(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. 

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 lucrative and expressed fear that even identifying the country involved would lead to others “picking apart” the details.

“We define this as, you can imagine, Jane Street’s most profitable strategy,” the lawyer, Deborah K. Brown, said. 

Jane Street claimed it earned about $1 billion from the strategy last year, the judge said during Friday’s hearing. The company reeled in more than $10 billion in net trading revenue last year, Bloomberg reported in January.

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.

“Other tools were available to Jane Street that had the capacity to guard more greatly against mischief like this, but Jane Street appears to have passed those up,” including non-compete agreements, the judge said. 

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.”

Brown said Jane Street relies heavily on its intellectual property and confidentiality agreements rather than non-competition pacts because “people should be able to go somewhere else and compete, just not with their confidential information because that’s not fair.” 

“They should go to another place, use their own skills, whatever they’ve developed, and come up with a different strategy, come up with their own way, not Jane Street’s strategy that they’ve invested millions of dollars into,” Brown said.  

If Jane Street’s investment of tens of millions of dollars in a particular strategy can’t be protected, “that has an impact on their overall business,” Brown said. “This is the core, absolute core of what they’re doing.”

The case is Jane Street Group LLC v Millennium Management LLC, 24 cv 02783, US District Court, Southern District of New York (Manhattan).

(Updates with excerpts from hearing.)

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