Financial Trading and Market Microstructure

BMAN31792 Financial Trading and Market Microstructure 10 Semester 2 Undergraduate Level 3 Sarah Zhang Unit coordinator Alliance Manchester Business School 1 FHEQ level (Framework for Higher Education Qualifications) ' Last part of a Bachelors ' European Credit Transfer & Accumulation System Rating : 5.0 The analysis of the inherent microstructure of financial markets is a relatively young sub-discipline within finance, but has rapidly become one of the most important. The growth of both electronic and algorithmic trading and their impact upon the efficient operation of financial markets has required scholars and practitioners alike to obtain a much more sophisticated understanding of the importance of the underlying trading architecture and the dynamics of price formation in a variety of trading environments.Financial market microstructure is concerned with studying the process of financial price formation under explicit trading rules. While financial economics has traditionally neglected the mechanics of trading, the market microstructure literature relaxes the assumptions of traditional asset pricing models, such as the absence of transaction costs, homogenous and symmetric information, and studies how different trading mechanisms affect the intraday price formation process in financial markets. This is of practical relevance for investors, who are interested in efficient order execution and the effect of market liquidity on asset prices. The analysis of the inherent microstructure of financial markets is a relatively young sub-discipline within finance, but has rapidly become one of the most important. The growth of both electronic and algorithmic trading and their impact upon the efficient operation of financial markets has required scholars and practitioners alike to obtain a much more sophisticated understanding of the importance of the underlying trading architecture and the dynamics of price formation in a variety of trading environments.Financial market microstructure is concerned with studying the process of financial price formation under explicit trading rules. While financial economics has traditionally neglected the mechanics of trading, the market microstructure literature relaxes the assumptions of traditional asset pricing models, such as the absence of transaction costs, homogenous and symmetric information, and studies how different trading mechanisms affect the intraday price formation process in financial markets. This is of practical relevance for investors, who are interested in efficient order execution and the effect of market liquidity on asset prices. The aims of this course are: 1. To provide an understanding of both core theoretical ideas and recent empirical insights developed in the field of financial market microstructure. 2. To be able to formulate recommendations for the optimal design of financial markets. 3. To discuss current regulatory and technological changes of trading venues, such as Algorithmic and High Frequency Trading. 4. To introduce new techniques offered by financial market microstructure for analysing transaction costs, asymmetric information, market liquidity and the strategic behaviour of agents participating in financial trading. Other This course is important for students who are interested in working in either the trading or global markets division(s) of large investment banks. This course will help them to obtain an overview of the variety of architectures and trading processes in different market settings and the roles of the different agents in the value chain of financial trading. Financial Market Structures and Market Microstructure Foundations:<ul> <li> The value chain in securities trading and basics of trading</li> <li> Market design and market structures of selected markets</li> <li> Asset Classes and Order Types</li> <li> Different Types of traders</li> <li> Transaction Cost Analysis</li> <li> Asymmetric information and strategic trading behaviour</li> <li> Market fragmentation and regulation</li> <li> Exchanges and Alternative Trading Systems</li> <li> Technological advances in trading (Automation, Algorithmic Trading, High Frequency Trading)</li> <li> Applied Econometrics</li> <li> Clearing and settlement  </li></ul> Lectures and SeminarsTotal study hours: 100 hours split between lectures, classes, self study and preparation for classes, coursework and examinations.Informal Contact Methods • Office hours • Online learning activities (blogs, discussions, self- assessment questions) • Lecturers available for questions after lectures and seminars • Discussion forum on Blackboard to post questions 1 Written exam 100% Formative Assessment: Not assessed, feedback provided. Group Presentation • Informal advice and discussion during lectures and seminars. • Responses to student emails and questions from a member of staff including feedback provided to a group via an online discussion forum. • Written and/or verbal comments on in-class presentation. • Generic feedback posted on Blackboard regarding overall examination performance. BMAN20072 Investment Analysis Pre-Requisite Compulsory BMAN23000 Foundations of Finance A Pre-Requisite Compulsory BMAN21011 Financial Markets and Institutions Pre-Requisite Compulsory BMAN23000B Foundations of Finance B Pre-Requisite Compulsory BMAN31792 has pre-requisites of BMAN23000 A or B Foundations of Finance , BMAN21011 Financial Markets. It is available to Mgt, IM, IMABS, IBFE, BA Econ and BSc Economics.Pre-requisite course units have to be passed by 40% or above at the first attempt unless a higher percentage is indicated below.Pre-requisites: BMAN23000 (A) or (B) Foundations of Finance, BMAN21011 Financial Markets and Institutions and BMAN20072 Investment Analysis.It is preferred that students have a pass mark of 60% or higher in all the pre-requisite course units listed above for Financial Market Microstructure. N <ul> <li> De Jong, Frank and Barbara Rindi: The Microstructure of Financial Markets, Oxford Univ. Press, 2009</li> <li> Harris, Larry: Trading and Exchanges : Market Microstructure for Practitioners, Oxford Univ. Press, 2003</li> <li> Hasbrouck, Joel: Empirical Market Microstructure, Oxford University Press, 2007</li> <li> Johnson, Barry: Algorithmic Trading and DMA: An introduction to direct access trading strategies, 4Myeloma Press, 2010</li> <li> O’Hara, Maureen: Market Microstructure Theory, Blackwell Publishing, 1995</li> <li> Other papers that will be announced before the lectures</li> </ul> Assessment written exam 2 Lectures 20 Seminars 9 0 69 Pre-requisite course units have to be passed by 40% or above at the first attempt unless a higher percentage is indicated below.Pre-requisites: BMAN23000 A or B Foundations of Finance , BMAN21011 Financial Markets and Institutions and BMAN20072 Investment Analysis.It is preferred that students have a pass mark of 60% or higher in all the pre-requisite course units listed above for Financial Market Microstructure.Co-requisites: noneDependent courses: n/aProgramme restrictions: Available to BSc Management/Management specialisms, BSc IM, BSc IBFE, BA (Econ) Accounting, BA (Econ) Accounting and Finance, BA (Econ) Finance, BA (Econ) Economics and Finance students, BSc Economics .BMAN31792 is available to study abroad and exchange students admitted through the University of Manchester International Programmes Office.