SYLLABUS for F335 SECURITY TRADING and MARKET MAKING, Spring 2010

SYLLABUS FOR F335 SECURITY TRADING AND MARKET MAKING, Spring 2010

Professor: Daniel Sungyeon Kim Office: BU 301-25 Office Hours: Mon-Wed, 1:30-3:00 Contact Phone: 812-340-7946 E-Mail: [email protected] Web Site: mypage.iu.edu/~kimds Course Web Site: oncourse.iu.edu

COURSE DESCRIPTION

Welcome to Security Trading and Market Making at Indiana University! For simplicity, most finance courses assume that securities trade in an idealized costless, frictionless world. In reality there are many frictions: bid-ask spreads, trade impact on price, brokerage commissions, quantity limitations, time delays, etc. Security trading is complex enough to justify devoting an entire course to it and we will still cover only a portion of the relevant issues. This field of study is known as “market microstructure.” Microstructure has grown rapidly into one of the largest subdisciplines of finance and has had a profound impact on the real world. For example, one research study uncovered evidence of implicit collusion by NASDAQ dealers. This led to a class action lawsuit that was eventually settled when 30 brokerage firms paid a total of $1 billion in damages!

TEACHING STYLE

My approach to teaching involves three key features:

1. Assignment Preparation. Prior to each class session students are expected to complete a reading assignment and vote their opinion on key issues. Students can vote by logging onto Oncourse (oncourse.iu.edu), clicking on Original Test and Survey link, clicking on the relevant vote link, and voting. Students are free to complete some or all of them in groups. To count, votes must be completed by 3 a.m. on the day of class. . . 2. Class Participation. Students are expected to play a primary role in explaining the assigned readings, expressing their opinions, asking questions, and contributing to the class discussion. This “active learning” approach is student-centered, as opposed to professor-centered (where the professor simply lectures). This approach is intended to create a more stimulating learning environment and provide students an opportunity to practice their communication skills, which are essential ingredient for a success business. Cold calling will routinely be used to insure that everyone participates. But equally important to class participation is your voluntary contributions, such as comments, answers, follow-up questions, and so on. All forms of class participation will be noted for grading purposes, excluding responses where the student is clearly unprepared or voluntary contributions that are not helpful (“hot air”). Staying current with the assignment preparation makes class participation easy to do and satisfying.

3. Learn By Doing. The best way to learn how to trade is to actually do (simulated) trades. The best way to learn how to communicate your trading ideas to others is to actually communicate your trading ideas to others. Therefore, you are expected to participate in two trading simulation projects and to do a group presentation of your trading ideas to the class. .

1 COURSE OUTLINE

UNIT I: OVERVIEW Classroom Activities Assignment Preparation Web Links (1.) Jan 11, Introduction Major financial news sites: • Syllabus • Harris (2002), pg 11-19 Bloomberg • Trading Stories • Vote 01 Introduction CBS MarketWatch CNN/Money FT.com Markets (Financial Times) MSN Money (CNBC) Yahoo! Finance

(2.) Jan 13, The Trading Industry Cool view of trading: • Kickoff of the TAQ Project • Harris (2002), pg 32-35, 38, Quote.com LiveCharts • Who Are The Traders? 44-57, 62 • What Instruments Are Traded? • Vote 02 The Trading Industry Learn more about TAQ: • Where Are The Markets? TAQ 2 Documentation • Who Are The Regulators? Regulators: S.E.C. C.F.T.C.

UNIT II: HOW TRADING IS DONE Classroom Activities Assignment Preparation Web Links (3.) Jan 20, Orders Use Market Orders and Limit Orders • Continuation of the TAQ • Do Part 1 of the TAQ Project to Trade Securities based on Project • Harris (2002), pg 68-78, 82- Political & Economic Events: • Market Orders 86 Iowa Electronic Markets • Limit Orders • Vote 03 Orders • Validity, Expiration, and Other Instructions (4.) Jan 25, Market Structure Global Stock Exchanges: Around The World • Do Part 2 of the TAQ Project Links for more than 100 Stock • Discussion of the TAQ Project • Harris (2002), pg 89-96, 101- Exchanges Around The World • Trading Mechanisms 102 • Market Transparency • Jain (2005), pg 2966, 2983 • The Global Shift from Floor • Jain (2002), cover, Tables 1-3 Trading to Electronic Trading • Vote 04 Market Structure • Global Survey of Trading Around The World Mechanisms

2 (5.) Jan 27, Limit Order Book ECNs: Vs. Call Markets • Harris (2002), pg 116-129 NASDAQ iNET • Rule-Based Order-Matching • Vote 05 Limit Order Book Vs. Call NYSE Arca Systems Markets NASDAQ Brut • BATS live LOB demo Bloomberg Tradebook • Uniform Pricing Rule and BATS Single Price Auctions • Discriminatory Pricing Rule and Continuous Two-Sided Auctions

UNIT III: SECURITY TRADER’S VIEWPOINT Classroom Activities Assignment Preparation Web Links (6.) Feb 1, The U.S. Over Time Long-run View of U.S. Finance: • Kickoff of the Trader • Jones (2002), Cover, Appendix A, Museum of American Financial Simulation Figures 1-6 History • A century of trading costs • Chordia, Roll, and Subrahmanyam • A decade of TAQ data (2001), pg 501-503, 508-512 • Organizing time for Trader • Vote 06 The U.S. Over Time Simulation teams

(7.) Feb 3, Transaction Cost Consultant Benchmarks Measurement • Harris (2002), pg 420-433 Abel/Noser • Components, benchmarks, • Domowitz, Glen, and Madhavan SEI and properties of (2001), pg 221-223, 225-231 ITG Plexus Group benchmarks • Vote 07 Transaction Cost TAG • Five transaction cost Measurement Elkins-McSherry measurement methods • Performance measurement Mutual Fund Perform. Ratings: across countries and over Morningstar time S&P's Fund Services Valueline (8.) Feb 8, Paris, Tokyo, and Leading Global Exchanges: London • Biais, Hillion, and Spatt (1995), pg Euronext • Paris Bourse / Euronext 1655, 1659-1662, 1665,1671 Tokyo Stock Exchange trading mechanism • Euronext (2000), pg 1-2 London Stock Exchange • Tokyo Stock Exchange • NYSE Euronext (2007) trading mechanism • Hamao and Hasbrouck (1995), pg Links to Exchanges Worldwide: • London trading mechanism 849, 851-859, 864 MondoVisione before 1997 and after 1997 • Associated Press Article (4/30/1999) • Hansch, Naik, and Viswanathan (1998), pg 1653-1654 • Ellul (2001), pg 1, 5-9 • Vote 08 Paris, Tokyo, and London

3 (9.) Feb 10, Recent Recent Developments in Developments • Bessembinder, H., 2002, cover, Trading: • Decimalization Figure 2, Tables 3-4, 7-10 Financial Information Forum • Algorithmic Trading • Hendershott, Jones, and Menkveld • NYSE Hybrid Market (2008) • NYSE Next Generation • NYSE Hybrid Market (2006) Model • Hendershott and Moulton (2008), cover, abstract, pg 1-7, figures 2,3,5,7, tables 2, 4 • NYSE (2008) • Vote 09 Recent Developments

(10.) Feb 15, Institutional Crossing System: Traders • Harris (2002), pg 322-333 ITG POSIT • Block trading problems • Keim and Madhavan (1995) 371- • The upstairs market 375, 378, 386-387, 392-393 News for Money Managers: • The trading strategies of • Conrad, Johnson, and Wahal Investment News institutional traders (2003), 99, 104-106, 108-109, 115 Pensions and Investments • Crossing systems vs. ECNs • Vote 10 Institutional Traders Online vs. brokers (11.) Feb 17 • Trader Simulation Competition in BU 419

(12.) Feb 22 • Trader Simulation Presentations

(13.) Feb 24, Day Traders Day Trading Firms (Warning: • What day traders do • McMillian (1999), first four pages may be hazardous to your • NASAA findings and and last page wealth!) recommendations • NASAA Report (1999), Two DayTrading.Net • The case of Mark Barton covers, pg 1, 9-13, 44-46 MaxTrading.Com • Trading is hazardous to your • Wall Street Journal Article Terra Nova Online wealth (8/2/1999) • Barber and Odean (2000), pg 773- 776 • Vote 13 Day Traders

(14.) Mar 1 • Midterm

(15.) Mar 3, Individual Traders • Barber and Odean (2008), 785-788, Forex Trading: • The effect of attention and 797, 799-800, 802, 804 Globalcap.com news on trading • Bloomfield, O’Hara, and Saar Global Forex • How noise trading affects (2009), 2275-2283, 2286, 2293, PFG Forex markets 2295, 2297 • How much investors lose • Barber, Lee, Liu, and Odean (2009), due to trading 609-611, 614-615, 619, 621 • Vote 15 Individual Traders

4 UNIT IV: MARKET MAKER’S VIEWPOINT Classroom Activities Assignment Preparation Web Links (16.) Mar 8, Inventory Management • Grossman and Miller (1988), pg • Dealer inventory and the 617-622 liquidity spectrum • Hasbrouck and Sofianos (1993), pg • NYSE specialist inventory 1565, 1568-1573 • FX dealer inventory • Lyons (1998), pg 1-3, 6-10 • Vote 16 Inventory Management

(17.) Mar 10, Market 15 year old stock manipulator: Manipulation and Insider • Harris (2002), pg 584-587, 591-595 The complete "Next" story on Trading • Bhattacharya and Daouk (2002), pg Jonathan Lebed • Video: The case of 75, 80-84, 89, 92-93 Johnathan Lebed • Vote 17 Market Manipulation and Enforcement Activity: • The law and investigation Insider Trading NYSE Regulation of insider trading NASDAQ Market Watch • Costs and benefits of insider trading • Laws and enforcement around the world

(18.) Mar 22, Specialist Leading Investment Banks: Execution Strategies Bankers Trust • Kickoff of the Dealer Bank of America Simulation Brown Brother Harriman & Co. • Specialist execution CIBC Wood Gundy strategies Citigroup Smith Barney Credit Suisse Deutsche Bank Goldman Sachs Hambrecht & Quist IBP JP Morgan Merrill Lynch Morgan Stanley Nikko Securities Piper Jaffray Sanford C. Bernstein UBS

(19.) Mar 24, Brokers and Leading On-line Brokers: Informed Traders • Harris (2002), pg 139-141, 152, Ameritrade • Broker activities and issues 160-167 Charles Schwab • Payment for order flow, and • Harris (2001), Hillary Clinton’s E*trade internalization, and total Futures Trading Profits trading cost • Battalio and Holden (2001), pg 33- Leading Traditional Brokers: • Legal informed trading 36 DB Alex Brown • Competition to exploit • Knight Securities Payment for Merrill Lynch private information Order Flow Policy Morgan Stanley • Harris (2002), pg 222-229, 235 Prudential Financial Citigroup Smith Barney 5 • Holden and Subrahmanyam (1992), UBS pg 247-248 Wells Fargo Investments • Vote 19 Brokers and Informed Traders (20.) Mar 29, Arbitrageurs Cool Index Arb site: • Different types of arbitrage • Harris, Lecture 13 Arbitrage, pg 1-5 indexarb.com • Index arbitrage and the • Brennan and Schwartz (1990), pg media S25 Arbitrage Statistics: • Arbitrage as cross-sectional • Newsday (1989), pg 1 NYSE Program Trading News market making • Holden (1995), pg 423-428 Releases • Pairs trading • Holden (1991), pg 8-9 • Gatev, Goetzmann, and Arbitrage Firms: Rouwenhorst (2006), pg 797-799, Susquehanna Partners 803-804, 807, 809, 812, 817 BARRA • Vote 20 Arbitrageurs

UNIT V: REGULATOR’S VIEWPOINT Classroom Activities Assignment Preparation Web Links (21.) Mar 31, Transparency in • Biais and Green (2005), cover, pg NASD TRACE Corporate Bonds Corporate Bonds 3-7, Figures 1-4, 6-7, Tables 1-2 • Bonds in the 20th Century • Bessembinder, Maxwell, and • Impact of TRACE on trading Venkataraman (2006), 251-254, costs 268-269 • Transaction costs and • Edwards, Harris, and Piwowar transparency (2007), 1421-1423, 1437, 1441 • The high tech future • FT Mandate (2007), pg 1-3 • Vote 21 Transparency in Corporate Bonds (22.) Apr 5 Info on NASDAQ market • Dealer Simulation Competition making: in BU 419 NASDAQ Trader

(23.) Apr 7 • Dealer Simulation Presentations (24.) Apr 12, Crashes • Harris (2002), pg 558-564 Volatility Indexes: • The market crashes of Oct • Roll (1988), pg 19-26 CBOE VIX and VXN 1929 and Oct 1987 • Shiller (2000), Irrational • The international crash of Exuberance, pg 82-95 October 1987 • Wall Street Journal Articles • The role of the news media in (10/19/1987) propagating speculative • Bartram and Bodnar (2009), 0-2, bubbles 20-41 • The global crisis in equity • Vote 22 Crashes markets in 2008/09

6 (25.) Apr 14, Deception and Bias Disclosure Data Aggregators: • Deceptive stock spam emails • Hanke and Hauser (2008), 57-66, TAG Audit • The left-digit bias in trading 81-82 Thompson Transaction Analytics • Trading as sensation seeking • Bhattacharya, Holden, and Jacobsen (2009), 0-6, 23-27 • Grinblatt and Keloharju (2009), 549-556, 574 • Vote 25 Deception and Bias

UNIT VI: COMPETITIVE EXCHANGE VIEWPOINT Classroom Activities Assignment Preparation Web Links (26.) Apr 19, A Competitive Current US Options Exchanges: Explosion in Options • Mayhew (2002) 931, 933-934, American Stock Exchange, • Multiple Listing and 948-949, 955 Chicago Board Options Designated Primary • Hansch and Hatheway (2001), pg Exchange, MarketMaker (DPM): Pre- 0-1, 6-8, Tables 3-4, Figure 1 NYSE Arca Options, reform Evidence • Battalio, Hatch, and Jennings Philadelphia Stock Exchange, • Post-reform Execution (2001), pg 1-6, 40-41, 44, 46-47, International Securities Exchange Performance 56 Boston Options Exchange • Does a National Market • Boston Options Exchange (2003), System exist? pg 1-2, 6-7 • A new options exchange • Vote 26 A Competitive Explosion in Options

(27.) Apr 21, Competition by Trading Innovators: Cross-Listing • Doidge, Karolyi, and Stulz (2009), Optimark • New York vs. London 253-259, 267 Primex Auction • The impact of substitute • Moulton and Wei (2009), 1-3, 6, exchanges 11, 18-19 • Cross-listing and • Fernandes and Ferreira (2008), information 216-218, 231-233 • Vote 27 Competition by Cross- Listing (28.) Apr 26, Competition by New Trading Systems: Innovation • Kavajecz and Keim (2002), cover, NYSE OpenBook • Wholesale trading of large abstract, pg 1-9, tables 1-4, figure NASDAQ SuperMontage package trades 1 eSpeed • NYSE OpenBook • Boehmer, Saar, and Yu (2005), pg • 24-hour stock trading 783-787, 791, 793, 795, 801-802, 805-806 • Barclay and Hendershott (2003), pg 1041, 1044-1045, 1047, 1048, 1053 • Barclay and Hendershott (2004), pg 689 • Vote 28 Competition by Innovation

7 (29.) Apr 28, TBA • No class or • Q&A/Review (29.) Final Exam • 16:00 Class: Mon, May 3, 10:15 a.m. - 12:15 p.m. • 17:30 Class: Mon, May 3, 7:15 p.m. - 9:15 p.m.

8 READINGS

Nearly all of the readings have been bundled together in a coursepack, which is available now at the I.U. bookstore and TIS bookstore. Just ask for the F335 coursepack. To make it easier to carry around, it is divided into two parts. Volume I is first half readings and Volume II is second half readings. A few readings come from a book "Trading and Exchanges" by Professor Larry Harris. Several copies of this book are available at the reserve desk in the Bus/SPEA library under the F335 listing.

GRADING

Grading is done on a relative (not absolute) basis. Following standard finance department policy, the average GPA will fall between 2.70 and 3.00. A detailed break-down of points earned-to-date will be posted on the PostEm tab of OnCourse on two occasions: (1) when the midterm is returned (including a indicative grade for the first half of the course) and (2) between the last class session and the final exam. The course grade is based on:

Item Points Percent Kick Off Due Date Assignment Preparation • Votes in first half of F335 15 points 3.75% ------• Votes in second half of F335 15 points 3.75% Class Participation • Verbal contribution in first half 30 points 7.5% ------• Verbal contribution in second half 30 points 7.5% Trader Simulation • Trader Simulation Competition 15 points 3.75% Feb 1 Feb 17 • Trader Simulation Written Report 30 points 7.5% Dealer Simulation • Dealer Simulation Competition 15 points 3.75% Mar 22 Apr 5 • Dealer Simulation Written Report 30 points 7.5% Trader or Dealer Simulation Presentation 20 points 5% ---- Feb 22 or Apr 7 Midterm 100 points 25% Mar 1 Final Exam 100 points 25% ---- May 3 Total Points 400 points 100% ------

POLICIES

1. Every effort will be made to follow the schedule; however it may be necessary to make small adjustments. 2. Students are expected to be ready for class at the scheduled time. Classes will start on time and late arrivals will be frowned on. This policy avoids the problem of having people wander in late and not being able to pick up what is being discussed or even worse disrupting the learning of others. 3. For the first three class sessions we will be evolving towards permanent seats with due consideration for the usual course adds and drops. I will regard the class session four seats as permanent and would appreciate your cooperation in always sitting in your permanent seat. 4. During the semester confidential peer evaluations of individual contributions to team projects will conducted. Individuals who have contributed significantly more or significantly less than their teammates will be rewarded or penalized accordingly. The purpose of the peer evaluations is to provide direct incentives for individual contributions on the team projects and assignments.

9 GROUP PROJECTS

TRADER SIMULATION

Students will be organized into teams and each team will download the Trader Simulation, which runs on the Excel simulation add-in program @RISK. Teams can analyze a variety of security trading problems. Each problem requests that a certain number of shares be purchased within a particular timeframe. In implementing this request, the general goal is to minimize the utility cost of trading = total cost of trading on shares purchased + (penalty coefficient) * (shares not purchased within the timeframe). Teams will use their own intuition to search for an optimal order submission strategy (order type, size, and price, pattern over time, etc.) for each problem. Security trading problems can vary based on security trader type, degree of trader patience, magnitude of trader penalty cost for execution failure, performance metric, and stock that is being traded. Each team’s order submission strategies will be put to the test in a live, head-to- head, security trading competition and each team will summarize their security trader strategies in a written report. Teams 1-5 will present their strategies in class.

DEALER SIMULATION

Students will be organized into teams and each team will download the Dealer Simulation, which runs on on the Excel simulation add-in program @RISK. Teams can analyze a variety of dealer problems in a pure dealer market (similar to (pre-reform) NASDAQ or the London Stock Exchange). Teams will manage the strategy of one dealer in competition with other dealers. The overall goal is to maximize profits and control inventory risk. Teams will search for an optimal dealer strategy (quote prices and depths, execute large orders in full or partial, adjust to order arrival patterns, adjust to information arrival, and manage inventory) for each problem. Dealer problems can vary based on dealer risk aversion, order processing costs, volume, stock, and overnight volatility. Each team’s dealer strategies will be put to the test in a live, head-to-head, dealer competition and each team will summarize their dealer strategies in a written report. Teams 6-10 will present their strategies in class.

FIRST HALF LEARNING OBJECTIVES

Session Learning Objectives (1.) Introduction • Define the bid, ask, spread, and BBO • Determine the BBO prices and depths given quotes from various exchanges (2.) The Trading • Explain what participants are on the buy side vs. the sell side Industry • What features distinguish buy-side players vs. sell-side players? (3.) Orders • Explain the major order types and their key properties • Know the terms to describe limit price placement • Define the quoted spread, effective spread, realized spread, and asymmetric info (4.) Market • The advantages of a call market vs. the advantages of a continuous market Structure Around • Who supplies liquidity in a pure quote-driven market, a pure order-driven The World market, a hybrid market, and a brokered market • Ex-ante and ex-post transparency • Compare the performance of pure LOB vs. Hybrid vs. Dealer-emphasis systems • How has the mix of electronic vs. floor exchanges changed over time? (5.) Limit Order • Describe various order precedence rules Book Vs. Call • For a given set of orders, work out the limit price placement, trades, quotes, and Markets changes in the limit order book for: (1) a limit order book market and (2) a call market (6.) The U.S. Over • How have U.S. commissions and spreads changed over the past century? Time • How have U.S. spreads, depth, volume, and trades over the past decade? 10 (7.) Transaction • Given some quotes, trades and events, calculate transaction costs using: (1) Cost Measurement (One-Way) Effective Spread, (2) (One-Way) Realized Spread, (3) Implementation Shortfall, (4) Volume-Weighted Average Price (VWAP), and (5) Opening Price (or Closing Price). • Characterize how trading costs have varied over time and across major regions of the world. (8.) Paris, Tokyo, • Describe the trading mechanism of the Paris Bourse / NYSE Euronext and London • Describe the trading mechanism of the Tokyo Stock Exchange • Describe the trading mechanism of the London Stock Exchange pre & post 97 (9.) Recent • Describe the 2001 SEC-mandated Decimalization and its impact. Developments • Describe algorithmic trading and its impact • Describe NYSE Hybrid Market and its impact • Describe NYSE Next Generation Model (10.) Institutional • Explain how a block broker interacts with the initiating trader and why Traders • How does a block dealer minimize the price impact of a block? • Explain the value, technical, and index styles; who makes the most use of limit orders and working orders vs. market orders and why • Compare total execution costs for external crosses vs. ECN vs. brokered-filled (13.) Day Traders • Provide arguments that the day trader training business is legitimate or not. • What degree of success have day traders actually had? • Describe behavior finance evidence that trading is hazardous to your wealth •

EXAMPLES OF FIRST HALF BROAD CRITICAL THINKING QUESTIONS

1. Compare and contrast the benefits of alternative trading mechanisms. 2. What trading mechanism would you recommend to organizers of a new exchange? 3. Summarize the principles of optimal security trader strategies. 4. How are optimal security trading strategies effected by differing trading mechanisms?

SECOND HALF LEARNING OBJECTIVES

(15) Individual • Describe evidence that investors are net buyers of attention-grabbing stocks Traders • How do uniformed traders act & what is their impact on spreads & price impact • Who gains or who loses from trading and from aggressive vs. passive trades (16.) Inventory • Significance of the inventory problem along the liquidity spectrum Management • Why dealers want to manage their inventories and how they do it • Compare the average dealer volume, average dealer profit, and inventory half- life of FX vs. equity (17.) Market • What is insider trading? Manipulation and • What are the costs and benefits of prohibiting insider trading? Insider Trading • The main findings about insider trading laws and enforcement around the world (18.) Specialist • Calculate the specialist’s profit from alternative ways to execute a given market Execution order and calculate what size market order makes the specialist indifferent Strategies between alternative execution strategies (19.) Brokers and • Explain how on-line brokers have changed the brokerage industry. Informed Traders • Explain what illegal things might a broker do. • What is payment for order flow? In your opinion, does it hurt or help security traders? 11 • What are the four types of legal informed traders and the impact on prices of each type? • (20.) Arbitrageurs • Define pure arbitrage vs. speculative arbitrage and give an example of each • Define cross-instrument arbitrage vs. intermarket arbitrage and give an example of each. • Explain the price characterization of arbitrage. Explain the quantity characterization of arbitrage. • Why is it misleading to use stock selling by index arbitrageurs as a major explanation for declines in stock market prices? • Explain the idea that arbitrageurs are cross-sectional market makers. • Explain how to do pairs trading and its profit potential (21.) Transparency • What changed in corporate and muni bond trading, why, and what cost impact in Corporate • Describe the TRACE system for corporate bonds and what impact it had Bonds • How do trading costs vary by corporate bond types and by transparency (24.) Crashes • Offer possible explanations for the Crashes of 1929 and 1987. • In your opinion, was investor overreaction, whipped up by the news media, THE major force behind these crashes? Justify your answer. • Describe the deterioration of the global equity markets in 2008/2009 (25.) Deception • How spammers pick target stocks and the impact of spam on returns, turnover, and Bias and volatility • What is the left-digit effect and what is the evidence for it in security trading • What is sensation seeking and how does it & overconfidence effect trading? (26.) A • Define multiple listing, DPM, NMS, crossed, locked, trade-through Competitive • Discuss the impact of multiple listing and DPM on market performance Explosion in • Describe options market changes in 1999 & 2000 and their impact Options • How did the performance of options markets change due to electronic linkage? (27.) Competition • Evidence of New York vs. London cross-listing market share changes and the by Cross-Listing impact of SOX on U.S. cross-listing • Impact of overlap vs. nonoverlap on trading, spreads, depths, & specialist part. • Impact of cross-listing on price informativeness in develop vs. emerging (28.) Competition • Explain how trades are packaged, how transparent they are, & why gains result by Innovation • Describe what NYSE OpenBook is, its main purpose, and its main impacts. • Describe trading in the overnight, pre-opening, and post-close periods

EXAMPLES OF SECOND HALF BROAD CRITICAL THINKING QUESTIONS 1. Summarize the principles of optimal dealer strategies. 2. Summarize the factors that affect market performance. 3. What market performance issues would you recommend that SEC focus on going forward in time? 4. What would you envision as the "ultimate" (best) exchange ten or twenty years from now?