Module FINN40815: Market Microstructure

Department: Finance

FINN40815: Market Microstructure

Prerequisites

• None

Corequisites

• EITHER Advanced Financial Theory (FINN40515) OR Advanced Microeconomics (ECON44715)

Excluded Combination of Modules

• None

Aims

• to develop students' ability to master the knowledge and understanding at an advanced level of key issues in the organisation and operations of financial markets;
• to provide students with the opportunity to develop the ability to critically understand theoretical and empirical research in the field of market microstructure and the implications of alternative trading mechanisms;
• to provide students with the ability to critically review this specialised complex area of knowledge with a view to undertaking a dissertation in the field of market microstructure and potentially future research work in this area;
• to prepare students to perform in a research oriented professional setting related to trading securities.

Content

• Introduction to the field of Market Microstructure. It is a rapidly growing field of financial economics with direct implications to real world practice – the trading industry.
• Understanding the theory of market microstructure which is well equipped with game theoretical modelling tools, and the empirical applications using large market microstructure data to test those ideas.
• Understanding numerous topics such as competition among exchanges, development of trading algorithms, market liquidity, transactions costs, trading strategies in limit order books, structure of over-the-counter markets, market making, role of dealers in financial markets, algorithmic trading, high-frequency trading, crashes, market fragmentation, preferencing, internalisation, circuit breakers, and evolution of market designs.
• Discussion of ongoing and controversial policy issues related to market designs and the role of liquidity suppliers (traditional versus electronic market makers) in the price formation process.

Learning Outcomes

• By the end of this module students should:
• have an advanced knowledge and critical understanding of the principles and practice of the working of the main stock exchanges, their microstructure and the implications of this for trading efficiency and regulation;
• have understood the roles of information, liquidity, trading costs and major players in financial markets, including the complexity and contradictions inherent in these roles;
• have explored, understood and appreciated the complexity and contradictions of the current academic literature and its implications for professional practice;
• have demonstrated ability to learn and work independently in this area, exercising critical judgement and discrimination in the resolution of complex problematic situations.

• have used highly specialised and advanced technical, professional and academic skills in the analysis of relevant specific problems in the area of market microstructure;
• have practised problem solving and analytical skills in the area of market microstructure.

• Written Communication;
• Planning, Organising and Time Management;
• Problem Solving and Analysis;
• Using Initiative;
• Numeracy;
• Computer Literacy.

Modes of Teaching, Learning and Assessment and how these contribute to the learning outcomes of the module

• A combination of lectures, seminars, computer practical, guided reading and class discussions to examine various aspects of market microstructure.

Teaching Methods and Learning Hours

Summative Assessment

Formative Assessment:

Work prepared by students for seminars; answers to questions either discussed during a seminar, or posted on Learn Ultra

■ Attendance at all activities marked with this symbol will be monitored. Students who fail to attend these activities, or to complete the summative or formative assessment specified above, will be subject to the procedures defined in the University's General Regulation V, and may be required to leave the University