FINC3014 NOTES
TABLE OF CONTENTS
LECTURE 1: TRADING BASICS ................................................................................................................................ 5
PART 1: AN OVERVIEW OF FINC3014........................................................................................................................... 5
1.1 – THE STRUCTURE .............................................................................................................................................................5
1.2 – THE TEACHING TEAM ......................................................................................................................................................5
1.3 – UNIT LEARNING OUTCOMES .............................................................................................................................................5
1.4 – PRESCRIBED TEXTBOOK AND OTHER RECOMMENDED TEXTBOOKS ...........................................................................................5
1.5 – TOPICS COVERED............................................................................................................................................................5
1.6 – MY EXPECTATIONS .........................................................................................................................................................6
1.7 – ASSESSMENT .................................................................................................................................................................6
PART 2: TRADING BASICS ........................................................................................................................................... 6
2.1 – WHAT ARE MARKETS? ....................................................................................................................................................6
2.2 – HOW ARE PRICES FORMED? .............................................................................................................................................7
2.3 – IS TRADING A ZERO-SUM GAME? ......................................................................................................................................7
2.4 – WHY TRADE? ................................................................................................................................................................9
2.5 – WHAT’S YOUR TRADING STYLE/STRATEGY?.........................................................................................................................9
PART 3: ORDERS AND ORDER PROPERTIES ...................................................................................................................... 9
3.1 – SOME IMPORTANT TERMS ...............................................................................................................................................9
3.2 – STATE OF THE ORDER BOOK (CLOB – CENTRAL LIMIT ORDER BOOK)......................................................................................9
3.3 – ORDER TYPES ..............................................................................................................................................................10
PART 4: ROTMAN INTERACTIVE TRADER (RIT) .............................................................................................................. 11
4.1 – AN INTRODUCTION TO RIT ............................................................................................................................................11
4.2 – HOW TO LOGIN TO RIT? ...............................................................................................................................................11
4.3 – WHAT DOES THE RIT CLIENT LOOK LIKE? ..........................................................................................................................12
4.4 – HOW TO SAVE YOUR TRADE RECORDS FOR ANALYSIS ? ........................................................................................................16
EXERCISES ............................................................................................................................................................ 17
SOME EXAMPLES – HOW MARKETS OPERATE .............................................................................................................................17
LECTURE 2: THE TRADING INDUSTRY .................................................................................................................. 19
PART 1: MARKET PARTICIPANTS ................................................................................................................................ 19
1.1 – WHO ARE THE TRADERS? ..............................................................................................................................................19
1.2 – WHO ARE THE TRADE FACILITATORS? ..............................................................................................................................19
PART 2: TRADING INSTRUMENTS................................................................................................................................ 20
2.1 – REAL ASSETS................................................................................................................................................................20
2.2 – FINANCIAL ASSETS ........................................................................................................................................................20
2.3 – DERIVATIVE CONTRACTS ................................................................................................................................................20
2.4 – HYBRID CONTRACTS......................................................................................................................................................24
2.5 – INSURANCE CONTRACTS AND GAMBLING CONTRACTS .........................................................................................................24
PART 3: MARKET EXECUTION STRUCTURES ................................................................................................................... 24
3.1 – CLASSIFICATION ...........................................................................................................................................................24
3.2 – QUOTE-DRIVEN DEALER MARKETS ...................................................................................................................................24
3.3 – ORDER DRIVEN MARKETS...............................................................................................................................................25
1
,3.4 – BROKERED MARKETS.....................................................................................................................................................28
3.5 – HYBRIDS/MULTIPLE MARKETS ........................................................................................................................................29
PART 4: FLOOR VS. AUTOMATED TRADING SYSTEMS ....................................................................................................... 30
4.1 – THE ROAD AHEAD.........................................................................................................................................................30
4.2 – DISTINGUISHING FEATURES OF FLOOR VS. ELECTRONIC TRADING ..........................................................................................30
LECTURE 3: LARGE TRADERS AND MARKET IMPACT COSTS .................................................................................. 31
PART 1: LARGE TRADERS .......................................................................................................................................... 31
1.1 – WHAT DRIVES INSTITUTIONAL TRADING? .........................................................................................................................31
1.2 – FUND MANAGEMENT (OR INVESTMENT) COMPANIES .........................................................................................................34
1.3 – FUND CLASSIFICATIONS .................................................................................................................................................35
PART 2: LARGE ORDERS AND MARKET IMPACT COSTS ...................................................................................................... 38
2.1 – PROBLEMS FACED BY INSTITUTIONS WHO SUBMIT LARGE ORDERS ........................................................................................38
2.2 – INSTITUTIONS AND MARKET IMPACT COSTS.......................................................................................................................38
PART 3: HOW TO MEASURE WHETHER INSTITUTIONAL TRADES HAVE BEEN EXECUTED WELL ?..................................................... 40
3.1 – ASSESSING INSTITUTIONAL TRADE EXECUTION ...................................................................................................................40
LECTURE 4: DEALER MARKETS ............................................................................................................................ 43
PART 1: DEALERS AND DEALER MARKETS ..................................................................................................................... 43
1.1 – DEALERS .....................................................................................................................................................................43
1.2 – TYPES, OBJECTIVES AND ACTIVITIES OF DEALERS ................................................................................................................46
PART 2: THE COSTS OF DEALING ................................................................................................................................. 50
2.1 – WHAT ARE THE COSTS OF DEALING?................................................................................................................................50
2.2 – HOW DO DEALERS’ CONTROL FOR INVENTORY HOLDING COSTS? ..........................................................................................51
2.3 – ADVERSE SELECTION IN DEALER MARKETS .........................................................................................................................52
2.4 – HOW DO DEALERS MITIGATE ADVERSE SELECTION COSTS ?...................................................................................................54
LECTURE 5: HOW DO INVESTORS BEHAVE? ......................................................................................................... 56
PART 1: INVESTORS WHO USE INFORMATION TO TRADE ................................................................................................... 56
1.1 – INFORMED TRADERS .....................................................................................................................................................56
1.2 – ORDER ANTICIPATORS ...................................................................................................................................................60
PART 2: THE MIND OF THE INVESTOR .......................................................................................................................... 61
2.1 – RATIONAL INVESTOR PARADIGMS....................................................................................................................................61
2.2 – PROSPECT THEORY .......................................................................................................................................................62
2.3 – BEHAVIOURAL FINANCE .................................................................................................................................................64
2.4 – NEUROFINANCE: GETTING INTO THE INVESTOR’S HEAD ......................................................................................................69
LECTURE 6: WHAT DO WE WANT FROM MARKETS? ............................................................................................ 71
PART 1: WHAT IS A “GOOD” MARKET?........................................................................................................................ 71
1.1 – GOOD MARKETS ..........................................................................................................................................................71
1.2 – WELFARE ECONOMICS ..................................................................................................................................................71
1.3 – SOME OBJECTIVES OF EVALUATING MARKETS ....................................................................................................................72
PART 2: SHOULD MARKETS BE EFFICIENT? .................................................................................................................... 73
2
,2.1 – INTRODUCTION TO MARKET EFFICIENCY ...........................................................................................................................73
2.2 – LEVELS OF MARKET EFFICIENCY .......................................................................................................................................74
2.3 – TESTS OF WEAK FORM EFFICIENCY ...................................................................................................................................74
2.4 – TESTS OF SEMI-STRONG FORM EFFICIENCY........................................................................................................................79
2.5 – TESTS OF STRONG FORM EFFICIENCY................................................................................................................................81
2.6 – EVIDENCE AGAINST THE EFFICIENT MARKETS HYPOTHESIS (EMH) .......................................................................................82
2.7 – EPILOGUE ...................................................................................................................................................................83
LECTURE 7: EVALUATING MARKETS AND INVESTMENTS ...................................................................................... 84
PART 1: HOW DO WE EVALUATE MARKETS?.................................................................................................................. 84
1.1 – MARKET QUALITY METRIC: TRANSACTION COSTS ...............................................................................................................84
1.2 – MARKET QUALITY METRIC: LIQUIDITY ..............................................................................................................................88
1.3 – MARKET QUALITY METRIC: VOLATILITY ............................................................................................................................91
1.4 – HOW ARE MARKETS PERFORMING? .................................................................................................................................93
PART 2: EVALUATING INVESTMENT PORTFOLIO PERFORMANCE .......................................................................................... 94
2.1 – INVESTMENT PORTFOLIO PERFORMANCE ..........................................................................................................................94
2.2 – PORTFOLIO BENCHMARKING ..........................................................................................................................................94
2.3 – MARKET TIMING VS. SELECTION .....................................................................................................................................95
PART 3: MARKET EXTREMES ..................................................................................................................................... 96
3.1 – BUBBLE, BUBBLE, TOIL AND TROUBLE ..............................................................................................................................96
3.2 – REGULATORY RESPONSES TO EXTREME VOLATILITY ...........................................................................................................104
LECTURE 9: ARBITRAGE IN REAL TRADING MARKETS ......................................................................................... 106
PART 1: A SURE THING! NO RISK AND SURE PROFITS ..................................................................................................... 106
1.1 – ARBITRAGE ...............................................................................................................................................................106
1.2 – PURE ARBITRAGE .......................................................................................................................................................108
PART 2: TOO GOOD TO BE TRUE? THE DREAM OF ARBITRAGE .......................................................................................... 114
2.1 – NEAR ARBITRAGE .......................................................................................................................................................114
2.2 – SPECULATIVE ARBITRAGE (OR PSEUDO ARBITRAGE) ..........................................................................................................115
2.3 – A CASE STUDY THAT HIGHLIGHTS THE RISK OF ARBITRAGE ..................................................................................................117
2.4 – CLOSING COMMENTS..................................................................................................................................................118
LECTURE 10: WHAT'S BEEN HAPPENING IN MARKETS? ...................................................................................... 119
PART 1: SHOULD MARKETS BE CONSOLIDATED OR FRAGMENTED ? .................................................................................... 119
1.1 – MARKET FRAGMENTATION VS. MARKET CONSOLIDATION .................................................................................................119
1.2 – TRADITIONAL SECURITIES EXCHANGES (THE WAY IT WAS)..................................................................................................120
1.3 – THE EMERGENCE OF ALTERNATIVE TRADING SYSTEMS (ATSS) ...........................................................................................121
1.4 – FRAGMENTED MARKETS ..............................................................................................................................................122
1.5 – WHAT ARE THE REASONS FOR MARKET FRAGMENTATION? ................................................................................................126
1.6 – WHAT IS THE IMPACT OF MARKET FRAGMENTATION? ......................................................................................................128
1.7 – HOW DO YOU TRADE IN FRAGMENTED MARKETS ? ...........................................................................................................130
PART 2: WHAT’S THE BIG DEAL WITH COMPUTERIZED TRADING?...................................................................................... 131
2.1 – ALGORITHMIC TRADING ..............................................................................................................................................131
2.2 – WHAT IS THE IMPACT OF ALGORITHMIC TRADING? ..........................................................................................................133
3
, LECTURE 11: DISTRESSED MARKETS .................................................................................................................. 137
PART 1: THE EVOLUTION OF MARKETS ....................................................................................................................... 137
1.1 – FROM HUMANS TO COMPUTERS ...............................................................................................................................137
1.2 – THE EVOLUTION OF NYSE’S TRADE MATCHING ENGINE ....................................................................................................137
1.3 – ACCESS TO THE MATCHING ENGINE ...............................................................................................................................137
1.4 – THE FASTER THE BETTER? IS SPEED IMPORTANT? .............................................................................................................139
PART 2: HAVE MARKETS GONE TOO DARK? ................................................................................................................ 139
2.1 – DARK MARKETS .........................................................................................................................................................139
2.2 – HOW DOES DARK TRADING WORK? ...............................................................................................................................140
2.3 – IS DARK TRADING GOOD OR BAD? .................................................................................................................................142
PART 3: PREDATORY TRADING................................................................................................................................. 143
3.1 – IS HIGH FREQUENCY TRADING (HFT) ALL THAT BAD? ........................................................................................................143
3.2 – HFT PREDATORY TRADING ...........................................................................................................................................145
PART 4: SPEED BUMPS: A WAY TO REDUCE PREDATORY TRADING? ................................................................................... 154
4.1 – SPEED BUMPS............................................................................................................................................................154
4.2 – THE INDEPENDENT EXCHANGE (IEX) .............................................................................................................................154
4.3 – ANOTHER SOLUTION: PERIODIC CALL AUCTIONS ..............................................................................................................155
LECTURE 12: TRADING GONE AWRY ................................................................................................................. 157
PART 1: MARKET MANIPULATION ............................................................................................................................ 157
1.1 – MARKET MANIPULATION .............................................................................................................................................157
1.2 – TYPES OF MARKET MANIPULATION ................................................................................................................................158
1.3 – DOES MARKET MANIPULATION OCCUR? .........................................................................................................................163
PART 2: INSIDER TRADING ...................................................................................................................................... 163
2.1 – INSIDER TRADING .......................................................................................................................................................163
2.2 – INSIDER TRADING CASES ..............................................................................................................................................164
2.3 – SHOULD INSIDER TRADING BE REGULATED? ....................................................................................................................167
4
TABLE OF CONTENTS
LECTURE 1: TRADING BASICS ................................................................................................................................ 5
PART 1: AN OVERVIEW OF FINC3014........................................................................................................................... 5
1.1 – THE STRUCTURE .............................................................................................................................................................5
1.2 – THE TEACHING TEAM ......................................................................................................................................................5
1.3 – UNIT LEARNING OUTCOMES .............................................................................................................................................5
1.4 – PRESCRIBED TEXTBOOK AND OTHER RECOMMENDED TEXTBOOKS ...........................................................................................5
1.5 – TOPICS COVERED............................................................................................................................................................5
1.6 – MY EXPECTATIONS .........................................................................................................................................................6
1.7 – ASSESSMENT .................................................................................................................................................................6
PART 2: TRADING BASICS ........................................................................................................................................... 6
2.1 – WHAT ARE MARKETS? ....................................................................................................................................................6
2.2 – HOW ARE PRICES FORMED? .............................................................................................................................................7
2.3 – IS TRADING A ZERO-SUM GAME? ......................................................................................................................................7
2.4 – WHY TRADE? ................................................................................................................................................................9
2.5 – WHAT’S YOUR TRADING STYLE/STRATEGY?.........................................................................................................................9
PART 3: ORDERS AND ORDER PROPERTIES ...................................................................................................................... 9
3.1 – SOME IMPORTANT TERMS ...............................................................................................................................................9
3.2 – STATE OF THE ORDER BOOK (CLOB – CENTRAL LIMIT ORDER BOOK)......................................................................................9
3.3 – ORDER TYPES ..............................................................................................................................................................10
PART 4: ROTMAN INTERACTIVE TRADER (RIT) .............................................................................................................. 11
4.1 – AN INTRODUCTION TO RIT ............................................................................................................................................11
4.2 – HOW TO LOGIN TO RIT? ...............................................................................................................................................11
4.3 – WHAT DOES THE RIT CLIENT LOOK LIKE? ..........................................................................................................................12
4.4 – HOW TO SAVE YOUR TRADE RECORDS FOR ANALYSIS ? ........................................................................................................16
EXERCISES ............................................................................................................................................................ 17
SOME EXAMPLES – HOW MARKETS OPERATE .............................................................................................................................17
LECTURE 2: THE TRADING INDUSTRY .................................................................................................................. 19
PART 1: MARKET PARTICIPANTS ................................................................................................................................ 19
1.1 – WHO ARE THE TRADERS? ..............................................................................................................................................19
1.2 – WHO ARE THE TRADE FACILITATORS? ..............................................................................................................................19
PART 2: TRADING INSTRUMENTS................................................................................................................................ 20
2.1 – REAL ASSETS................................................................................................................................................................20
2.2 – FINANCIAL ASSETS ........................................................................................................................................................20
2.3 – DERIVATIVE CONTRACTS ................................................................................................................................................20
2.4 – HYBRID CONTRACTS......................................................................................................................................................24
2.5 – INSURANCE CONTRACTS AND GAMBLING CONTRACTS .........................................................................................................24
PART 3: MARKET EXECUTION STRUCTURES ................................................................................................................... 24
3.1 – CLASSIFICATION ...........................................................................................................................................................24
3.2 – QUOTE-DRIVEN DEALER MARKETS ...................................................................................................................................24
3.3 – ORDER DRIVEN MARKETS...............................................................................................................................................25
1
,3.4 – BROKERED MARKETS.....................................................................................................................................................28
3.5 – HYBRIDS/MULTIPLE MARKETS ........................................................................................................................................29
PART 4: FLOOR VS. AUTOMATED TRADING SYSTEMS ....................................................................................................... 30
4.1 – THE ROAD AHEAD.........................................................................................................................................................30
4.2 – DISTINGUISHING FEATURES OF FLOOR VS. ELECTRONIC TRADING ..........................................................................................30
LECTURE 3: LARGE TRADERS AND MARKET IMPACT COSTS .................................................................................. 31
PART 1: LARGE TRADERS .......................................................................................................................................... 31
1.1 – WHAT DRIVES INSTITUTIONAL TRADING? .........................................................................................................................31
1.2 – FUND MANAGEMENT (OR INVESTMENT) COMPANIES .........................................................................................................34
1.3 – FUND CLASSIFICATIONS .................................................................................................................................................35
PART 2: LARGE ORDERS AND MARKET IMPACT COSTS ...................................................................................................... 38
2.1 – PROBLEMS FACED BY INSTITUTIONS WHO SUBMIT LARGE ORDERS ........................................................................................38
2.2 – INSTITUTIONS AND MARKET IMPACT COSTS.......................................................................................................................38
PART 3: HOW TO MEASURE WHETHER INSTITUTIONAL TRADES HAVE BEEN EXECUTED WELL ?..................................................... 40
3.1 – ASSESSING INSTITUTIONAL TRADE EXECUTION ...................................................................................................................40
LECTURE 4: DEALER MARKETS ............................................................................................................................ 43
PART 1: DEALERS AND DEALER MARKETS ..................................................................................................................... 43
1.1 – DEALERS .....................................................................................................................................................................43
1.2 – TYPES, OBJECTIVES AND ACTIVITIES OF DEALERS ................................................................................................................46
PART 2: THE COSTS OF DEALING ................................................................................................................................. 50
2.1 – WHAT ARE THE COSTS OF DEALING?................................................................................................................................50
2.2 – HOW DO DEALERS’ CONTROL FOR INVENTORY HOLDING COSTS? ..........................................................................................51
2.3 – ADVERSE SELECTION IN DEALER MARKETS .........................................................................................................................52
2.4 – HOW DO DEALERS MITIGATE ADVERSE SELECTION COSTS ?...................................................................................................54
LECTURE 5: HOW DO INVESTORS BEHAVE? ......................................................................................................... 56
PART 1: INVESTORS WHO USE INFORMATION TO TRADE ................................................................................................... 56
1.1 – INFORMED TRADERS .....................................................................................................................................................56
1.2 – ORDER ANTICIPATORS ...................................................................................................................................................60
PART 2: THE MIND OF THE INVESTOR .......................................................................................................................... 61
2.1 – RATIONAL INVESTOR PARADIGMS....................................................................................................................................61
2.2 – PROSPECT THEORY .......................................................................................................................................................62
2.3 – BEHAVIOURAL FINANCE .................................................................................................................................................64
2.4 – NEUROFINANCE: GETTING INTO THE INVESTOR’S HEAD ......................................................................................................69
LECTURE 6: WHAT DO WE WANT FROM MARKETS? ............................................................................................ 71
PART 1: WHAT IS A “GOOD” MARKET?........................................................................................................................ 71
1.1 – GOOD MARKETS ..........................................................................................................................................................71
1.2 – WELFARE ECONOMICS ..................................................................................................................................................71
1.3 – SOME OBJECTIVES OF EVALUATING MARKETS ....................................................................................................................72
PART 2: SHOULD MARKETS BE EFFICIENT? .................................................................................................................... 73
2
,2.1 – INTRODUCTION TO MARKET EFFICIENCY ...........................................................................................................................73
2.2 – LEVELS OF MARKET EFFICIENCY .......................................................................................................................................74
2.3 – TESTS OF WEAK FORM EFFICIENCY ...................................................................................................................................74
2.4 – TESTS OF SEMI-STRONG FORM EFFICIENCY........................................................................................................................79
2.5 – TESTS OF STRONG FORM EFFICIENCY................................................................................................................................81
2.6 – EVIDENCE AGAINST THE EFFICIENT MARKETS HYPOTHESIS (EMH) .......................................................................................82
2.7 – EPILOGUE ...................................................................................................................................................................83
LECTURE 7: EVALUATING MARKETS AND INVESTMENTS ...................................................................................... 84
PART 1: HOW DO WE EVALUATE MARKETS?.................................................................................................................. 84
1.1 – MARKET QUALITY METRIC: TRANSACTION COSTS ...............................................................................................................84
1.2 – MARKET QUALITY METRIC: LIQUIDITY ..............................................................................................................................88
1.3 – MARKET QUALITY METRIC: VOLATILITY ............................................................................................................................91
1.4 – HOW ARE MARKETS PERFORMING? .................................................................................................................................93
PART 2: EVALUATING INVESTMENT PORTFOLIO PERFORMANCE .......................................................................................... 94
2.1 – INVESTMENT PORTFOLIO PERFORMANCE ..........................................................................................................................94
2.2 – PORTFOLIO BENCHMARKING ..........................................................................................................................................94
2.3 – MARKET TIMING VS. SELECTION .....................................................................................................................................95
PART 3: MARKET EXTREMES ..................................................................................................................................... 96
3.1 – BUBBLE, BUBBLE, TOIL AND TROUBLE ..............................................................................................................................96
3.2 – REGULATORY RESPONSES TO EXTREME VOLATILITY ...........................................................................................................104
LECTURE 9: ARBITRAGE IN REAL TRADING MARKETS ......................................................................................... 106
PART 1: A SURE THING! NO RISK AND SURE PROFITS ..................................................................................................... 106
1.1 – ARBITRAGE ...............................................................................................................................................................106
1.2 – PURE ARBITRAGE .......................................................................................................................................................108
PART 2: TOO GOOD TO BE TRUE? THE DREAM OF ARBITRAGE .......................................................................................... 114
2.1 – NEAR ARBITRAGE .......................................................................................................................................................114
2.2 – SPECULATIVE ARBITRAGE (OR PSEUDO ARBITRAGE) ..........................................................................................................115
2.3 – A CASE STUDY THAT HIGHLIGHTS THE RISK OF ARBITRAGE ..................................................................................................117
2.4 – CLOSING COMMENTS..................................................................................................................................................118
LECTURE 10: WHAT'S BEEN HAPPENING IN MARKETS? ...................................................................................... 119
PART 1: SHOULD MARKETS BE CONSOLIDATED OR FRAGMENTED ? .................................................................................... 119
1.1 – MARKET FRAGMENTATION VS. MARKET CONSOLIDATION .................................................................................................119
1.2 – TRADITIONAL SECURITIES EXCHANGES (THE WAY IT WAS)..................................................................................................120
1.3 – THE EMERGENCE OF ALTERNATIVE TRADING SYSTEMS (ATSS) ...........................................................................................121
1.4 – FRAGMENTED MARKETS ..............................................................................................................................................122
1.5 – WHAT ARE THE REASONS FOR MARKET FRAGMENTATION? ................................................................................................126
1.6 – WHAT IS THE IMPACT OF MARKET FRAGMENTATION? ......................................................................................................128
1.7 – HOW DO YOU TRADE IN FRAGMENTED MARKETS ? ...........................................................................................................130
PART 2: WHAT’S THE BIG DEAL WITH COMPUTERIZED TRADING?...................................................................................... 131
2.1 – ALGORITHMIC TRADING ..............................................................................................................................................131
2.2 – WHAT IS THE IMPACT OF ALGORITHMIC TRADING? ..........................................................................................................133
3
, LECTURE 11: DISTRESSED MARKETS .................................................................................................................. 137
PART 1: THE EVOLUTION OF MARKETS ....................................................................................................................... 137
1.1 – FROM HUMANS TO COMPUTERS ...............................................................................................................................137
1.2 – THE EVOLUTION OF NYSE’S TRADE MATCHING ENGINE ....................................................................................................137
1.3 – ACCESS TO THE MATCHING ENGINE ...............................................................................................................................137
1.4 – THE FASTER THE BETTER? IS SPEED IMPORTANT? .............................................................................................................139
PART 2: HAVE MARKETS GONE TOO DARK? ................................................................................................................ 139
2.1 – DARK MARKETS .........................................................................................................................................................139
2.2 – HOW DOES DARK TRADING WORK? ...............................................................................................................................140
2.3 – IS DARK TRADING GOOD OR BAD? .................................................................................................................................142
PART 3: PREDATORY TRADING................................................................................................................................. 143
3.1 – IS HIGH FREQUENCY TRADING (HFT) ALL THAT BAD? ........................................................................................................143
3.2 – HFT PREDATORY TRADING ...........................................................................................................................................145
PART 4: SPEED BUMPS: A WAY TO REDUCE PREDATORY TRADING? ................................................................................... 154
4.1 – SPEED BUMPS............................................................................................................................................................154
4.2 – THE INDEPENDENT EXCHANGE (IEX) .............................................................................................................................154
4.3 – ANOTHER SOLUTION: PERIODIC CALL AUCTIONS ..............................................................................................................155
LECTURE 12: TRADING GONE AWRY ................................................................................................................. 157
PART 1: MARKET MANIPULATION ............................................................................................................................ 157
1.1 – MARKET MANIPULATION .............................................................................................................................................157
1.2 – TYPES OF MARKET MANIPULATION ................................................................................................................................158
1.3 – DOES MARKET MANIPULATION OCCUR? .........................................................................................................................163
PART 2: INSIDER TRADING ...................................................................................................................................... 163
2.1 – INSIDER TRADING .......................................................................................................................................................163
2.2 – INSIDER TRADING CASES ..............................................................................................................................................164
2.3 – SHOULD INSIDER TRADING BE REGULATED? ....................................................................................................................167
4
