Trading and Markets 730/830
Winter Quarter 2012


Ingrid M. Werner


700E Fisher Hall


Tuesdays and Thursdays, 10:30-12:18 p.m. in Gerlach 315


Tuesdays and Thursdays, 1:30-3:18 p.m. in Shoenbaum 219


By Appointment



(614) 292-6460

Class Updates
Last Updated: March 8, 2012

*Course Outline and Schedule (.pdf)
*Brief Course Description (below)
* Slides for First Class

Documents to Download for Registered Students

*Schedule with Readings


Course Outline
In this course, we describe how today’s financial markets work; how governments and exchanges regulate them; and how traders create liquidity, volatility, informative prices, trading profits, and transaction costs.  The course provides an overview of today’s fragmented market for financial securities.  On the equity trading side, we discuss major exchanges such as NYSE Euronext and Nasdaq OMX, but also new players such as BATS Trading and Direct Edge/ISE and Dark Pools such as Credit Suisse’s Cross Finder and Goldman Sach’s Sigma X.   We also discuss options and futures exchanges like the CBOE and the CME, electronic bond trading platforms such as eSpeed and Bondvision, and currency trading systems such as EBS and Reuters 3000.

We study different market structures: single price auctions, open outcry auctions, screen-based markets, and brokered markets.  We study the role of different market participants: investors, brokers, dealers, arbitrageurs, retail traders, buy-side traders (institutions), day traders, and rogue traders.  We also study different order types: limit orders, market orders, and stop orders; and trading strategies: program trading, basket trading, block trading, and short sales.  Finally, we look at the dark side of securities trading: insider trading, front running, market manipulation, and bluffing.

Target Audience
This course is primarily targeted towards students thinking of a career in investment management, securities trading, or the brokerage industry.  It is also an excellent course to take for students targeting a career as a financial advisor.  However, the course will also be useful for students interested in finance more generally.  In the course, we will show that market structure and regulation affect asset pricing, and hence the cost of capital for firms around the world.  Students taking this course will most certainly get a “leg-up” on the competition for summer jobs and hopefully also permanent jobs in the securities industry.

Course Goals
There are three main goals for students in this course:

1.                  To develop a thorough understanding of how securities are traded around the world, how traders (retail and institutional) can minimize their costs of trading, and how market makers can optimally set prices and execute orders.

2.                  To understand the role of regulation, and how it impacts players in the securities industry.

3.                  To gain first-hand experience in trading simulated securities and making a market for simulated securities.

Ingrid M. Werner is the Martin and Andrew Murrer Professor and Department Chair of Finance at Ohio State University.  She joined the university in 1998.  She has also taught at Stanford Business School, at the Wharton School, and at the Stockholm School of Economics.  She has an MBA and an Economics Licentiate degree from the Stockholm School of Economics, and a MA and a PhD in Economics from the University of Rochester.  Professor Werner does research in international finance and market microstructure.  She was the visiting research economist at the New York Stock Exchange in 1997, and the visiting academic fellow at the Nasdaq Stock Market in 2001-2002.

This course uses a combination of cases, assignments, classroom lectures and discussions to convey the material.  Each student is expected to contribute regularly to classroom discussion.  This is particularly true when we work with cases, but also during lectures and general discussions.  There will be an in-class midterm on February 23, 2012, and a final term paper assignment due Tuesday, March 13, 2012.  Moreover, a significant fraction of the course grade will be based on trading simulations.

Bus Fin 730 is open to business undergraduate students who have taken Bus Fin 620.  Bus Fin 830 is open to MBA (Macc) students who have taken Bus Fin 810 (811).  In addition, background in microeconomics is useful because the notions of supply, demand and economic equilibrium underlie just about every trading situation.  Statistics also comes in handy when we need to design strategies in situations involving risk or evaluate performance of existing markets.

Course Evaluation
The final course grade will be allocated according to the following formula:
Individual Classroom Contribution                                                                20%
Trading Simulations                                                                                        20%
Midterm Exam                                                                                                40%
Term Paper                                                                                                      20%

Term Paper
The term paper can cover any topic in the general area of trading and markets. Suggestions on topics will be provided at a later date.  The paper itself should be no more than 5 pages long, including exhibits.  Needless to say, it should include proper sourcing of materials, referencing of cited work, etc.  The paper should be handed in by 5pm on Tuesday, March 13, 2012.  Additional information regarding the term paper and suggestions for topics will be provided in mid April.

Trading Simulation
We will use several trading simulations in the course, and your simulation performance accounts for 20% of your grade.  The trading simulations are not simply graded on profits generated by each trader, but also on learning and on position risk management.  The first trading simulation -- Rotman Interactive Trader (RIT) -- is based on a software package designed by the staff in the trading laboratory at the Rotman School, University of Toronto.  Fisher College holds a site license to RIT software.  Students are encouraged to practice using the RIT software throughout the course.  The second simulation software – Uptick Learning– is software designed by Joshua Coval and Eric Stafford at Harvard Business School.  Students will be required to purchase a license to use this software, and the cost is $15.00 per student.  More information about the simulations will be provided on the class web-page.

Course Material
The required textbook is Equity Markets in Action, 2004, Wiley, New York, which is written by Professor Robert A. Schwartz and Reto Francioni.  The textbook is available for free as an ebook through the Ohio State University library.  There will also be a packet of cases available from UniprintFinally, all students are required to purchase a license to use a software package Uptick Learning at a cost of $15.00 per student.  Class-notes and other materials will be distributed via this course web-page.

Class Participation
A substantial portion of your grade (20%) will be based on class participation.  Class participation will mainly be graded based on your contributions to case discussions, but general participation in the form of questions and comments during lectures is also welcome and will be rewarded.  A combination of cold-calling and soft-calling will be used to maximize participation.  Each student will be given ample opportunity to contribute to the classroom discussion.  I will monitor contributions daily, and will cold-call students who need encouragement to speak up in class.