Case Package Rotman Online Trading Competition

Transcription

1 Case Package 2015 Rotman Online Trading Competition

2 Table of Contents Table of Contents Important Information... 3 Case Summaries... 4 Sales & Trader Case... 5 Commodities Trading Case

3 Important Information Important Information Practice Servers Practice servers will be made available starting on January 16th, 2015 and will operate 24 hours a day 7 days a week until the start of the competition. Information on how to download and install the RIT v2.0 Client is available on the RIT website We will post information on how to login to any server port. Remember that you can type in any username and password and it will automatically create an account if it does not exist. If you have forgotten your password or the username appears to be taken, simply choose a new username and password to create a new account. Scoring and Ranking Methodology The Scoring and Ranking Methodology document will be released prior to the start of the competition on the ROTC website. Schedule and Timeline The competition is held online, it will start at 3:30 pm on January 24 th and end at 6:30pm and it will be run until the number of sub-heats described further in this document is completed. The Finance Lab team will not wait for anyone who is late. Competition Servers will be set up 10 minutes before the start. In the event of a server failure, the case session will be rerun and the scores from that session will not be kept. 3

4 Case Summaries Case Summaries Sales and Trader The Sales and Trader Case challenges participants to put their critical thinking and analytical abilities to the test in an environment that allows traders to have significant flexibility on the trading strategy they choose to implement. Traders will be faced with multiple tender offers requiring participants to make rapid judgments on the profitability and subsequent execution of these offers. Profits can be generated by taking advantage of pricing discrepancies, large tender offers, and market-making opportunities. Commodities Case The Commodities case will place competitors in a trading simulation, covering two months, in which they can transact both physical and financial crude oil products in different locations and different delivery points. The crude oil market will be affected by fundamental changes in the supply and demand of crude oil, while physical arbitrage conditions will link the crude oil markets to other upstream and downstream markets. 4

5 Sales & Trader Case Sales & Trader Case Overview The Sales and Trader Case challenges participants to put their critical thinking and analytical abilities to the test in an environment that allows traders to have significant flexibility on the trading strategy they choose to implement. Traders will be faced with multiple tender offers requiring participants to make rapid judgments on the profitability and subsequent execution of these offers. Profits can be generated by taking advantage of pricing discrepancies, large tender offers, and market-making opportunities. Description The trading session will consist of five, 10-minute heats with each heat to be independently traded and representing one month of calendar time. Each heat will have a unique objective and could involve up to four securities with different volatility and liquidity characteristics. Parameter Value Number of trading heats 5 Trading time per heat 600 seconds (10 minutes) Calendar time per heat 1 month (20 trading days) Tender offers will be generated by computerized traders and distributed at random intervals to random participants. Traders must subsequently evaluate the profitability of these tenders when accepting or bidding on them. Trading from excel using Rotman API will be disabled. Real time data (RTD) links will be enabled. Market Dynamics There are ten heats each with unique market dynamics and parameters ranging from changes in the spread of tender orders to the liquidity and volatility of various stocks. Below, you can find details regarding each heat allowing for participants to formulate trading strategies. Version 1 Stock Price Commissions Tender Spread Volatility Liquidity SWEET High High Medium SOUR High Medium Medium Version 2 Stock Price Commissions Tender Spread Volatility Liquidity PEACH Low High Medium BERRY Medium Medium Medium 5

6 Sales & Trader Case Version 3 Stock Price Commissions Tender Spread Volatility Liquidity NACHO Medium Low Low SALSA Low Low Medium GUAC High Medium High Version 4 Stock Price Commissions Tender Spread Volatility Liquidity HUBBLE Low Low Medium KEPLER Medium High Low SPUTNIK Medium Medium High Version 5 Stock Price Commissions Tender Spread Volatility Liquidity RED Low Medium Low GREEN High High Medium BLUE Medium Low High During each heat, traders will occasionally receive one of three different types of tender offers: private tenders, competitive auctions and winner takes all. Tender offers are generated by the server and randomly distributed to traders at different times. Each participant will get the same number of tender offers with variations in price and quantity. Private tenders are routed to individual traders and are offers to purchase or sell a fixed volume of stock at a fixed price. The tender price is influenced by the same pre-generated path that the liquidity traders follow in an attempt to drive the market price towards that path. Private tenders will give a spread based on the mid-market price when the order was generated (if the mid-market price is $10, and the spread was 1-2%, the tender offer will offer to buy shares for an amount between $10.10 and $10.20). Competitive auction offers will be sent to every participant at the same time. Traders will be required to determine a competitive, yet profitable price to submit for a given volume of stock from the auction. Any trader that submits an order that is better than the base-line reserve price (hidden from traders) will automatically have their order filled, regardless of other traders bids. If accepted, the fills will occur at the price that the trader submits. Winner takes all tenders request traders to submit bids to buy or sell a fixed volume of stock. After all prices have been received, the tender is awarded to the single highest bidder or lowest offer. The winning price however must meet a base-line reserve price. If no offer meets the reserve price, then the trade may not be awarded to anyone (i.e. if all traders bid $2.00 for a $10 stock, nobody will win). 6

7 Sales & Trader Case Trading Limits and Transaction Costs Each trader will be subject to gross and net trading limits: the net and gross trading limits for all of the versions are NET 250K shares, or GROSS 500K shares. The gross trading limit reflects the sum of the absolute values of the long and short positions across all securities; while the net trading limit reflects the sum of long and short positions such that short positions negate any long positions. Trading limits will be strictly enforced and traders will not be able to exceed them. The maximum trade size will be shares, restricting the volume of shares transacted per trade to There is a maximum stop loss of $1.5 Million per person for each trading heat. If a user loses more than $1.5 Million, he/she will be forced to stop trading for the remainder of the heat. Position Close-Out Any non-zero position will be closed out at the end of trading based on the last traded price. This includes any long or short position open in any security. Computerized market makers will increase the liquidity in the market towards the end of trading to ensure the closing price cannot be manipulated. Key Objectives Objective 1: Generate profits by market making in order to capture the bid-ask spread. Develop trading strategies based on the case descriptions to be distributed prior to the trading period in order to customize profitable trading strategies to each heat. Objective 2: Evaluate the profitability of tender offers and accept those that will generate profits while rejecting those that will create losses. Submit competitive, yet profitable, bids and offers on above reserve and winner takes all tenders in order to maximize potential profits. Objective 3: Limit market risk by managing open positions and optimally utilizing the gross and net trading limits to maximize profits. Maintaining large short or long positions may result in the market trading away from your transaction price, resulting in losses. Use a combination of limit and market orders to mitigate any liquidity and price risks from holding open positions. 7

8 Commodities Case Commodities Trading Case The Commodities Trading 5 Case challenges traders ability to respond to the highly dynamic world of commodity trading. Primarily, traders will buy and sell crude oil and related products in response to their analysis of various news releases affecting the price of oil. In addition, traders will be challenged to take advantage of arbitrage opportunities occurring in the spot and futures markets as well as across different locations and crude oil products. Lastly, traders will learn about the physical requirements to trade physical product, such as storage, pipeline (transportation) and refinery costs. Description The Commodities Trading 5 case will consist of 2 periods of 10 minutes each. There are 7 tradable securities and 6 assets. Trading from Excel using the Rotman API will be disabled. Real time data (RTD) links will be enabled. Parameter Value Number of trading sub-heats 3 Trading time per sub-heat 1200 seconds (20 minutes) Calendar time per sub-heat 2 months Number of periods per sub-heat 2 Trading time per period 600 seconds (10 minutes) Calendar time per period 1 month Max order size 30 contracts Mark-to-market frequency Daily (every 30 seconds) Market Dynamics Securities Securities Description Contract Size Shortable CL Crude oil spot (in Cushing) 1,000 Barrels No CL-AK Crude oil in Alaska 1,000 Barrels No CL-NYC Crude oil in New York City 1,000 Barrels No CL-1F Month 1 futures contract for CL 1,000 Barrels Yes CL-2F Month 2 futures contract for CL 1,000 Barrels Yes HO Heating Oil 42,000 Gallons No RB RBOB Gasoline 42,000 Gallons No 8

9 Commodities Case Traders will be able to utilize the following assets which are required for storing, moving, or refining physical crude product. Assets Assets Description Capacity Transport or Cost Conversion Period CL-STORAGE Storage for Crude Oil 10K Barrels N/A $500/day Spot in Cushing AK-STORAGE Storage for Crude Oil in 10K Barrels N/A $500/day Alaska NYC-STORAGE Storage for Crude Oil in 10K Barrels N/A $500/day New York City AK-CS-PIPE Pipeline from Alaska to 10K Barrels 1 Day (30 seconds) $40,000/use Cushing CS-NYC-PIPE Pipeline from Cushing 10K Barrels 1 Day (30 seconds) $20,000/use to New York City CL-REFINERY Crude Oil Refinery (3:2:1) 30K Barrels 1.5 Days (45 seconds) $300,000 per 2 days *Note: There are no storage requirements for the physical products: RBOB Gasoline and Heating Oil. Automatic storage at no cost can be assumed for these products. Traders will need to focus on four main models that interact with the physical (spot) market for crude oil: the fundamental model, the storage model, the transport model and the refinery model. In the fundamental model, traders will receive news releases affecting the supply of crude oil, which can be used to forecast commodity prices. These releases will be amongst updates on geopolitical news and general economic indicators further affecting the energy market in North America. Traders will respond to the various news releases by buying and selling futures contracts. In the storage, transport, and refinery models, traders will balance the costs of operation with expected returns to earn arbitrage profits. For example, based on the refinery s fixed cost to operate, traders can calculate when it s profitable to purchase crude oil, convert it into products, and sell the products. Similarly, traders can calculate when it s profitable to purchase crude in Alaska, transport it to Cushing, and sell crude oil spot. Fundamental Model The fundamental model will test the ability of traders to correctly interpret news releases and predict the price impact on crude oil. The fundamental value of crude oil is based on two distinct factor shocks: news effects and the weekly EIA reports. In this case, all news releases are independent of one another. P CL = P CL,Start + Effects from EIA Reports + Effects from News Reports 9

10 Commodities Case There are 8 weekly EIA reports that will be released. Each report will contain an expected storage build/draw, and the actual storage build/draw. The fundamental value of CL will adjust at a ratio of $1 for every 10 million barrel differential. For example, if analysts expected a 6 million barrel build, and the actual EIA value was a 16 million barrel draw, the price of CL would increase by $2.20. (expected +6, actual -16, difference +22). In addition, there will be news reports that mention geopolitical events (pipeline outages, geopolitical tension, etc.) that will affect the supply or demand for crude oil. You should, if at all possible, quantify the effect of these events - as they will also have an effect on the price of crude oil (CL). These events will have an effect on the price, but weekly storage values are not directly linked to them. Information Release Schedule Time elapsed Release 90 seconds 1st Week EIA Report 240 seconds 2 nd Week EIA Report 390 seconds 3 rd Week EIA Report 540 seconds 4 th Week EIA Report 600 seconds End of period Random times News Reports Storage Model Traders must lease storage before buying spot crude oil. A storage tank holds up to 10,000 barrels of crude oil and costs $500 per day (charged every 30 seconds). Each storage tank must be leased in its entirety (i.e. traders cannot lease half a tank). Note that futures contracts settle at the end of their respective months and settle into physical product. If traders are long one futures contract of Month 1 crude oil at the end of the first month, they will receive 1,000 barrels of crude oil spot. If they are short one contract of Month 1 crude oil at the end of the first month, they will be required to deliver 1,000 barrels of crude oil spot. If traders do not have sufficient storage upon settlement of their futures contracts, a storage unit will automatically be leased at a penalty of $2500 per unit in addition to regular lease prices. There are three storage tanks available for lease, one for crude oil in each region: CL-STORAGE, AK- STORAGE, NYC-STORAGE. Traders are limited to having up to 10 of each storage unit simultaneously. The risk-free rate and convenience yield are both assumed to be zero so that storage costs are the only component of cost-of-carry for this case. 10

11 Transportation Model Traders are able to transport crude oil from one location to another. Doing so effectively converts crude oil in location A to crude oil in location B. For example, transporting 1000 barrels of crude oil from Cushing to NYC converts 1000 barrels of CL into CL-NYC. In order to transport crude oil, traders must lease and use pipelines. Unlike storage, pipelines must be used immediately after lease. The transport process will take 30 seconds to complete. The pipeline will automatically be released at the end of the lease period. There are two pipelines available: AK-CS-PIPE and CS-NYC-PIPE. (Oil only flows one way in these pipes, from the location of supply to the location of demand). Traders are limited to leasing up to 10 of each pipeline simultaneously. A pipeline can transport up to 10,000 barrels of crude oil at a time and costs $1,000 per use. This cost is subject to change at random times during the case. Traders will be notified of changes to pipeline costs through news releases. Refinery Model Traders are able to refine crude oil to produce RBOB gasoline and heating oil. The Crude Oil Refinery (3:2:1) converts 3 contracts (3000 barrels) of crude oil in Cushing into 2 contracts (84,000 gallons ) of RBOB gasoline and 1 contract (42,000 gallons) of heating oil, hence the (3:2:1) specification. Each trader will be limited to using one refinery at a time. To refine crude oil, traders must lease refineries. The lease price covers the cost of production, additives, and the facility. Each lease period is 2 days (60 seconds), and the refining process will take 45 seconds to complete. Once the refinery process is complete, traders must release the refinery otherwise they will be charged for another lease period of 2 days. There is one refinery available in Cushing: CL-REFINERY. Trading Limits and Transaction Costs Each trader will be subject to gross and net trading limits of 500 contracts and 100 contracts respectively. The gross trading limit reflects the sum of the absolute values of the long and short positions across all securities and cannot exceed 500 contracts. The net trading limit reflects the sum of long and short positions such that short positions negate any long positions and has an upper bound of 100 contracts of crude equivalent products. Trading limits will be strictly enforced and traders will not be able to exceed them. For example, a long position of 1 crude oil contract (1000 barrels) and a short position of 1 futures contract (1000 barrels) results in a net limit usage of 0/100 and a gross limit usage of 2/500. Similarly, 11

12 Commodities Case for heating oil or RBOB gasoline, a long position of 1 contract (42,000 gallons) and short position of 1 contact result in a net limit usage of 0/100 and a gross limit usage of 2/500. The maximum trade size will be 30 contracts, restricting the volume of contracts transacted per trade to 30. Transaction fees will be set at $1 per contract traded. Position Close-Out All positions will be marked-to-market every 30 seconds with any profits and losses reflected in the traders cash balance by the mark-to-market operation. Futures contracts will settle at the end of each period and be converted into CL. The final value of CL will be based on the formula described earlier. Crude in Alaska and NYC, and the RBOB and HO products will be valued at their last traded price. Computerized market makers will increase the liquidity in the market towards the end of trading to ensure the closing price cannot be manipulated. 12