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    The NEW US Equity Markets: Understanding Market Structure, Fragmentation, Dark Liquidity, Alternative Trading Systems, Algo and High Frequency Trading

    June 11, 2014, NYC

    Registration Fee: US$995.00   Register 

    Beginner/Intermediate Level, 7 CPE Credits

    Instructor: Prof. Bernard Donefer
    Hours: 9:00 am - 5:00 pm; Registration/Breakfast begins at 8:30 am
    Location: Club Quarters Hotel, 52 William Street (off Wall Street), NYC   Directions 

    We imagine our orders being sent to an exchange and executed by humans on noisy floors.  While the market floor has always been an iconic image, it is as archaic as an 8-track tape.  Today trading is electronic, low cost and done in millionths of a second.  Even with an undergraduate degree or an MBA in finance, it doesn’t prepare you for the realities of how our equity markets work today.  60-75% of equity trading in the US is done electronically with algorithms, high frequency quant models and automated market makers.  37% of equity trading is done “in the dark”.  Regulatory changes, technology and competitive responses have dramatically changed our markets and trading practices.  We have over 50 market places, ECNs, Alternative Trading Systems (ATSs), internalized markets as well as a now electronic NASDAQ and Designated Market Maker (DMM) based NYSE.  What is the mysterious dark liquidity and co-location?  What may have caused the flash crash?  Institutions need to understand how to trade blocks in a complex environment uding Transaction Cost Analysis (TCA), algorithmic techniques, new order types to achieve the sought after best execution. 

    This seminar will describe the equity trading markets and the issues faced by the pension and mutual funds and other institutional asset managers, as well as sell side firms.  It will start with an historical perspective and continue to describe the current issues facing market participants.


    1. Review – What is a Market?

          a. Price discovery
          b. Continuous vs. call markets
          c. Order books
    2. Earlier Market Models 
          a. NYSE -- Seats and specialists
          b. NASDAQ  -- Competing market makers 
    3.Regulatory Revolution – the drivers of change
          a. Order Handling Rules, Manning, Reg ATS, Decimalization, Reg NMS
    4. New Market Models
          a. ECNs – electronic matching engines
          b. Reserve, Sweep and Inter-market Sweep (ISO) order types
          c. Maker Taker Model
          d. New exchanges -- BATS and Direct Edge
    5. New Market Structure -- Driven by Regulation, Technology & Competition 
          a. NYSE 
                i. Merges with Archipelago Exchange and in 2006 becomes listed 
                ii. Trading licenses replace seats
                iii. DMMs (and SLPs) replace Specialists
                iv. Merges with LIFFE, Euronext, American Stock Exchange
                v. Acquired by the Intercontinental Exchange (ICE)
          b. NASDAQ
                i. Establishes Trade Reporting Facility
                ii. Acquires BRUT and INET ECNs
                iii. Establishes open / close call
                iv. Becomes an exchange and a listed company
                v. Acquires OMX, Boston, Philadelphia Exchanges
          c. OTC Markets
                i. Bulletin Board
                ii. Pink Sheets
    6. Institutional Trading – the Search for Liquidity
          a. Market impact of blocks – trading costs, seen and unseen
          b. Market liquidity
          c. Transaction Cost Analysis (TCA) – pre and post trade
          d. Achieving best execution – setting trade benchmarks
    7. Dark Liquidity and Alternative Trading Systems (ATSs)
          a. What is Dark Liquidity
          b. Dark orders on public exchanges
          c. Dark pools – Alternative Trading Systems and internalization
                i. Benefits and risks
          d. Institutional dark markets – POSIT, Liquidnet, BIDS, etc.
    8. Low latency Trading
          a. Defining High Frequency Trading (HFT)
          b. Direct Market Access (DMA), Smart Order Routers (SOR) and Co-location
                i. Order Management (OMS), Execution Management (EMS) Systems, FIX connectivity
          c. Market Data and latency arbitrage  
          d. Algorithmic Trading – automating the large block position trader
                i. VWAP, TWAP, Implementation Shortfall, etc.
                ii. Almgren and Chriss Efficient Trading Frontier
          e. Automated market making
          f. The Flash Crash May 6, 2010 – Causes and Regulatory responses
          g. Quant trading models
                i. Stat Arb, Pairs, Momentum
                ii. Alpha, risk, cost, execution models and back testing
    9. Final Thoughts
          a. Do we need 50+ markets?
          b. Are dark pools trading 37% of US equity volume desirable?
          c. Results: fragmented markets, but low cost, high speed, narrow spreads  
          d. Studies from the UK and Australia on HFT models
          e. Regulatory responses and possible future actions
    10. WRAP UP
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