Alex Dale is a portfolio manager at ADIA Investment Company in Europe. Alex would like to buy 50,000 shares of alpha stock which is a new IPO that was previously offered at 30, but unfortunately he couldnt get any shares of it. Now, he is still interested in these shares, but not at a price that is greater than 45. Jill Jones works for The Global Brokerage House, which provides execution services for ADIA. In his conversation with Alex, Jill has suggested that a market order is most suitable for the trade. Alex is also interested in using a market order to sell a large block of Gamma shares. However, he is worried that if he instructed a selling using a market order the price would decline and he loses on the value of the deal. Jill argued that this should not be a problem as automated order driven trading systems provide special arrangements for small trades (which are often market orders) as well as for block trades. Alex is also interested in reducing the cost of selling of his Christian Dior shares, Jill suggested that he should use European electronic crossing network to sell some of his shares. She told Alex that these networks are cheap, preserve anonymity and allows for 6 crossing opportunities of trades per day. They also allow participants to place some restrictions such as price and minimum fill. All orders submitted to the network is good for day which is means that any unfulfilled part of an order is automatically resubmitted to subsequent crossing sessions during the day. Following Jills advice, Alex has submitted his 150,000 CD shares to be sold in the European crossing network with a minimum fill of 125,000. The following orders are on the network for the shares of CD at the time of the first crossing session of the day. The most recent trading price of CD at the Paris Bourse is 37. A order: a market order to buy 100,000 shares B order: a market order to sell 50,000 shares C: an order to buy 20,000 shares at 36 In the next crossing session new orders are submitted. The most recent trading price of CD at the Paris Bourse is 38. D order: a market order to buy 150,000 shares E order: A market order to sell 50,000 In her speech to buy side clients Jill has made the following statements about electronic communication and crossing networks (ECNs): Statement 1: Electronic communication networks are order driven systems, in which the limit order book plays the a central role Statement 2: Electronic crossing networks anonymously match buy and sell orders by a pool of participants, generally institutional investors and broker dealers Statement 3: In an ECN, a trade takes place only during a crossing session time and only if there are offsetting orders entered by other participants.

Task: 1. For buying alpha shares, should Alex place a market order or a limit order? What would be the advantage and disadvantage of each type of order, given his purpose? (2 Marks) 2. In selling a large block of Gamma shares explain Jills argument that automated order driven trading systems must provide special arrangements for small and large trades? (1 Mark) 3. In the first crossing session discuss what trades would take place on the crossing network and what orders remain unfilled? (2 Marks) 4. In the second crossing session discuss what trades would take place on the crossing network and what orders remain unfilled? (2 Marks) 5. Which of Jills statement about electronic communication and crossing networks (ECNs) is true? Justify your answers. (1 Mark) 6. Indicate how you would assess the quality of financial markets? (2 Marks)