Topic 8 FINC 2011 Tutorial Solutions

Topic 8 FINC 2011 Tutorial Solutions - FINC 2011 Corporate...

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FINC 2011 Corporate Finance 1 Tutorial Questions and Solutions Topic 8 – Australian Equities Markets DQ 6 Briefly describe the following features of ITS trading on the ASX: (a) Price and time priority. (b) The closing single price auction. A N S W E R (a) ITS prioritises orders on the basis of price then time. This means that the highest priced buy and lowest priced sell orders get priority in execution against incoming market orders. Where there is more than one order at the same price, the order that was entered into ITS first is given priority. (b) The closing call auction occurs at the end of the day at a time chosen randomly between 4.10 and 4.12pm. The price at which stocks trade in the closing call auction is determined using the same algorithm used to open the market (see Appendix 9.1 for details). DQ 10 Identify possible motivations for principal trading by brokers.   Be specific, and  provide two illustrative examples. A N S W E R Principal trading occurs when a broker trades on their own account. There are two broad types of principal trading: house trading and facilitation trading. House trading occurs when brokers buy or sell stocks for their own investment purposes (i.e. to profit from the price movements in the market.) For example, UBS Warburg may purchase National Australia Bank shares because they
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Topic 8 FINC 2011 Tutorial Solutions - FINC 2011 Corporate...

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