Heard on the Street: Quantitative Questions from Wall Street Job Interviews

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A year ago, the world seemed oblivious to signs that a novel virus outbreak in China was a serious, global threat. But one of Wall Street’s biggest but most secretive money machines saw the debacle coming and battened down the hatches.

While almost every trading desk enjoyed a trading bonanza in 2020, Jane Street’s first-half revenues were equivalent to one-seventh of the combined fixed income, commodities and currency trading revenues of all the world’s biggest banks over the same period, according to research group Coalition. It was more than twice the reported earnings of Citadel Securities, the formidable market-maker owned by hedge fund magnate Ken Griffin. In practice, many bond ETFs traded almost like traditional closed-end funds, the Bank of Canada concluded in a postmortem published in December.The reason Jane Street has been able to seize such a big role in bond ETF trading is that it straddles the approach of high-speed, algorithm-powered trading firms like Virtu or Jump Trading and the human bond traders that still dominate Wall Street trading desks. Jane Street’s unorthodoxy goes well beyond its programming language. Mr Granieri is the only remaining founder still at the company, but there is no chief executive, hierarchy or even a clear management committee. Instead, Jane Street almost resembles an anarchist commune, informally led by a group of 30 or 40 senior executives. A smattering of titles have been reluctantly adopted in recent years, but internally they are little used and people rotate around the firm to keep things fresh. Few leave.

What now for Wall Street’s least-known trading tycoons? Jane Street made a move into trading directly with investment groups in 2014 — territory historically dominated by big banks. It is now expanding its business in Asia and planning to push more aggressively into equity market options.For an industry that often cultivates cinematic genesis stories, the opacity around Jane Street’s birth, ownership and even management is unusual.

Jane Street is this big, important and growing player that no one’s really heard of,” says Steve Zamsky, previously head of corporate credit trading at Morgan Stanley and now a fund manager at Smith Capital. “They’re sophisticated, quirky and not typical of Wall Street traders.” Starting with the 22nd edition, questions that appeared in (or are likely to appear in) traditional corporate finance job interviews are indicated with a bank symbol in the margin (71 of the quant questions and 192 of the non-quant questions). This makes it easier for corporate finance candidates to go directly to the questions most relevant to them. Most of these questions also appeared in capital markets interviews and quant interviews. So, they should not be skipped over by capital markets or quant candidates unless they are obviously irrelevant.The revised 22nd edition contains 239 quantitative questions collected from actual job interviews in investment banking, investment management, and options trading. The interviewers use the same questions year-after-year, and here they are with detailed solutions! This edition also includes 264 non-quantitative actual interview questions, giving a total of more than 500 actual finance job interview questions.

Even Charles Schwab, the founder of his eponymous brokerage and once a sceptic of the new breed of higher-speed, modern market-makers like Jane Street, has grown more appreciative of the role they play. “They provide an essential service to the marketplace,” Mr Schwab says. “They provide liquidity by both buying and selling, which is crucially important. You could see the results when markets took a deep dive in March of last year.” We think of ourselves as mainly built for crises,” says Rob Granieri, one of the company’s founders. Nonetheless, Mr Granieri insists there is little triumphalism at Jane Street. “I still walk in every day thinking that we’re still struggling to survive,” he admits. Jane Street traders in New York offices. The company’s forte is lubricating trading in exchange traded funds and other markets Liquidity warning This wasn’t an ETF liquidity story,” says Matt Berger, head of bond trading at Jane Street. “It was liquidity drying up in the underlying fixed income markets.” Jane Street’s executives say they are well aware of the implications. “We know we are an important part of the efficiency of many of these markets, and that’s something that we feel a huge responsibility for and take very seriously,” Mr Berger says. They obviously have a lot of smart technologists, but in their DNA they are really traders,” says a one-time rival. “Many market-makers are very technology-driven, but Jane Street is a trader-driven firm. Jane’s niche is that they will price less liquid ETFs better than anyone.”

Our basic service, standing ready to buy and sell ETFs, options and bonds, is even more critical in times of stress,” says Josh Kulkin, one of its top traders. “Because we bought all that extra protection we didn’t have to worry about the extreme moves, and were prepared to provide liquidity in an outsized way.” That extra confidence paid off handsomely when markets were thrown into a tailspin last March, and bond ETFs emerged as a major faultline. Some sceptics argue that only the Federal Reserve’s extraordinary stimulus prevented a disaster for fixed income ETFs, and remain convinced that they could still prove fragile.