1. You (Exchange) have just filled an order and notified involved traders of their fills. Next you must tell the world about this trade.

Suppose you flip a coin. You flip a coin every second. Once you flip heads, you (Exchange) send your message ("Trade Done") to your friend (Tape Broadcaster). Your friend flips a coin until heads. Then the message ("Trade Done") is sent to the Tape.

Plot the probability of each number of tails Exchange and Tape Broadcaster get (together) before the message is sent to the Tape. You may simulate the results or find the theoretically correct answer.

2. What economic incentives exist to reduce the time for a message to get sent to the Tape?

3. Apply the models of Chacko, Jurek, and Stafford (2008) - aka Torre (1997) - and Almgren, Thum, Hauptmann, and Li (2005) to estimate the impact of the following trades. Use the parameters on page 1278 (of the Chacko et al. JF article) to estimate the impact in basis points

(bp) for a trade of:

(a) $1MM of a $250MM firm with 5MM shares outstanding? $10MM?

(b) $1MM of a $900MM firm with 50MM shares outstanding? $10MM?

(c) $1MM of a $1.5BB firm with 75MM shares outstanding? $10MM?

(d) $1MM of a $4BB firm with 200MM shares outstanding? $10MM?

(e) $1MM of a $16BB firm with 1BB shares outstanding? $10MM?

You may write on one of two topics. Use full sentences and convincing arguments to express your view. I will grade the essays based on how convincing, polished, and succinct they are. (Forego five fancy phrases when six short words will suffice.)

Agree or disagree with one of these statements. Write two to four pages in 12-point font.

Statement 1: "Market microstructure is the latest fad. The issues we've covered may be relevant now but are strictly mechanical concerns and will be irrelevant in fifty years time."

Statement 2: "For any trading strategy, a good trader must constantly be 'in the market' if she expects to make money. If you are not trading, you are wasting your time; go do something productive."