FBE 440 – Trading and Exchanges Course 15358R

Syllabus – Spring 2019 – MW Noon – 4 units

Professor: Larry Harris

Office: HOH 806
Office phone: (213) 740-6496
Cell phone: (323) 244-1154
Home phone: (323) 933-0888
E-mail: [email protected]

Class lectures
Mon/Wed 12:00 – 1:50 p.m. Room: BRI 5
Friday February 1 and 8, April 12, Room: TBA

Office hours
Mondays 4:00 – 5:00 p.m.
Fridays 1:30 – 2:30 p.m.
Or by appointment

Introduction and Course Objectives

“Trading and Exchanges” will introduce you to the theory and practice of securities and contract trading
at exchanges, in dealer networks, and among brokers. We will examine
• why and how people trade,
• who profits from investing and speculating, and when,
• the principles of proprietary trading and high-frequency trading,
• why market institutions are organized as they are,
• how markets are changing in response to innovations in information technologies,
• the origins of liquidity, volatility, price efficiency, and trading profits, and
• the role of public policy in the markets.
We will address these issues by studying why and how institutions, dealers, and individuals trade.
Understanding trader behavior and how market structure affects behavior is the primary course objective.

Target Audience
This course is for anyone who wants to understand how markets work, how people trade, and when active
investment management works and fails. The reading assignments and the class lectures are appropriate
for students who have no market experience.

Experienced traders also will value this course. The economic perspectives that they learn in this course
can greatly improve their performance. But students with substantial market experience have little
advantage over other students other than initial familiarity with the jargon and institutions.

This course also will benefit students who want to understand the determinants of investment
performance. We will spend much time discussing why some people make money while others lose
money. These lessons apply to businesses in all competitive industries.

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Learning Objectives
The objectives of this course are to develop your ability to understand, participate in, and manage trading
and investment processes within various market structures. This course will help you develop the
following knowledge and skills:

• Global Objective
o Understand trading terms, concepts, principles, and theories.
• Detailed Objectives
o Understand how
▪ markets operate,
▪ traders behave,
▪ market structure affects trader behavior, and
▪ traders and trading companies lobby policy-makers on market design issues.
o Be able to
▪ construct optimal trading strategies to solve various problems,
▪ evaluate and motivate brokers,
▪ recognize various trading styles and determine when they will be profitable,
▪ Predict who will profit from trading and who will lose,
▪ Predict when and which markets will
• be liquid and
• have informative prices.
▪ Identify trading risks and manage them.

A complete and detailed list of the learning outcome statements for this course is on Blackboard.

Required Materials
• Larry Harris, Trading and Exchanges: Market Microstructure for Practitioners (New York,
Oxford University Press, 2003, ISBN 0195144708). An errata sheet is posted on Blackboard.
• Larry Harris, Trading and Electronic Markets: What Investment Professionals Need to Know
(Charlottesville, The CFA Institute Research Foundation, 2015, ISBN 978-1-934667-91-0). A
free PDF download is available at http://www.cfapubs.org/toc/rf/2015/2015/4. The book is also
available for free on Amazon Kindle.
• CFA Institute, Standards of Practice Handbook, Eleventh edition (CFA Institute 2014, ISBN
978-0-938367-85-7), available for free at www.cfapubs.org/doi/pdf/10.2469/ccb.v2014.n4.1 and
also available on Amazon Kindle for $0.99.
This handbook provides an excellent introduction to the ethical issues that arise in trading
and investment management.
• Daily access to the Wall Street Journal.

Supplemental Materials
• John Downes and Jordan Elliot Goodman, editors, Dictionary of Finance and Investment Terms,
10th Edition (New York: Barron’s Educational Series, 2018, ISBN 978-1438010441)
This inexpensive dictionary is useful for quickly defining financial jargon and concepts.
• CFA Institute Financial NewsBrief. This free resource provides a daily email that briefs
important current financial news stories and provides links to the primary sources. Sign up at
https://www2.smartbrief.com/getLast.action?mode=last&b=cfa. You should read it every day.
• Richard Bookstaber, A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of
Financial Innovation, (New York: John Wiley and Sons, Inc., 2007, ISBN 0471227277). An
excellent summary of the main risk management issues in the financial markets.

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 • Edwin Lefèvre, Reminiscences of a Stock Operator, (New York: John Wiley and Sons, Inc.,
Reprinted 1993, ISBN 0-47105970-6, first published in 1923)
Reminiscences is a ghostwritten autobiography of Jesse Livermore. Livermore was a
successful stock and commodity speculator who traded in the late 19th and early 20th
centuries. The author, Edwin Lefèvre, was a financial reporter who spent two months
interviewing Livermore for this project. The text is a first-person narrative by a character
called Larry Livingston, who clearly represents Jesse Livermore. The book is full of
market wisdom and human wisdom. It is easy to read, engaging, and covers many of the
topics of this course.

Prerequisites
Formally, either BUAD 215 or BUAD 306. Neither is truly necessary. Familiarity with Investments,
Microeconomics, Corporate Finance, Information Technologies, and Statistics is helpful. You will not be
lost if you have not yet studied these subjects, but sometimes you may have to work harder than students
who are already familiar with their principle concepts.

Other Course Materials

Copies of various supplemental course materials will be available through your Blackboard account. I
may use a password to protect some documents. If so, the password will be TradeOn. The password is
case sensitive.

Grading Summary

% of Grade
Oral presentation One oral topic presentation 5.0%
Homework Short learning outcome statement write-ups 25.0%
Tests Two midterms at 20% each 40.0%
Final exam 30.0%
TOTAL 100.0%

Final course grades represent how you perform in the course relative to other students and relative to my
expectations for students in the course. Your grade will not be based on a mandated target, but on your
performance, consistent with the policies of USC and the Marshall School of Business. Historically, the
grade point average for this course is about 3.3. I assign higher or lower average grades based on my
perception of the overall performance of the class.

I consider four items when assigning class grades:

1. Your weighted-average standardized score for all exams and other exercises. Since exams inevitably
vary in difficulty, I standardize the scores by subtracting the class mean and dividing the result by the
class standard deviation. I average these standardized scores weighting by the contributions of each
exam to the class grade. I base the standardization only on the scores of students who will receive
non-failing class grades.
2. Your weighted-average exam and other exercise scores. This measure does not standardize the scores
for each exam and exercise. I adjust the raw scores so that weights given to each examination reflect
those in the table above.
3. Your rankings among all students in the class using the above two measures.
4. My impression of the overall achievement of the students in this class relative to that of other students
in comparable classes that I have taught in the last few years or am presently teaching in other
sections.

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 ASSIGNMENTS AND GRADING DETAIL

Examinations
The examinations will consist of constructed answer (essay, one-sentence, one word) questions or
multiple-choice questions. I usually use constructed answer questions on the midterms and multiple-
choice questions on the final. I structure the exams so that well-prepared students usually finish well
before the end of the session.

The midterm and final examination dates will not change. Please check now to see that you do not have
any conflicts.

The midterms and the final examination all will be cumulative examinations. Since I occasionally reuse
questions from previous midterms that I gave you, I strongly suggest that you review your graded
midterms to ensure that you can correctly answer questions that you missed in the past.

When writing exams, I always refer to the detailed list of the learning outcome statements that I posted on
Blackboard. Except for questions involving current events, every question on an exam will involve
knowledge identified by one or more of these learning outcome statements.

Old examinations with answers are posted on Blackboard. I do not post exams with multiple choice
questions.

Oral Presentation
Every student will make one short oral presentation during the semester that highlights and briefly
explains an important topic that appears in the reading for the current or nearby class session. Your
presentation should be about five minutes long, and you should be prepared to answer questions and lead
a discussion afterward. You may not choose a topic that is marked with a hash mark (see Homework
below) in the set of learning outcome statements.

If you wish to use PowerPoint, bring your presentation file on a USB drive. If so, use PowerPoint’s
default template presentation font sizes (bigger is better), and do not allow PowerPoint to shrink the font
size to put more text on a page. If you need more space, create more slides.

We usually will have two student presentations on most class days. You will sign up to make these
presentations on SignUpGenius. I will email you a link to SignUpGenius at the end of the first week of
class. I recommend that you respond quickly so that you can have your pick of topics or dates.

I will grade your presentation equally on the following five criteria:

1. The importance of the topic you chose.
2. The complexity of the topic you chose.
3. Your understanding of the topic.
4. Whether you presented the topic accurately.
5. The organization of your presentation.

I will not grade you on your oral presentation skills, except as they relate to the organization of your
presentation. You need not dress up for your presentation, but feel free to do so.

I grade the presentations pass/not pass/fail. Students who come well prepared generally pass. Less
prepared students may not pass. Students who do not do a presentation, or who did not take the
assignment seriously fail. Since the presentations count for 5% of your grade, and since most students
come well prepared and thus pass, it is important that you also prepare your presentation well. On a scale
of 1 to 5, I count a pass as 5 a not pass as 2, and a fail as 0.

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Homework
On most class days, you will be required to submit via Blackboard a short write-up explaining in your
own words the knowledge referred to in three learning outcome statements (“LOSs”). The assignments
appear below in the course calendar section of this syllabus. The LOS list is on Blackboard. In that list,
statements marked with a hash mark (#) are the LOSs associated with the homework assignments. You
must turn in the assignments through Blackboard before the start of class on the day that they are due.

Your LOS write-ups should be brief but detailed enough so that a practitioner could learn the knowledge
referred to the LOS. Some LOSs may only require a short paragraph. Others may require several
paragraphs.

You usually will not get any feedback unless a teaching assistant or I did not think that you took the
assignment seriously. If you want feedback on an assignment, after you turn it in on Blackboard, send me
an email with your assignment attached in Word format or included in the body of the email message.
Then meet with me during my office hours, arrange to meet with me another time, or call me to discuss
your work. I am willing to help you with the course subject concepts and your writing skills.

You will receive either full credit or no credit for the homework. You will receive full credit if you took
the assignment seriously and your explanation of the LOS knowledge is correct. You will receive no
credit if

1. The assignment is late,

2. You did not take the assignment seriously,
3. Your explanation is substantially wrong,
4. You did not use spelling and grammar checkers to correct obvious writing mistakes,
5. You copied or paraphrased text from the book, or
6. You copied someone else’s work. (Plagiarizing also would subject you to other penalties
described below.)

You can miss or fail to receive credit for three or fewer homework assignments without affecting your
grade. Most students complete all the homework assignments satisfactorily and on time. In my
experience, students who fail do the homework assignments on time or who fail to take them seriously
also tend to do poorly on the exams.

To avoid paraphrasing text from the book, I recommend that you do your first draft of these assignments
while the book is closed, at least one-half hour after you read the relevant passages. Then go back to the
book to confirm that you are satisfied with your explanation, and amend it if necessary, again using your
own words.

Do not forget to use spelling and grammar checkers to correct obvious writing mistakes. This
requirement will help ensure that your writing improves.

The LOSs that I identified for these assignments are among the more important LOSs for this class. Note,
however, that the homework LOSs do not include all of the more important LOSs since I did not want
these assignments to be too burdensome. While I think that each LOS is important (I otherwise would not
have included on the list), some are more important than others (but all may be the subject of an exam
question). If you would like help identifying the most important LOSs, ask me in class, during office
hours, or call me.

USC Marshall Critical Thinking Initiative

The USC Marshall Critical Thinking Initiative is a school-wide effort to improve your critical thinking
skills so that you can be more successful problem solvers in class and the workplace. In this course, you
will engage in many learning activities that are aimed at developing and applying your critical thinking

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skills in a disciplined manner so that you can outperform others to get your desired job and to excel
further in your career. Your ability to think critically is an important part of the evaluation/grading
process in this course.

Discussion Board
The Blackboard discussion board for this class will be available for online discussions. If you have
questions, post them to the board, and your classmates or I will answer them. I sometimes answer
questions quickly, and sometimes I let a question sit for a while, especially if you can easily find the
answer in the book.

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 MARSHALL GUIDELINES

Add/Drop Process
Most Marshall classes are open enrollment (R-clearance) through the Add deadline. If an open seat is
available, students can add the class using Web Registration. If the class is full, students will need to
continue checking the Schedule of Classes (https://classes.usc.edu/) to see if space becomes available.
Students who do not attend the first two class sessions may be dropped from the course if they do not
notify the instructor before their absence.

Further, if you are absent six or more times before April 5, 2019 (the last day to withdraw from a course
with a grade of “W”), I may ask you to withdraw by that date. These policies maintain professionalism
and ensure a system that is fair to all students.

Marshall Grading Guidelines

Assignment/Exam Grading Policy: As the instructor, I determine what qualifies as an accurate grade on
an assignment, exam, or another deliverable, and my evaluation of the performance of each student is the
final basis for assigning grades for the class. I may delegate some grading to assistants, but I remain
responsible for all grades.

I adhere to the following Marshall School standards for undergraduate grading:

A Excellent quality work
B Good quality work
C Fair quality work
D Work of minimum passing quality
F This grade is awarded to any undergraduate student failing to meet the minimum
standards for passing the course. The grade of F indicates that the student failed at the
end of the semester or was doing failing work and stopped attending the course after the
twelfth week of the semester.
Plus/minus grading (A, A-, B+, B, B-, C+, C, C-, D+, D, D-, F) increases the basic five grades to a total
of twelve possible levels of performance.
I interpret these standards as follows:
A Mastery of course concepts, tools, and techniques, plus a solid understanding of
implications, applications, and interrelationships. Ability to apply and express that
understanding with meaningful oral and written language.

B Solid understanding of course concepts, tools, and techniques, plus knowledge of

implications, applications, and interrelationships. Capability to converse effectively in
the terminology of the course.

C Knowledge of course fundamentals. Basic understanding or awareness of finer points of

course and discipline. Meets minimal expectations of course input criteria.

D Weakly grasps the essentials of the course with little understanding of the finer points.

F Unable to communicate an understanding of the basic concepts, tools, or techniques of

the course. A failure to measure up to the basic course output goals.

Retention of Graded Coursework

I retain final exams and all other graded works that affect the course grade for one year after the end of
the course if I have not returned the graded work to the student. If I returned graded work to you, you are
responsible for filing it.

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Returned Papers
To protect the confidentiality of your work, you must pick up your own graded paperwork. I will not give
your papers to anyone else. Students who miss class sessions when I return paperwork must come to
office hours or arrange an appointment to retrieve the material.

Marshall Technology Policy

Laptop and Internet usage is not permitted during academic or professional sessions unless otherwise
stated by the respective professor and/or staff. Use of other personal communication devices, such as cell
phones, is considered unprofessional and is not permitted during academic or professional sessions. ANY
e-devices (cell phones, iPads, other texting devices, laptops, I-pods) must be completely turned off during
class time. Upon request, you must comply and put your device on the table in off mode and FACE
DOWN. You might also be asked to deposit your devices in a designated area in the classroom.
Videotaping faculty lectures is not permitted due to copyright infringement regulations. Audiotaping may
be permitted if approved by the professor. Use of any recorded or distributed material is reserved
exclusively for the USC students registered in this class.

Academic and Personal Conduct

USC seeks to maintain an optimal learning environment. General principles of academic honesty include
the concept of respect for the intellectual property of others, the expectation that individual work will be
submitted unless otherwise allowed by an instructor, and the obligations both to protect one’s academic
work from misuse by others as well as to avoid using another’s work as one’s own (plagiarism).

Plagiarism – presenting someone else’s ideas as your own, either verbatim or recast in your own words –
is a serious academic offense with serious consequences. Please familiarize yourself with the discussion
of plagiarism in SCampus in Part B, Section 11, “Behavior Violating University Standards”
https://policy.usc.edu/scampus-part-b/. Other forms of academic dishonesty are equally unacceptable.
See additional information in SCampus and university policies on scientific misconduct at
https://policy.usc.edu/scientific-misconduct/.

I will refer students to the Office of Student Judicial Affairs and Community Standards for further review,
should there be any suspicion of academic dishonesty. You can read about the Review process at
http://www.usc.edu/student-affairs/SJACS/. Failure to adhere to the academic conduct standards set forth
by these guidelines and our programs will not be tolerated by the USC Marshall community and can lead
to dismissal.

The Univesity does not tolerate discrimination, sexual assault, or harassment. You are encouraged to
report any incidents to the Office of Equity and Diversity https://equity.usc.edu/ or the Department of
Public Safety https://dps.usc.edu/contact/report/. These reports are important for the safety of the whole
USC community. Another member of the university community – such as a friend, classmate, advisor,
or faculty member – can help initiate the report or can initiate the report on behalf of another
person. Relationship and Sexual Violence Prevention and Services (RSVP)
https://engemannshc.usc.edu/rsvp/ provides 24/7 confidential support, and the sexual assault resource
center webpage https://sarc.usc.edu/reporting-options/ describes reporting options and other resources.

I take my responsibility to promote good academic and personal contact seriously. I report all incidents
of reportable offenses. Regrettably, my past reports (and those of my colleagues) have led to serious
consequences for irresponsible students.

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Support Systems
Student Counseling Services (SCS) - (213) 740-7711 – 24/7 on call
Free and confidential mental health treatment for students, including short-term psychotherapy, group
counseling, stress fitness workshops, and crisis intervention. https://engemannshc.usc.edu/counseling/

National Suicide Prevention Lifeline - 1-800-273-8255

Provides free and confidential emotional support to people in suicidal crisis or emotional distress 24 hours
a day, 7 days a week. http://www.suicidepreventionlifeline.org

Relationship & Sexual Violence Prevention Services (RSVP) - (213) 740-4900 - 24/7 on call
Free and confidential therapy services, workshops, and training for situations related to gender-based
harm. https://engemannshc.usc.edu/rsvp/

Sexual Assault Resource Center

For more information about how to get help or help a survivor, rights, reporting options, and additional
resources, visit the website: https://titleix.usc.edu/.

Office of Equity and Diversity (OED)/Title IX compliance – (213) 740-5086

Works with faculty, staff, visitors, applicants, and students around issues of protected class.
https://equity.usc.edu/

Bias Assessment Response and Support

Incidents of bias, hate crimes, and microaggressions need to be reported allowing for appropriate
investigation and response. https://titleix.usc.edu/reporting-options/

The Office of Disability Services and Programs – https://dsp.usc.edu/

Provides certification for students with disabilities and helps arrange relevant accommodations.

Student Support & Advocacy – (213) 821-4710

Assists students and families in resolving complex issues adversely affecting their success as a student
EX: personal, financial, and academic. https://studentaffairs.usc.edu/ssa/

Diversity at USC – https://diversity.usc.edu/

Tabs for Events, Programs, and Training, Task Force (including representatives for each school),
Chronology, Participate, Resources for Students

USC Emergency Information – https://emergency.usc.edu/

Provides safety and other updates, including ways in which instruction will be continued if an officially
declared emergency makes travel to campus infeasible.

USC Department of Public Safety – UPC: (213) 740-4321 – HSC: (323) 442-1000 – 24-hour emergency or to
report a crime.
Provides overall safety to USC community. https://dps.usc.edu/

Students with Disabilities

USC is committed to making reasonable accommodations to assist individuals with disabilities in
reaching their academic potential. If you have a disability which may impact your performance,
attendance, or grades in this course and require accommodations, you must first register with the Office of
Disability Services and Programs (https://dsp.usc.edu/). DSP provides certification for students with
disabilities and helps arrange the relevant accommodations. Any student requesting academic
accommodations based on a disability is required to register with Disability Services and Programs (DSP)
each semester. A letter of verification for approved accommodations can be obtained from DSP. Please
be sure the letter is delivered to me as early in the semester as possible. DSP is located in GFS (Grace

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Ford Salvatori Hall) 120 and is open 8:30 a.m.–5:00 p.m., Monday through Friday. The phone number
for DSP is (213) 740-0776. Email: [email protected].

Emergency Preparedness/Course Continuity

In case of a declared emergency, if travel to campus is not feasible, the USC Emergency Information
website (https://emergency.usc.edu/) will provide safety and other information, including electronic
means by which instructors will conduct class using a combination of Blackboard, teleconferencing, and
other technologies.

Please make sure you can access this course in Blackboard and retrieve the course syllabus and other
course materials electronically. You should check Blackboard regularly for announcements and new
materials. In the event of an emergency, the ability to access Blackboard will be crucial. USC's
Blackboard learning management system is available at blackboard.usc.edu.

Assignment Submission Policy

Assignments must be turned in by the due date/time electronically via Blackboard.

Evaluation of Your Work

I will do my best to make my expectations for the various exams clear and to evaluate your answers as
fairly and objectively as I can. If you feel that an error has occurred in the grading of any question, you
may, within one week of the date the exam is returned to you, write me a memo in which you request that
I reevaluate the assignment. Attach the original exam to the memo, and explain fully and carefully why
you think the question should be regraded. Be aware that the reevaluation process can result in three
types of grade adjustments: positive, none, or negative.

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 Course Calendar

Class Sessions, Readings, and Homework Assignments

Some important prior commitments will prevent me from attending several scheduled classes.
Accordingly, we will meet at our regularly scheduled time on three Fridays at locations that I will
announce upon confirmation. The Friday class meetings will occur on February 1, February 8, and April
12. I will record these lectures so that you can watch them if you are unable to attend. Your continued
registration in this course will constitute acceptance of these arrangements.
The midterm and final examinations will take place as scheduled.
The homework assignments are due on the indicated dates before the start of class. Note that the
numbering of the homework assignments corresponds to the chapter numbers of the included LOSs. For
example, for the first assignment, #1.3, the included LOSs are in Chapters 1-3. Note that before midterm
examinations, the homework assignments lead the class discussions so that you will have time to
concentrate on studying for the exams.
I may modify the topic schedule to meet the needs and interests of the class.
The topics below correspond to numbered chapters in the textbook, Trading and Exchanges. The
assigned readings for each date include these chapters and any other readings indicated below. The
monography Trading and Electronic Markets is available for free from the CFA Institute Research
Foundation. (See required materials above.) Complete the readings before coming to class and come
prepared to discuss them.
The course meetings will involve discussions, exercises, and lectures. When I lecture, I will primarily
reinforce and expand upon the lessons in the readings. I often will not review them as I will assume that
you have done the readings. It is imperative that you read and study the assigned readings before coming
to class.
Read the financial press every day. Come to class prepared to discuss current events in the markets. At a
minimum, you must read the front page of the Money & Investing section of The Wall Street Journal.
The business sections of the New York Times, The Financial Times, and Investor’s Daily are also very
good. Try reading the finance section of The Economist and any relevant special reports. Also, browse
the CFA Institute Financial NewsBrief every day—it only takes about a minute. Serious professionals
follow current events in their industry. Be a securities industry professional, if only for the next 17
weeks. Reading the news will help you get more out of this class.
I strongly recommend that you read Reminiscences of a Stock Operator at your leisure. It is entertaining
and very interesting. Although written a century ago, most of its themes remain relevant today.
I also strongly recommend that you read Richard Bookstaber’s A Demon of Our Own Design: Markets,
Hedge Funds, and the Perils of Financial Innovation. This book provides an excellent summary of—and
expansion upon—many of the concepts that we cover in this course. It is written at a level that you can
understand without the benefit of this course, but you will get more out of the book after you have
completed the first half of the course.

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 Course Calendar

Date Topics and Assignments

Jan 7 M Introduction
Introductory Trading Games
Read Chapter 1 – Introduction
Read Chapter 2 – Trading Stories
Read Chapter 3 – The Trading Industry
Read the Forward and Chapter 1 of Trading and Electronic Markets
Jan 9 W Orders and Order Properties
Read Chapter 4 – Orders and Order Properties
Homework assignment #1.3
Jan 14 M Orders and Order Properties (continued)
Homework assignment #4
Optional: 6:00 p.m. Dinner at Harris house
Jan 16 W Market Structures
Read Chapter 5 – Market Structures
Homework assignment #5
Jan 21 M No Class (MLK Holiday)
Jan 23 W Introduction to Order-Driven Markets: Auction Bidding Strategies
Read “Notes on Auction Bidding Strategies”
Read Chapter 6 – Order-Driven Markets
Homework assignment #6
Jan 28 M No Class (Prof. Harris at SEC FIMSAC meeting)
Jan 30 W Order-Driven Markets
Feb 1 F Friday Class
Brokers and Ethics in Trading
Read Chapter 7 – Brokers
Read pages v, and 1-12 of CFA Standards of Practice Handbook
Homework assignment #7
Feb 4 M No Class (Prof. Harris at Harvard/USC Aspen RE Conference)
Feb 6 W Midterm Exam 1

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Date Topics and Assignments
Feb 8 F Friday Class
Why People Trade
Read Chapter 8 – Why Do People Trade?
Read Chapter 2 of Trading and Electronic Markets
Homework assignment #8
Feb 11 M Good Markets and Informed Trading
Read Chapter 9 – Good Markets
Read Chapter 10 – Informed Traders and Market Efficiency
Read Chapter 3 of Trading and Electronic Markets
Homework assignment #9.10
Feb 13 W Order Anticipators
Read Chapter 11 – Order Anticipators
Homework assignment #11
Feb 18 M No Class (Presidents’ Day Holiday)
Feb 20 W Bluffing and Price Manipulation
Read Chapter 12 – Bluffing and Price Manipulation
Homework assignment #12
Feb 25 M Dealers
Dealer Trading Game
Read Chapter 13 – Dealers
Homework assignment #13
Feb 27 W Bid/Ask Spreads
Read Chapter 14 – Bid/Ask Spreads
Homework assignment #14

Mar 4 M Block Trading and Value-Motivated Traders

Winner’s Curse Game
Read Chapter 15 – Block Trading
Read Chapter 16 – Value-motivated Traders
Read “Winner’s Curse Mathematics”
Homework assignment #15.16
Mar 6 W Midterm Exam 2
Mar 11 M Spring Recess Holiday
Mar 13 W Spring Recess Holiday

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Date Topics and Assignments
Mar 18 M Arbitrageurs
Read Chapter 17 – Arbitrageurs
Homework assignment #17
Mar 20 W Buy-side traders, Liquidity, and Volatility
Read Chapter 18 – Buy-side Traders
Read Chapter 19 – Liquidity
Read Chapter 20 – Volatility
Homework assignment #18.20
Mar 25 M Futures Trading Game
Mar 27 W Transaction Cost Measurement
Read Chapter 21 – Liquidity and Transaction Cost Measurement
Read Chapter 4 of Trading and Electronic Markets
Homework assignment #21
Apr 1 M Investment Performance
Read Chapter 22 – Performance Evaluation and Prediction
Homework assignment #22
Apr 3 W Index and Portfolio Markets, Specialists
Read Chapter 23 – Index and Portfolio Markets
Homework assignment #23
Browse Chapter 24 - Specialists
Apr 8 M Off-Exchange Trading and Dark Pools
Read Chapter 25 – Internalization, Preferencing, and Crossing
Homework assignment #25
Apr 10 W Competition within and among Markets
Read Chapter 26 – Competition within and among Markets
Homework assignment #26
April 12 F Friday Class
Electronic Trading
Read Chapter 27 – Floor versus Automated Trading Systems
Electronic and High-Frequency Trading
Read Chapters 5-7 of Trading and Electronic Markets
Homework assignment #27
Apr 15 M No Class (Prof. Harris at Q Group Conference)
Apr 17 W No Class (Prof. Harris at IB annual shareholders meeting)

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Date Topics and Assignments
Apr 22 M Extreme Volatility
Read Chapter 28 – Bubbles, Crashes, and Circuit Breakers
Read Appendix A of Trading and Electronic Markets
Homework assignment #28
Apr 24 W Insider Trading and Review
Read Chapter 29 – Insider Trading
Homework assignment #29
Apr 29 M Study day, no class
May 3 F Final Examination, 11:00 a.m. – 1:00 p.m. in BRI 5
May 10 F University Commencement

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 CONTACT INFORMATION

Addresses and Telephone Numbers

Professor Larry Harris (323) 244-1154 cell
Fred V. Keenan Chair in Finance (323) 933-0888 home
USC Marshall School of Business (213) 740-6496 office
Hoffman Hall 806
Los Angeles, CA 90089-0804 You may call me at home, but please
not before 7:00 a.m., after 9:30 p.m.,
[email protected] on Friday night, or on Saturday.
LarryHarris.com

How to Reach Me
1. Drop in during office hours—no appointment is necessary. My office is in Hoffman 806. My office
hours this semester are:
Mondays 4:00-5:00 p.m.
Fridays 1:30-2:30 p.m.
2. Arrange to meet me by appointment.
3. Just drop in. I am in my office most days. It is best (but not necessary) to call ahead to make sure I
am available and not occupied.
4. Call me on the telephone. If you leave a message, please speak slowly and clearly when you give
your phone number. You may call me at work, home or on my cell phone. Please do not call me at
home before 7:00 a.m., after 9:30 p.m., on Friday night, or on Saturday.
5. Arrange to dine with me before or after class. Consider inviting your classmates too. On
Wednesdays, I often eat lunch at 11:00 a.m. at the farmer’s market on McCarthy Quad. Look for me
on the west side of the quad on a bench or at a picnic table.
6. Send me an e-mail at [email protected]. While I am always happy to take questions about course
topics, I prefer to respond orally rather than by e-mail. The opportunity to listen and respond
appropriately usually produces more effective learning. Also, if you have course topic questions,
consider posting them to the Blackboard discussion board where a classmate may answer the question
first, and where everyone can see my responses.

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