How the Trading Floor Really Works

Foreword xi
<p>Preface xiii</p>
<p>Why I Wrote this Book xiii</p>
<p>What this Book Does and Does Not Do xiv</p>
<p>Who this Book Is For xiv</p>
<p>Finally, Some Key People in the Process of Writing this Book xv</p>
<p>All Feedback Welcome! xv</p>
<p>Women on the Trading Floor . . . Really? xvii</p>
<p>CHAPTER 1 What Are Financial Markets? 1</p>
<p>Debt Markets 4</p>
<p>Equity Markets 11</p>
<p>Other Asset Classes 21</p>
<p>Derivative Markets 22</p>
<p>Conclusion 26</p>
<p>Discussion Questions 27</p>
<p>CHAPTER 2 What Role Do Banks Play in Financial Markets? 29</p>
<p>What It Means to Provide Liquidity 31</p>
<p>Central Market Platforms 37</p>
<p>Who Are the Clients and What Are They Doing? 45</p>
<p>Conclusion 54</p>
<p>Discussion Questions 56</p>
<p>CHAPTER 3 Which Part of the Bank Are We Talking About? 57</p>
<p>Corporate Finance 60</p>
<p>Global Financial Markets 63</p>
<p>Where Are these Trading Floors? 73</p>
<p>The Trading Floor s Relationship with Clients 75</p>
<p>The Loan Portfolio and the Funding Department 76</p>
<p>Conclusion 80</p>
<p>Discussion Questions 81</p>
<p>CHAPTER 4 What Does It Mean to Trade? 83</p>
<p>PACAM Treasury Trade 85</p>
<p>Supermart Interest Rate Swap Trade 94</p>
<p>A Structured Equity Product 108</p>
<p>Conclusion 118</p>
<p>Discussion Questions 119</p>
<p>CHAPTER 5 What Is the Market and Why Does It Move? 121</p>
<p>What Is the Market? 123</p>
<p>Price Fundamentals: Macroeconomics 128</p>
<p>Price Fundamentals: Company Specific News 135</p>
<p>Supply and Demand 140</p>
<p>Conclusion 142</p>
<p>Discussion Questions 143</p>
<p>CHAPTER 6 How Do Traders Make a Market? 145</p>
<p>PACAM Treasury Trade 148</p>
<p>Supermart Interest Rate Swap Trade 158</p>
<p>Equity Structured Product Trade 163</p>
<p>A Typical Trader Day 166</p>
<p>Conclusion 168</p>
<p>Discussion Questions 169</p>
<p>CHAPTER 7 How Is Proprietary Trading Different from Market Making? 171</p>
<p>Proprietary Trading Desk Overview 173</p>
<p>Proprietary Desk Liquidity 176</p>
<p>How Market Makers Are Similar to Proprietary Traders 180</p>
<p>Trading Book Accounting 186</p>
<p>Trader Capital Allocation 187</p>
<p>Conclusion 188</p>
<p>Discussion Questions 189</p>
<p>CHAPTER 8 What Is the Relationship Between Sales and Trading? 191</p>
<p>A Day in the Life 195</p>
<p>Know Your Client 199</p>
<p>Managing the Client Relationship 201</p>
<p>Sales Person Stereotypes 209</p>
<p>Conclusion 211</p>
<p>Discussion Questions 211</p>
<p>CHAPTER 9 What Role Does the Research Analyst Play? 213</p>
<p>The Role of a Credit or Equity Analyst 215</p>
<p>Conflict of Interest 221</p>
<p>The Economists and Strategists 222</p>
<p>Desk Analysts 225</p>
<p>Conclusion 226</p>
<p>Discussion Questions 227</p>
<p>CHAPTER 10 What′s So Special About Trading Derivatives? 229</p>
<p>Bond Intermediation 231</p>
<p>Derivative Intermediation 234</p>
<p>Counterparty Credit Risk 241</p>
<p>Illiquid Derivatives Intermediation 246</p>
<p>Conclusion 248</p>
<p>Discussion Questions 249</p>
<p>CHAPTER 11 Where Does Structuring Fit? 251</p>
<p>The Deal Origination 252</p>
<p>Deal Negotiation 255</p>
<p>Deal Closing 260</p>
<p>Conclusion 263</p>
<p>Discussion Questions 264</p>
<p>CHAPTER 12 Where Are the Quants? 265</p>
<p>Pricing Models and What They Do 266</p>
<p>Risk Management Models and What They Do 271</p>
<p>Financial Market Evolution 274</p>
<p>Quants′ Relationship with the Trading Floor 275</p>
<p>Conclusion 277</p>
<p>Discussion Questions 278</p>
<p>CHAPTER 13 What Are the Risks? 279</p>
<p>Market Risk 281</p>
<p>Credit Risk 287</p>
<p>Other Risk 292</p>
<p>Conclusion 295</p>
<p>Discussion Questions 296</p>
<p>CHAPTER 14 How Do We Manage These Risks? 297</p>
<p>New Product Approval Process 299</p>
<p>Market Risk Limits 304</p>
<p>Credit Risk Limits 307</p>
<p>Learn from Experience 309</p>
<p>Conclusion 312</p>
<p>Discussion Questions 313</p>
<p>Epilogue 315</p>
<p>Glossary 317</p>
<p>Index 341</p>