1. ©R. Schwartz Equity Markets: Trading and Structure Slide 1 Topic 1

2. ©R. Schwartz Equity Markets: Trading and Structure Slide 2 Trading is not investing. Trading is all about converting an investment decision (either yours or your portfolio manager’s) into a desired portfolio position. You will want to do this at the least possible cost and in the most timely fashion. Trading is also about finding pricing discrepancies in the market, jumping on them, and realizing a profit. This (course) deals with these actions What Trading is All About The Equity Trader Course, Schwartz, Francioni and Weber, page 1

3. ©R. Schwartz Equity Markets: Trading and Structure Slide 3 Trading costs can be substantial relative to stock returns Assume a $30 stock yields a 10% one year return Assume a $30 stock yields a 10% one year return Assume the “all in cost” of buying or selling a share is $0.25 Assume the “all in cost” of buying or selling a share is $0.25 With costless trading, your 1-year return = $33/$30 – 1 = 10% With costless trading, your 1-year return = $33/$30 – 1 = 10% With costly trading, your 1-year return = $32.75/$30.25 – 1 = 8.3% With costly trading, your 1-year return = $32.75/$30.25 – 1 = 8.3% Trading costs lower your return by 17%! Trading costs lower your return by 17%! Importance of Trading Well

4. ©R. Schwartz Equity Markets: Trading and Structure Slide 4 Equity markets are of major importance to the economy from a broad economic perspective and for employment Equity markets are of major importance to the economy from a broad economic perspective and for employment Much attention has been given to portfolio management Much attention has been given to portfolio management Little academic attention has been given in the classroom to trading (the implementation of portfolio decisions) Little academic attention has been given in the classroom to trading (the implementation of portfolio decisions) This course is designed to overcome this deficiency This course is designed to overcome this deficiency Importance of Subject

5. ©R. Schwartz Equity Markets: Trading and Structure Slide 5 Goal: Possess the quantitative, technological, analytical and critical thinking skills to evaluate issues faced in business and professional careers. To this end: You will evaluate a spectrum of issues regarding the formulation of trading decisions, market structure design, and market structure regulation. Learning Goals 1. Analytical & Technological Skills

6. ©R. Schwartz Equity Markets: Trading and Structure Slide 6 Goal: Know how differences in perspectives and cultures affect business practices around the world To this end: References will be made to non-U.S. exchanges (mainly in Europe). Contrasts and parallels between various country- specific approaches to equity trading will both be made. Learning Goals 2. Global Awareness

7. ©R. Schwartz Equity Markets: Trading and Structure Slide 7 Goal: Possess a deep understanding of and intellectual competence in at least one business discipline. To This End: Major attention will be given to key economic issues that underlie equity trading. You will acquire an in-depth understanding of economic concepts such as market efficiency, performance evaluation, and public policy regarding market structure regulation. Learning Goals 3. Proficiency in a Single Discipline

8. ©R. Schwartz Equity Markets: Trading and Structure Slide 8 Text: The Equity Trader Course, Robert A. Schwartz, Reto Francioni & Bruce W. Weber, John Wiley & Sons, 2006 Text: The Equity Trader Course, Robert A. Schwartz, Reto Francioni & Bruce W. Weber, John Wiley & Sons, 2006 TraderEx Simulation (6 class sessions) TraderEx Simulation (6 class sessions) PowerPoint Presentations will be posted on Black Board. PowerPoint Presentations will be posted on Black Board. Additional readings will be posted on Black Board or made available on e-reserve. Additional readings will be posted on Black Board or made available on e-reserve. Class Materials

9. ©R. Schwartz Equity Markets: Trading and Structure Slide 9 Topic Key Reading No. of Sessions Introduction to Equity Trading 1 session Introduction to Trading Simulation*Text Chapter 1 2 sessions Prices, Returns & Trading CostsText Appendix 2 sessions LiquidityText Chapter 2 3 sessions Order Driven Markets*Text Chapter 3 5 sessions Call & Continuous Trading*Text Chapter 4 4 sessions Intermediaries & Block Trading*Text Chapter 5 4 sessions Technical Analysis & Algo Trading*Text Chapter 6 4 sessions Performance MeasurementText Chapter 7 1 sessions Market Structure Regulation(To be posted on Blackboard) 1 session Midterm 1 session 28 sessions 28 sessions * This topic will include one or more simulated trading sessions that will be held at the Wasserman Trading Floor – Subotnick Center. Course Outline