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The Rotman International Trading Competition (RITC) is an annual event held in Toronto, Ontario, the heart of Canada's Financial district. Hosted by the Rotman School of Management at the University of Toronto, the competition brings teams of students and faculty from universities worldwide to participate in a unique 2 day conference.
The RITC utilizes simulated trading cases that closely mimic different aspects of real world markets. Having developed these cases in its state of the art Financial Research and Trading Lab, the RITC promises to present teams with challenges that are pertinent to current market participants. While past competitions have been wildly successful, we continue to improve on the old cases and introduce new ones. This year's competitors can look forward to the Sales & Trader case which showcases Rotman's newly developed electronic trading interface.
Due to logistical constraints, the competition will be limited to 50 teams of 4 students. We strongly encourage faculty from each school to accompany their team as either a coach, observer, or impartial referee. If your school is interested in sending a team, please have a faculty, staff, or club head fill in a registration form here.
NEW Check out pictures from RITC'06 HERE!
RITC In the Media...
RITC 2006 Closing note
Numerous students and faculty have requested that I write a short post-mortem analysis of the competition in regards to how we have designed the competition to run versus the actual outcome. Having been involved with the design and execution of three competitions now, I feel like I have a pretty good grasp on everything and would like to share some of my thoughts.
The cases
Open Outcry
What I love the most about the open outcry case is the absolute shock I see on peoples faces within about 2 minutes of the case starting. This case always begins with the competition staff demonstrating the way trading works, particularly, how people scream out their orders. Meanwhile, the entire audience looks skeptical thinking to themselves "I'm going to be screaming out orders like they are?". However, once the market starts moving, the voices start shouting, and the floor erupts into a loud roar as the sounds of bids and asks echo through the Rotman Atrium.
The main goal of the open outcry case is to give the competitors a chance to learn the mechanics of outcry trading. A secondary goal is to break the ice and get the competitors to be comfortable with each other; There's nothing like having 45 traders elbow to elbow in a 10 square foot space with everyone reaching to try to get the attention of other traders.
What amazes us every year is the way that the futures trade away from the spot price. It seems that the floor takes control of trader's rationality as they all try to second guess the index in an attempt to generate profits. Although the concept is to forecast and trade based on where you think the market may be going, the spreads of 60-70 points (6-7%) seems extremely unreasonable at times. With that being said, for all three competitions, the same patterns seem to be observed. This year we even added a mark-to-market facility to try to peg the future closer to the spot market, unfortunately this mechanism was not as succesful as we thought it would be. We will look at potential remedies in the future. Without committing to anything, I would like to consider the possibility of having a cash market (of stocks) trading over an electronic platform, so that teams could begin arbitrage opportunities by trading futures and then offsetting their position by trading baskets of stocks. I guess you'll have to wait until next year to see if this concept, or something similar, comes to fruition.
Quant Outcry
When designing this case, we always have a tough time deciding on how to structure the proper economic coefficients to have the desired effects, while trying to keep the case somewhat realistic. It is a very difficult balance and I hope that the competitors appreciate our efforts.
The feedback about Quant Outcry is always mixed. Some students claim their models were extremely accurate(when in fact, the noise built into the model is larger then their average error). While others threw their models out and simply changed their strategy completely.
The main learning objective that we try to accomplish through the quant outcry case is for students to understand that variables in the real economy are correlated. The correlations can be calculated with a reasonable degree of certainty, and projections can be made. As we all know, the real market is quite the beast with lags, over and under reactions, etc. Your quant outcry models should not be designed to take the decision making process out of trading. We have designed it so that there's enough noise to negate that. However, your models should guide you and be a tool in helping you determine overall directions of markets, which you can base your trades on.
Sales & Trader
This is a brand new case that required us to program our Rotman Interactive Trader platform. It's part of a bigger picture as we advance the Rotman Financial Research and Trading Lab's experiental learning model to facilitate more and more advanced trading strategies. This case was designed to teach participants about the liquidity of markets. The forunate (or unfortuante) reality is that trading markets requires relatively quick decision making processes and reactions. The first concept that the Sales & Trader case is designed to illustrate is that markets are not infinitely liquid. Any trader putting in market and limit orders and analyzing their fills will quickly realize that. The second learning objective would be to teach traders about execution risk. The method of this is to hang what we consider to be "lucrative" institutional orders out in the market for traders to accept or decline. Although these orders generally provide a positive spread on the current mid-market price, they do not take into account the liquidty of the markets. Traders that have accepted large orders for illiquid stocks quickly realize that the spread that was previously mentioned quickly evaporates as they try to fill their order.
We understand that we haven't perfectly captured the institutional/stock exchange details in this case. Reg NMS (In the U.S.), no trade-throughs (in Canada), as well as rules in other countries often disallow the crossing of a block of shares outside of the bid-ask spread. However, we feel the more important learning objectives are facilitated by convenienty ignoring this rule for the time being.
Overall we are extremely happy with how the Sales & Trader case operated. It received the top feedback scores at RITC2K6 and we look forward to further developing the case for future years.
Analyst Trader
Since the first year of the competition, this case has always had a love-hate relationship with competitors. Quite frankly, the majority of traders are not in favour of this case. By all means, it stands out from the other traditional RITC cases. The pace of the case is considerably slower, the interaction is very detached compared to other cases (communication via comments on a website, versus hand signals on an outcry market), and the overall "excitement" level is considerably lower. Also, this case has always been the last case of the competition and I feel that people are often burned-out by the time this case arrives. That being said, I believe that this case is by far the most valuable learning experience that the competition has to offer. Being able to create a full financial model of a firm (albeit considerably less sophisticated than what an actual security analyst would do), and being able to adjust that model to exogenous shocks, is an extremly valuable skill to have. Further, understanding news releases, how they filter through into companies' EPS, and gauging the effect on the stock price is also very realistic.
I think another reason for the the large dispersion of Analyst Trader's ratings amongst competitors is the fact that the teams that prepared the least are the most disadvantaged in this case. Rather than focusing on the schools who were penalized for not being prepared, I would prefer to focus on the schools who were rewarded for being very prepared. However, we will look into tweaking both the timing and the execution of the analyst trader case to try to make it more enjoyable, while retaining its unique learning properties.
The Software:
We made the strategic move from using FTS in previous years to the in-house developed RIT product this year so that we could facilitate the introduction of some new and exciting trading features. I have to say that I'm thrilled with the response that I have had from both faculty members and students with respect to the software- It's great to work very hard on something and receive such positive feedback. Pretty much the only recurring complaint that we had was the method that institutional orders were displayed on the screen and taking priority over other windows. I assure you, this can be altered and will certainly be looked into. The original design of this feature was to bring the attention of the trader to the incoming order (i.e. A trader's phone rings, so they stop trading and pick up the phone.) However, I understand with increasing order flow, and continuous trading, it's rather inconvenient to have your actions interrupted by the order. One interesting side-note. The cases were designed so that traders sould receive one order approximately every 30 seconds. However, since orders "bounce" to other traders when declined, and since there were a fair number of traders that declined all institutional orders, those remaining received an inordinate number of orders.
The Logistics:
I have to admit that the logistics of the entire competition were overwhelming. It takes the entire lab staff of 16 people (Myself, 12 undergrad lab assistants, two PHD students, and a programmer) to simply make the cases run as smoothly as they did. That doesn't include dealing with extraneous factors such as crowd control, registration logistics, and facility setup. I think in future years, having multiple people dedicated to logistics will make things run more fluently.
Those who have been with us for a while (mainly faculty advisors) will know that we have increased the content of trading and cases every year while the actual timeframe of the competition has remained constant. Building in more downtime in between cases and extending to a full 2 day or perhaps 2.5 day event will certainly help take the burden off of our shoulders. With that being said, kudos to the lab staff for going from Excel spreadsheets and user databases in one minute, to stacking chairs and clearing the atrium the next.
The IT-setup is one that always worries us. The simple operational risk involved with having so many computers simultaneously on a network, all connected to one server, is potentially a recipe for disaster. The fact of the matter is that the trading world revolves around computers. To properly simulate trading conditions, the more people we have at the competition, the more computers we will need. This year we purchased 10 additional computers to expand our lab simply to facilitate the additional competitors. This is an issue that we feel will continue to linger as we work out different scenarios to have as many people trading and engaged as possible while minimizing our reliance on IT (I agree, that's probably a contradiction). Having facilities such as a 24/7 server running prior to the competition, and holding stress-tests is our current solution to help competitors prepare their laptops for the competition. We hope that future competitors take advantage of these opportunities.
Conclusion
If you've read this far, I certainly applaud you for either your interest in the competition, or perserverence in finishing something you started. Both are qualities that help get me through this weekend every year. I started writing this with the intention of writing a quick note about my thoughts on different aspects of the competition and it quickly expanded into what could eventually become a short novel.
The competition is truly a joy for me to run and I look forward to it every year. People often ask me why I do it and my response is always the same. I enjoy what I'm doing and there's not much that can replace that. The sheer challenge of designing interesting case scenarios that bring financial market principles into a learning environment, followed by observing the competitors interact with our designs, simply cannot be matched. As always, I would like to thank all of those who continue to support the Rotman International Trading Competition for giving me the opportunity to do what I love.
Sincerely,
Kevin Mak
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