RITC 2012 Case Package - Rotman International Trading ...

Secondly, the market may over or under react to news headlines, eventually correcting itself to reflect the
correct price impact. During this time, traders have the opportunity to capitalize on security mispricing and
drive the market to the correct price. The final price of a security will be equal to the summation of the
security’s initial price and the effect of the news headlines as per the price impact formula.
For example, the final price of each stock will be determined as follows:
PRIMM, close = PRIMM, open + NewsRIMM,1 + NewsRIMM,2+ NewsRIMM,3 +…
In other words, the final price of RIMM stock will be equal to the starting price plus the aggregate of each
RIMM news effect.
Trading Limits and Transaction Costs
Each trader will be subject to gross and net trading limits of 250,000 and 100,000 respectively. The gross
trading limit reflects the sum of the absolute values of the long and short positions across all securities and
cannot exceed 250,000 shares. 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 100,000 shares. Trading limits will be
strictly enforced and traders will not be able to exceed them.
The maximum trade size will be 25,000 shares, restricting the volume of shares transacted per trade to
25,000. Transaction fees will be set at $0.01 per share for DELL and RIMM and will be at $0.02 per share for
LVMH and VOWG.
Position Close-Out
Any non-zero position in either stock will be closed out at the end of trading based on the final price formula
described above. All long and short positions will then be closed out based on that price.
Rotman International Trading Competition 2012
© Financial Research and Trading Lab, Rotman School of Management, U of T
25
Thomson Reuters QED Case