FINC-UB.0049 Principles of Securities Trading, Draft syllabus

This document contains material for the course delivered in the Fall 2016 semester; materials for the Spring 2017 semester are posted to NYU Classes. This page was last updated on Wednesday, January 25, 2017 3:13 PM

Professor Joel Hasbrouck


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 integrated network that offers very high levels of access and transparency. At the other exteme we have markets that operate as small dealer networks sustained by reputation and relationship. 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.

Workload and deliverables

The course requirements will involve a mix of midterm and final exams, and participation in trading exercises. There will be six (maybe seven) exercises. These are required, but you can skip one of them without penalty. If you do all of them, I'll drop your lowest grade from the average. In computing the final grade the approximate weights are: 35-45% midterm, 40-50% final, 10-20% trading exercises.

Trading Exercises

These involve buying and selling securities in artificial markets. Some of the trading exercises are involve face-to-face non-automated trading. (I usually set up a floor market in Kryptonite futures contracts.) Most present day trading takes place on computers, though, and so too are most of the exercises.

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 Unless otherwise stated, these should also be considered policies for this course.



Introduction and overview of US equities markets (STPP 1 and 2). Class notes
Floor markets (STPP 3) Class notes.
Trading exercise Citadex floor trading exercise (no computer necessary on this one.) For this exercise, I'll arrange several sessions outside of our regular class schedule. You'll sign up for one of the sessions. Citadex instructions.
Limit order markets (STPP 4) Class notes.
Multiple markets (STPP 5) Class notes
Trading exercise The veconlab double auction market. Class notes. This can be viewed as a screen-based version of the floor trading exercise. You'll need a laptop with an internet browser.
Auctions (STPP 6) 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 the F1 futures trading exercise.

Dealers (STPP 7) Class notes.
Trading exercise RIT exercise MM (making markets)
Dark markets (STPP 8) class notes
Public information (STTP 9) class notes.
Midterm exam; closed book, closed notes.
Market efficiency and securities class actions (STPP 10) class notes; spreadsheet ROKAEventStudy.xlsx


Private information (STPP 11). Class notes.


Regulating insider trading (STPP 12). Class notes


Arbitrage and hedging. Class notes.
RIT ALGO1 arbitrage case. Class notes.
Complex orders (STPP 13). Class notes.
Transaction cost analysis (TCA; STPP 14). Class notes.
Statistical models (STPP 15) Class notes
Order splitting (STPP 16) Class notes
Dynamic hedging (and the RIT H3 case). Class notes.



Pricing (STPP 17). Class notes. (Not covered.)

Reg NMS (STPP 18) Class notes.

Readings: Text of Reg NMS: Introduction.

Current issues. High-frequency trading and flash crashes (STPP 19). Class notes.