1. Introduction to Exchanges Chris Welty Walleye Trading

2. Who is this guy?

3. Walleye Trading Hedge fund in Wayzata Quantitative focus ~35 employees

4. Exchanges What they are Growth Quantitative Finance

5. History 1602 Amsterdam Stock Exchange 1730 Dojima Rice Exchange 1973 Chicago Board Options Exchange

6. Why trade on an exchange? Standardization Liquidity Information Credit Efficiency

7. Executing a trade

8. Increasing Computerization

9. Match Buyers and Sellers

10. Who Does What CustomerBrokerExchange Market Maker

11. Broker Accepts orders Executes orders Custodian Credit intermediation

12. Market Maker Provide prices Provide liquidity Sometimes, stabilize market

13. Market Stabilization NYSE Specialist Japanese Price limits Position limits

14. Increasing Quantitative Trading Stocks Foreign Exchange Futures Options

15. Leads to massive growth

16. NYSE Volume

17. Market Growth Reduced commissions Penny pricing Quantitative trading

18. Quantitative Finance Option Modeling Automated Trading

19. Black-Scholes Model Useful Not Practical

20. Black-Scholes Price

21. Black-Scholes Delta

22. Gamma

23. Rho (interest rate risk)

24. Model Enhancements Discrete dividends Different interest rates Variable volatility Smile Term structure Proprietary

25. Automated Trading Algorithmic Execution Low-Frequency High-frequency

26. Algorithmic Execution VWAP Minimize trading cost Reduce information leakage

27. Low Frequency Trading Statistical Arbitrage Quantitative-based fundamental trading

28. High Frequency Trading Hot new area Enabled by electronic trading Analysis of large data sets