Trading and Markets 730/830
Spring Quarter 2009

Class Updates

New Postings:

· (6/11/2009) I have now finished grading your term papers. Phew! That was a lot of reading… For MBA students with mailboxes, your term papers and competition score sheets with your ranking will be returned to your mailboxes in Gerlach Hall, hopefully by Friday. All other students may pick up their term papers and score sheets from the Finance Department offices in Fisher Hall 700 early next week. The grades have been posted, and here are some clarifications of the grading scheme.
The average score on the term paper (30% of the grade) was 88 for the MBA section and 86 for the UG section. For the trading competition (20% of the grade), the score was calculated as (100-Rank/1.5) for a mean of 87 for the MBA section and (100-Rank/2) for a mean of 90 for the UG section. For your participation grade (20% of the total), I weighed together your attendance (1/3), homework assignments (1/3), and class participation (1/3). The average participation score was 88 for the MBA section and 89 for the UG section. The average midterm score (30% of the grade) was 87 for the MBA section and 83 for the UG section. The average overall score for the class was 87.8 (A-) for the MBA section and 86.6 (B+) for the UG section. I hope that all of you will have a wonderful summer, and for those of you who are graduating or returning to your home country, great success in whatever the future has in store for you! Please keep in touch with us here at Fisher College of Business!!!

· (6/4/2009) I hope you enjoyed the trading competition this past week. I have posted the summary slides for the results of our two-day trading competition in the slides section of our web-page. You will see the rules that I used for each day, as well as and explanation for how I computed the results each day and the overall results. Only the latter is the basis for your grade on this part of the course. Note that I only mention the top ten/eleven traders by name in the slides for reasons of privacy. However, all traders will get your sheets back with your ranking on each part of the competition when I return your papers. Predictably, I made a few mistakes as I was tallying up the results on the fly, so here are the final list of awards:

BusFin 830:
Most consistent trader Rebecca Kells
Meanest trader Hang-Le Nguyen
Improvement awards Brian Mandel (first place)
Todd Marchal (second place)
Shengyang Yu (third place)
Overall competition Brent Walton (first place)
Brian Kindinger (second place)
Todd Marchal (third place => I owe you a trading toy!!!)
Bus Fin 730:
Most consistent trader Yefei Ma
Meanest trader Chris Elgie (I owe you a trading toy!!!)
Improvement awards Garth Fox (first place)
Scott Ext (second place)
Matthew Harris (third place)
Overall competition Garth Fox (first place)
Ian McLeod (second place)
Nicholas Lev (third place)

Note that the term papers are due on Monday at noon in my office or in my mailbox. Due to the volume of papers, I will not be able to do electronic submissions. It was a pleasure teaching you this quarter, and I wish you all the best for the future! Keep in touch!
Prof. Werner

· (5/31/2009) Are you guys ready for the trading competition next week??? I came into work today to reset the server as they had rebooted all machines due to some security patches. So, please go ahead and practice. Also, I posted the case briefs for Microstructure 1 and 2 – the cases that we will be trading on Monday. To look ahead, I also posted the case brief for Microstructure 3 which is on the slate for Wednesday. Microstructure 4 is a mystery case, with 4 securities… I will do my best to generate the results for class on Wednesday so that we can have an award ceremony then and there!!! See you tomorrow.

· (5/27/2009) I have now tallied the results of the vote for grading schemes for the trading competition on Monday and Wednesday next week. The outcome for 730 and 830 are available (click on the numbers). Remember that we will be in Mason 345 for the simulations and do practice – it helps performance significantly! I have posted the slides from the discussion about the CBOE in the slides section.

· (5/20/2009) Dr. Hatheway is here, and I have just posted the slides he will use for class!

· (5/18/2009) I have posted the slides about the Dark Side in the slides section. Remember that we will have a guest speaker on Wednesday, Dr. Frank Hatheway, chief economist at Nasdaq OMX. Please be punctual, and do come prepared to ask questions. (I am keeping track…).

· (5/13/2009) The updated Term Paper assignment is now posted in the tools section under exam stuff. I added a topic on Jim Cramer and Maria Bartiromo. I have also posted the slides from today’s discussion of Jeffrey Verde and his SP500 futures trading. We are going to be talking about Market Manipulation and Rouge Traders on Monday. Although the syllabus says a case will be distributed separately, I instead urge you to do a web-search on Jerome Kerviel so we can have a discussion about that topic on Monday. We will also have our last guest speaker, Dr. Frank Hatheway, next week (Wednesday).

· (5/13/2009) I have posted the solutions to the midterm in the tools section, and you did fine! The 830 section had a mean of 86.8 and the 730 had a mean of 83.3. I will hand out the exams in class today. I am also posting a tentative ballot for our final RIT simulation bonanza on June 1^st and June 3^rd. Please take a look and propose any additional grading rules you would like to add to the ballot.

· (5/11/2009) I hope you enjoyed the presentation by Steve Glass from Plexus today. As he said, it is never too late to change… Thank all of you who asked questions during the presentation. Our guest speakers really value feedback and comments from students. That is after all why they are here. So, please keep that in mind also for our last speaker, Dr. Frank Hatheway, who will be joining us on May 20^th. I actually saw him in DC last week, and he is already looking forward to his visit. Remember that we are meeting in mason 345 on Wednesday. We will first do some practice trading on the RIT platform so that you can get your fingers warmed up, and get incentivized for our final trading competition to be held June 1 and 3^rd. Then, we will discuss the Jeffrey Verde Account case which is in your case packet. As for the of Martha Stewart case, there will be a short quiz for the UG section to give you the incentive to read the case ahead of class. Finally, I will hand back the midterm exams and any other homework assignment that I am still carrying around in my brief case.
Thinking ahead, we will be discussing market manipulation, ponzi schemes, and rogue traders on Monday next week (5/18). Then, Dr. Hatheway is joining us on Wednesday 5/20. We are scheduled to talk about Options markets on 5/27 (Wednesday after Memorial Day), and then we have our two days of trading competition! During these last three weeks, your background assignment is to work on your terms papers. I am just now editing the document that describes the final term paper project topics. You can get a pretty good idea from the instructions that were posted for last year’s final projects. However, I would like to update all the links and add a project idea or two. Also, recall that you can come up with your own idea for a project. You just need to run it by me ahead of spending too much time on it so that I can check that it fits with the topics we are covering in the course.

· (5/8/2009) On Monday, we will have a visitor in class from ITG/Plexus, Mr. Steven Glass. He will talk about TCA and what his firm does to help plan sponsors evaluate broker execution. I have posted his slides in the slides section for you to take a look at. At the end of the pages you will find Plexus’ analysis of SIM trading costs based on the same principles that we used in HW#3. Please come prepared with a few questions for Mr. Glass to make the class more interactive.

· (4/29/2009) We will be trading again on Monday, using the exciting Uptick-Learning software that I keep talking about. REMINDER – PLEASE ACQUIRE THE UPTICK SOFTWARE LICENSE ASAP! If you have trouble, let me know and I will try my best to help. Mac users who have purchased the license may go to the UG computer lab and try out the tutorial for the price formation module. REMEMBER THAT YOU WILL NOT BE ABLE TO PARTICIPATE ON MONDAY UNLESS YOU HAVE ACQUIRED A SOFTWARE LICENSE BEFORE CLASS. I have also posted the slides from today’s discussion of Insider trading and the Martha Stewart case. Finally, I had a few questions about the Homework (#3) which is due on Monday. The questions were about the definitions of Effective Spreads, Realized spreads, etc. Here is a brief explanation (forget the “Half” as it is referring to midquote data which is not available to you easily):
Effective Spread = (Trade Price – Price at the Open on Day of Trade) for buys and (Price at the Open on Day of Trade – Trade Price) for sells
Realized Spread = (Trade Price – Price at the Close on Day of Trade) for buys and (Price at the Close on Day of Trade – Trade Price) for sells
Impact Cost [of Implementation Shortfall] = (Trade Price – Price at the Close on Day Before Trade or Price at Open on Day Before Trade) for buys and
(Price at the Close on Day Before Trade or Price at Open on Day Before Trade – Trade Price) for sells

· (4/28/2009) REMINDER – PLEASE ACQUIRE THE UPTICK SOFTWARE LICENSE! Also, please remember that we will discuss Insider Trading and the Martha Stewart case that is in your case packet on Wednesday. There are assignment questions to help you prepare for the case in the schedule with readings. Note also that the UG class will have a short quiz to check that you have read the case at the start of the class. For those of you who are curious about the academic research on the Mad for Money Cramer stock picks, I posted some of the papers in the tools section.

· (4/24/2009) I have posted the slides for class on Monday when I plan to talk a bit more about the interaction between portfolio allocation and transactions cost analysis (TCA). That is indeed the subject of the last homework assignment, which I have now posted in the tools section. While I will explain it in class, I am giving you the heads up here. What we will do is calculate trading costs using different benchmarks for the SIM class (724/824) orders during the past year. There is also a spreadsheet available with information on the orders executed by different brokers for SIM. The assignment is due on Monday, May 4^th (I am giving you some extra time). We will have a chance to compare our calculations with those of ITG/Plexus when Steve Glass comes to see us on May 11^th. On Wednesday, we will discuss insider trading and the Martha Stewart case in your case packet. For this session, no slides will be posted in advance. Finally, I have posted the suggested solution for homework assignment #2 also in the tools section.

· (4/21/2009) Our visitors, John Schwarck and Royce West from STRS really enjoyed meeting with you yesterday. I hope that you got a glimpse of what a job as a trader and a portfolio manager is like, and also how it relates to our class. Tomorrow, I plan to finish the discussion on institutional trading, and answer any remaining questions that you may have from the presentation yesterday. We will also talk more about transactions cost analysis (TCA) when our speaker from ITG/Plexus Steve Glass comes to visit on May 11^th. The next topic is intermediation, and the slides are available for that class in the tools section. Moreover, I prepared some more detailed instructions for acquiring the software for our May 4^th simulation using UpTick. You can find them here and also in the tools section. PLEASE NOTE THAT YOU ARE REQUIRED TO ACQUIRE AN UPTICK SOFTWARE LICENSE IN ORDER TO PARTICIPATE IN THE IN-CLASS SIMULATION ON MAY 4^th. As this cannot be done without some lead time, you should do this asap. The license is $10.00 and can be conveniently paid using credit card. Once you have acquired the license and downloaded the software (or contacted me if you are an Apple user) you should run the PRICE FORMATION tutorial that takes you through the different parts of the simulation in preparation for the class.

Old Postings:

· (4/15/2009) THAT WAS FUN! GOOD JOB EVERYONE!!! I hope that our price discovery computer simulation cemented the concepts of how information gets into price, and also gave you a first chance to really try out your skills at trading. We have more in-class simulations to come, and until then please do log onto the finsim server to practice. The server address from off campus is finsim.cob.ohio-state.edu. As I announced in class, we have distinguished visitors from STRS on Monday, 4/20, John Schwarck and Royce West (who some of you know from the SIM class). They will speak during the second half of the morning section, and the first half of the afternoon section. To prepare for their visit, you should take a look at the slides on institutional order flow that I just posted. Moreover, please think of questions that you would like to ask a trader – this is your chance! I also posted the slides for Wednesday’s class on Intermediation and Inventory Management. Finally, please recall that there is a (short) homework assignment due on Wednesday on auctions and continuous trading. You can find it in the tools section. The suggested solutions to the first homework are in the same location.

· (4/14/2009) REMEMBER THAT WE ARE MEETING IN MASON 345 TOMORROW, WEDNESDAY 4/15, for our first in-class simulation. Slides are available that introduces the simulation to you – please take a look at them ahead of time. Note also that the link for the UptickLearning software should be www.uptick-learning.com. I have fixed the instructions page. Also, I inquired about using Uptick’s software on Macs (Apple computers). It appears that some students at HBS have managed to get it to work by using Windows emulators on their Macs. That is the only way it will work. Otherwise, I will have to ask you to contact me so that we can figure out how you can practice using the software ahead of time. Note, this does not prevent you from acquiring the requisite license to participate in class.

· (4/10/2009) I have now made it possible for you to download the Uptick software so that you can prepare for the next simulation in good time. The instructions are here, and should be easy to follow. Note that I require each of you to pay a $10.00 license fee in order for us to be able to use it in class. Think of this as the cost for a case. You will need a credit card to pay for the software, so please let me know if this is a problem. Also, please note that you will use your osu.# e-mail address as your logon-id when downloading the software. Your broker-id will be the initial of your first name plus your last name, i.e., iwerner. We have plenty of time to get this right, but I thought we had better start testing it now as I have never distributed the software this way before.

· (4/8/2009) The slides are up for next week already. I will talk about how the order precedence rules work in order books and in call auctions, and how prices are decided in continuous trading compared to call auctions. After that, we are all set to TRADE!!! So, remember that we are meeting in Mason 345 on Wednesday, April 15^th. Recall that you can download the RIT Client to your own laptop or desktop and practice trading in preparation for the session on Wednesday. It helps to be aware of how it works in advance to get the most out of the Price Discovery session on Wednesday. Meanwhile, have a great week-end, and don’t forget the homework assignment (it is in the tools section…).

· (4/7/2009) Slides are up for tomorrow, finally… Sorry for the delay.

· (4/5/2009) It appears that the server (finsim) went down this week-end, but I have now restarted it. As I said in class, I cannot restart it from off campus due to the firewall. Therefore, if you get stuck on validating again, please try the Toronto server instead: flserver.rotman.utoronto.ca. This one should be quite reliable as they have staff monitoring it continuously.

· (4/2/2009) I caught a typo in the first example of fully revealing prices, and have posted the corrected version of the slides from Wednesday’s class. For your convenience, I have also posted the corrected slide (one page only). Moreover, I went over the slides for Monday on Liquidity and have now posted those so you can look over them before class. They are in the slides section. I found a nice article about Dark Pools in Businessweek which I posted in the tools section of the web-page. Have a great week-end!

· (3/27/2009) I have scheduled our guest-speakers, and had to rearrange a few classes. The updated schedule is now available on the web-page. See you in class on Monday!

· (3/19/2009) The web-site is now mostly up. You will need a password to access some materials, like the downloadable papers, slides, and tools. This will be distributed the first day of class. The PDF version of the course outline includes the relevant information for the time being, such as the schedule of classes. I will post the slides for the first class on the open web-page during exam week. See you this spring!

· (3/18/2009) Web-site is under construction!