic traders scaling up.

Market MakingMarket MicrostructureBid-Ask SpreadInventory RiskAdverse SelectionETF ArbitrageOptions Market MakingSEBI Jane Street OrderExpiry Day DynamicsProp Trading Careers

MODULES

6

DURATION

~5 hrs

TRACK

Quantitative Finance

What You'll Master

Explain how a market maker earns the spread and why adverse selection, not competition, is its biggest cost

Price a fair value, skew quotes for inventory, and recognise toxic order flow using Indian equity and index examples

Walk through ETF creation and redemption and why Indian ETFs often trade away from their iNAV

Quote and hedge index options on NSE, and understand expiry day gamma on Nifty and Bank Nifty

Read SEBI's July 2025 interim order on Jane Street critically, separating alleged conduct, the firm's defence, and what remains before SAT

Build a toy market making simulator in Python and design the risk limits a real book needs

Prepare for prop trading interviews built around probability, expected value and fast mental maths

Access Level

LEARNER

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Everything included

Full Text Playbooks

Actionable Exercises

Mobile Reading Mode

Lifetime Updates

Curriculum Breakdown

Chapter 1: Who Jane Street Is and What a Market Maker Does

3 Lessons

Jane Street in One Lesson: ETFs, OCaml and an Expected Value Culture12 min read

The Market Maker's Job: Quoting Both Sides and Earning the Spread12 min read

Where the Money Comes From: Spread Capture versus Adverse Selection14 min read

Chapter 2: The Economics of a Quote

4 Lessons

Fair Value First: Why the Mid Price Is Not the Price13 min read

Inventory Risk and Skewing Quotes14 min read

Toxic Flow: Reading Who Is on the Other Side13 min read

Hedging the Book: Delta, Basis and Cross-Asset Hedges14 min read

Chapter 3: ETF Market Making, Jane Street's Home Turf

3 Lessons

Creation and Redemption: How Authorised Participants Keep ETFs Honest13 min read

March 2020: When Bond ETFs Traded Below Their NAV12 min read

India's ETF Liquidity Gap and the Market Maker Framework on NSE13 min read

Chapter 4: Options Market Making and India's Index Options Boom

4 Lessons

How Indian Index Options Became the World's Busiest Derivatives Market12 min read

Quoting Options: Volatility Surfaces, Greeks and Expiry Day Gamma15 min read

Who Sat on the Other Side: SEBI's F&O Loss Studies12 min read

Millennium vs Jane Street: The Lawsuit Over an Indian Options Strategy11 min read

Chapter 5: The SEBI Interim Order of July 2025

4 Lessons

What SEBI Alleged: The Bank Nifty Intraday Pattern15 min read

Marking the Close and the Mechanics of Expiry Day Settlement14 min read

The Defence: Arbitrage, Liquidity Provision or Manipulation13 min read

The Aftermath: Escrow, the SAT Appeal and New Expiry Day Rules12 min read

Chapter 6: Lessons for Quant Researchers and Prop Traders

4 Lessons

Building a Toy Market Making Simulator in Python16 min read

Risk Limits and Kill Switches for a Market Making Book13 min read

Inside the Prop Shop Interview: Probability, Betting and Mental Maths13 min read

Where Market Making Ends and Manipulation Begins11 min read