Overview of Bar Bill Trading

Bar Bill Trading Game

The purpose of the game is to simulate the functions of four participants in a financial trading market – market-makers (MM), Locals (LT) investment bankers (IB) and Mr Big hedge-fund clients (HF). The game works with one MM, two locals, four IB and two HF.
For 21 people, the split is 1 MM, two LT that create a trading Pit, 3 in each IBs to create four banks and have 3 in each of the 2 HF. At this stage, it is advisable for someone to organise an exchange to settle the trades and keep track of open positions and PL. If someone is tracking positions and PL, it must be kept confidential.
All groups are trading contract for differences (CFD) whose final level is based on the sum value of the 14 cards that are chosen from two packs of cards. The first pack of cards is numbered 1 to 40. Each IB receives two cards which only they can see. The MM and MB do not receive any cards and are therefore blind.
The second pack contains 100 cards that have been selected from a standard normal distribution multiplied by 10 – note they can be positive as well as negative. The MM chooses six cards and places them face down in the centre. These cards are blind to everyone and make up the 14 cards that will define the closing price.
All participants now trade CFDs on an underlying that is defined as the sum of the 14 cards which are revealed once all trading has ceased.
The roles for each participant are:-
· The MM makes a fixed three point spread at all times, his incentive is to avoid losing money and therefore his role is purely price discovery on where the market can operate at an equilibrium – as many buyers as sellers. Any money he makes goes towards the Bar Bill and any money lost comes out of his pocket.
· The LT join the MM to form the pit. They trade on their own account and are not required to show a two-way price if asked. They show prices inside the spread shown by the MM on where they can buy or sell. They can deal with IBs only if their price is better than the MM or when the MM prefers to split an order. The LT trade also with the MM but not the HF.
· The IB uses the proprietary information represented by the two cards and trades with the MM, LT and of course their all-important HF client. The IB shows private or sealed prices to the HF at a maximum of five point spread but in much greater size than is available from the MM.
· MB receives quotes from each IB during each session and trades in large size with them. The only condition is that at the end of the game, the HF’s position is flat.
Eight trading sessions:-
· The MM first makes a three point two-way market for the contract on which all IB have to trade upon, minimum trade size is £1 a point and maximum is £5.
· The MM will continue to make further markets until all trading activity has ceased. IBs are not required to trade on this further activity
· During the second phase, each IB shows a sealed quote to HF for £10 a point, the spread can be no wider than five points, trading priority is given to those who provide the narrowest quotes
· Once the HF has concluded his deals with the IB and all activity between IB and the Pit has stopped, the MM rings the bell and the trading session ends. At this point all trades are reconciled on price, trade size with the exchange.
· Just before the next trading session starts the MM turns over one of the six cards that are facing down. This simulates the dissemination of new information into the market.
· Once all cards are turned over, each IB takes a card from the IB sitting to his right. This simulates the action of traders moving jobs and taking their knowledge with them. At this stage, the IB must now show prices to each HF in order to liquidate their positions. This can be no more than 5 points away from the last bid-ask quote from the MM.
· The HF can choose not to liquidity with IB and instead deal with the Pit. The HF must now liquidate outstanding position with the Pit. The IBs are not required to reduce or close out their outstanding position.
· At the end, all 14 cards are overturned and the settlement price is calculated by taking the sum. All losses from IB, HF, LT and MM are paid out through a single settlement; all gains from MM are transferred to the Bar Bill pot.