FINC-UB.0049 Principles of Securities Trading, Fall 2020.

Syllabus (Last updated on Monday, August 10, 2020 10:31 AM )

(For currently enrolled students, materials and announcements are posted to NYU Classes.)

Professor Joel Hasbrouck
jhasbrou@stern.nyu.edu
www.stern.nyu.edu/~jhasbrou

Description

Most finance courses focus on how securities are defined, valued and used. This course is about how securities are traded: the design, operation and regulation of trading processes, mechanisms and protocols. Today's markets for stocks, bonds, and derivatives span a wide range in sophistication and complexity. For some securities, the market has evolved to an anonymous network that offers very high levels of access and transparency. At the other extreme we have markets where one or more traders act as a dealer, and reputation and relationship are very important. Some mechanisms are new (the open electronic limit order book); some are as old as antiquity (the single-price call auction). We have a general sense that all markets are heading toward some sort of electronic future, but the speed of progress and convergence varies widely. Our markets are infused with tensions between efficiency and fairness, competition and regulation, consolidation and fragmentation, speed and stability, and so on. The course is based on a realistic picture of the trading process, so we go into a fair amount of insitutional detail, as well as some law and market regulation. The intellectual framework for the material comes from mainstream economics, financial economics, and the newer subfield of financial economics known as market microstructure.

Format

The format of the class is remote/zoom. The zoom links, recordings, and so forth will be coordinated on the NYU Classes site. I make class handouts available electronically prior to the class; the classes will be recorded.

Workload and deliverables

There will be some mix of approximately four (online) quizzes/exams, approximately six trading excercises, and (possibly) a project. The project might involve analysis of market data, devising a trading algorithm, or a review of some aspect of current market structure or regulation.

Trading Exercises

In each trading exercise, you assume the role of some type of trader (a dealer, an information trader, a hedger, an arbitrageur, for example). You buy and sell securities in a market populated by you, your classmates, me (sometimes), and simulated traders. For most of these exercises we'll be using the Rotman Interactive Trader (RIT) system. The RIT client simulates a very realistic trading interface, like you might get from an institutional or sophisticated retail broker. For some of the exercises, it will be important that we all interact together "in-class". Other exercises, though, will mostly involve you and RIT's simulated traders. For these exercises, I usually run the market 24/7 and you can play/practice whenever you wish. Note:

School and departmental grading standards

Other policies

NYU/Stern policies on Academic Integrity, General Conduct & Behavior, Students with Disabilities, and related matters are posted at http://www.stern.nyu.edu/portal-partners/current-students/undergraduate/resources-policies/academic-policies/. Unless otherwise stated, these should also be considered policies for this course.

Readings

Content (tentative, links are to previous class notes)

Introduction and overview of US equities markets (STPP 1 and 2). Class notes

Floor markets (STPP 3) Class notes.

Limit order markets (STPP 4) Class notes.
Trading exercise Introduction to the RIT trading simulator. Optional If you want to get practice using the simulator, bring a Windows laptop. This will enable you to play live as we're going over the basics. Our first RIT project will be a double auction market: RIT Double Auction Instructions.

Multiple markets (STPP 5) Class notes
Auctions (STPP 6) Class notes.

Dealers (STPP 7) Class notes.
Trading exercise RIT exercise MM (making markets)

Dark markets (STPP 8) class notes

Public information (STTP 9) class notes.
Trading exercise F1 futures trading exercise.

Market efficiency and securities class actions (STPP 10) class notes; spreadsheet ROKAEventStudy.xlsx
Additional Readings
Private information (STPP 11). Class notes.
Additional Readings
Regulating insider trading (STPP 12). Class notes
Additional Readings

VWAP strategies ("Order splitting I"). Class notes.
Trading exercise RIT AT2

Complex orders (STPP 13). Class notes.
Trading exercise RIT ALGO1
Transaction cost analysis (STPP 14) Class notes

Optimal order splitting Class notes 1, Class notes 2

Delta hedging exercise (RIT H3) Class notes
Pricing (STPP 17). Class notes.
Reg NMS (STPP 18) Class notes.
Readings: Text of Reg NMS: Introduction.

Additional topics (Spoofing, High Frequency Trading)