CAPITALMARKETSFNCE238/738

ProfessorKristaSchwarz Spring2013

ClassHours(unlessotherwisenotedonCanvas): Tuesdays&Thursdays FNCE23801 FNCE73801 FNCE73802 Combinedsectionsforfeaturedspeakersessions

10:30am11:50am 12:00pm1:20pm 1:30pm2:50pm 4:30pm5:50pm

Location(unlessotherwisenotedonCanvas):JMHH265fornonspeakersessions TeachingAssistants: TAs can help you with your questions about the course material or structure. Each TA will address questionsinofficehoursandbyemailaccordingtothefollowingschedule:

January10February24 Case13,Quiz14 ChristianGoulding,goulding@wharton.upenn.edu TAOfficeHours:Monday,3:00pm4:30pm,SH-DH 2300, Desk B Wednesday,1:30pm3:00pm,SH-DH 2300, Desk A February25March31 Case45,Quiz5 VadimLevit,levitv@wharton.upenn.edu TAOfficeHours:Monday,5:30pm7:00pm,SH-DH 2300, Desk C Friday,3:00pm4:30pm,SH-DH 2300, Desk C April1April23 Case67,Quiz6 LaurynLePere,llepere@wharton.upenn.edu TAOfficeHours:Monday,10:30am12:00pm,SH-DH 2300, Desk B Wednesday,1:30pm3:00pm,SH-DH 2300, Desk A

ProfessorOfficeHours(SHDH2420B):Friday,10:30amnoon,orbyappointment.

MotivationandOverview

In textbook finance, agents simply borrow and lend at the riskfree rate. In practice, its not quite so straightforwardliquidity,creditrisk,andborrowingconstraintsareallveryimportant,asrecentevents have shown. The objective of this course is to give you a solid foundation in the framework and evolution of U.S. capital markets, and to give you the tools to understand the costs and benefits for participants in various asset classes, which you can use in your postWharton career to evaluate future market innovations. We will consider the motivations of issuers and investors across different asset classes,exploringthedesign,issuance,andpricingoffinancialinstrumentsaswellasinvestorstrategies, and associated economic and financial stability issues. We will draw from events in the recent financial crisis, which illustrate financing innovations and associated risks, as well as policy responses that can changethenatureofthesemarkets.Wewillalsodiscussfuturetrendsincapitalmarkets.

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CourseStructure

Theclassenvironmentisgearedtohelpyoudevelopyourownhumancapitalthroughacombinationof: (1) BACKGROUND LECTURES, to provide a structured introduction to market concepts and asset classes.

(2) TOPICALCASESTUDIES,selectedtoputthisinformationintoareallifecontextandtogiveusan interactivesettingtodiscussandreflectonsomeofthedriversofmarketeventsandstructure.

(3) SHORTQUIZZES,tohelpyouidentifytherelationshipsamongandcommonthemesinthetopics wecoverthroughperiodicreviewofthematerial.

(4) FEATURED SPEAKERS, leading practitioners and policymakers in capital markets, to gain first hand insight into the markets we cover in class, and importantly to appreciate each speakers uniqueperspectiveandopinion,drivenbytheirownroleandexperienceincapitalmarkets.

(5) CASE PROJECT of CHOICE, to give you the flexibility to explore a market or topic in which you haveaparticularinterestinlearningmoreabout.

Grading

Your grade for the course will be determined by quizzes, case writeups, a case project, and participation.Therewillbeatotalof100pointspossible,andthepointsareallocatedasfollows: 6Quizzes 10pointseach;50pointspossible(lowestscoreisdropped) 7GroupCaseWriteups 5pointseach;35pointspossible CaseProject 10pointspossible Top3PointAward 5 points possible; the top 3 case writeups are awarded 1 point,thetop3caseprojectsareawarded2points ClassParticipation Canaffectyourgradeatthemargin Grades are nonnegotiable, and the quality of your written work and participation is a matter left to my judgment. This is an elective course, so if you do not agree to these terms, then you should consideradifferentcourse. The only nature of grade appeal that will be considered is one where your points were not added up correctly or a correct answer was overlooked. This type of appeal must be submitted to me, in writing, withinoneweekafterthegradeinquestionisreceived.

All assignments must be submitted at the dates/time that they are due as specified on Canvas (before class). Late assignments will not be accepted under any circumstances. Canvas will not accept late uploads.Alateormissingcaseassignmentwillresultinazerograde.

Academicintegrityistakenseriously.Submittedassignmentsmustbeyourworkonly.Failuretocomply with this code of ethics, will at a minimum, result in a zero for the assignment, and may result in an automaticfailinggradeforthecourseandreferraltotheOfficeofStudentConduct. Referto theCodeof AcademicIntegrityifyouhaveanyquestions.

CourseContract

Students wishing to receive credit for this course must read and electronically sign the Course ContractpostedontheCanvasAssignmentspage. Page 2

CourseMaterial

You are also responsible for any and all course content that is discussed in class. I will post slides on Canvas ahead of each lecturebased class. Case materials are the only required readings for the course. Iwillpostsupplementaryreadingsforthoseinterestedinadditionaldetail.Thereisnocoursetextbook.

CaseWriteUps

Class Discussion: We will discuss cases on the day they are due in class, and your participation in these discussion is highly encouraged. Quiz questions may be drawn from these case discussions. I will not providewrittencasesolutions,butmaypostsomeslidestohelpguidethediscussion.

Groupwork:Workingroupsofthreetosixstudentsoncasewriteups. o RegisteryourgrouponCanvasnolaterthanThursday,January17,asthisiswhenthefirstcase isdue.Youmaychooseyourowngroupmembers,whomayspansections. o Discussing the material with your classmates enhances your understanding, and raises points that alone you may not have considered. Also, communication and negotiation skills that you exercisethroughjointprojectworkwillbeinvaluableforyourcareer. o Turn in a single writeup for the group, with each of the participant names noted. All members ofagroupwillreceivethesamescore. Case Reading: Case readings will be available via the Study.net link. There may be additional required casereadingspostedontheCanvasAssignmentssection. WriteUp Length: No cover page. Maximum of 2 singlesided pages in length, double spaced, 1112 pointfont,reasonablemargins. WriteUpExposition:CasequestionswillbepostedonCanvas.Addresseachcasequestioninturn. o Stateyourargument,andsupportit.Pointsaredeductedforinaccuraciesandlackofreasoning, butnotforviews.Focusonkeypoints(pickyourbattles).Dontjustsummarizetheentirecase. o Clear and concise writing is a valuable skill in any profession. You have a limited amount of space,useitefficiently.Beattentivetogrammar,spelling,andpresentation. Grading: Each case writeup will be scored out of 5 possible points. A top 3 point (separate from the case writeup score) will be awarded to the three top writeups of each case, judged to be the most clear,concise,persuasive,correct,andcompleteanalyses.

Quizzes

Therewillbesixshortinclassquizzes,lastingabout2025minuteseach,onthedatespostedonCanvas. Bring a pen and a nonprogrammable calculator to all quizzes. Quiz questions will be drawn from the materialcoveredsincethepreviousquiz.Throughoutthesemesterwewillbuildonconceptscoveredin earlier sessions. The quizzes can be a helpful tool to check your understanding along the way. Your quizprepreviewofthematerialwillhighlighttherelationshipsacrosstopicswecover.

Grading: There will be NO makeups. Your lowest score will be dropped. This provides for any eventualitywherebyyoumissaclassduringwhichaquiztakesplace.Eachquizwillbescoredoutof10 possible points. I will not return quiz answer sheets to you, but you are welcome to review the quiz questionsandyouranswersheetinmyofficeduringmyofficehoursorbyappointment.

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Participation
FeaturedSpeakers: Speaker sessions are a required part of this course, and are scheduled in lieu of the regularly scheduled lecturesonthedatesthattheytakeplace(timesandlocationsaredetailedonCanvas).Attendancewill betaken. The speakers are senior figures in industry and policymaking organizations. Their insights will complementandbuildonmaterialthatwecoverinlecturesandcases.Eachspeakerhasplayed a key role in some area of capital markets and brings a particular view and personality to our class,shapedbyhisorherownfirsthandexperienceandsubjectexpertise.

ClassDiscussion: Class participation contributes to our collective goal of understanding the course materials by exploring a variety of reasonable approaches together. Class discussion is enriched by wellreasoned points, constructive questions, or other relevant insights that encourage learning. Emphasis is not on the durationofyourairtime,orongettingtherightsolution. Decorum: Istronglydiscouragetheuseoflaptops,iPads,phones,orotherelectronicdevicesinclass.E mailing, texting, and internet use during class is disruptive to the students around you, and to me. If you feel very strongly about taking electronic notes in class, please clear this with me beforehand. Please use name tent cards (MBAs and undergraduates)! If you do not have a card, please makeone. Please sit in the same seat throughout the semester to help me make your name/face association. Pleasekeepentry/exittoaminimumonceclasshasstarted. Grading:Whilethereisnotanexplicitparticipationgrade,classparticipationcanhelpyourgradeatthe margin.Whatdoesthismean?Ifyourfinalgradeisontheborder(forinstance,youhaveanAandare 1 point away from an A), then outstanding class participation can bump you up to the next grade. Outstanding class participation is such that I have a familiar and positive association with your name andfacethroughinclass(orinspeakersession)comments,responses,andattendance.Youarealways welcome to visit my office to ask questions or discuss the material, but this will not earn credit toward classparticipation.

CaseProject
The case project may be completed as part of a group or may be completed individually. Individual and group projects will be held to the same standards in grading. Each member of a group will receive the samescore. The caseproject isanopportunityforyoutopicka topicincapitalmarketsin whichyouareparticularly interested, and to research the facts and organize your thoughts on this topic in the framework of a presentablecasediscussion. Page 4

You may draw topic ideas from material that we touched on in class, but the concepts and discussion that comprise your project should not duplicate those that we learn in this course. Capital markets is a very broad subject area, and our inclass coverage is limited to the number of days that we have together. There are many markets, events, and ideas that we may not have the opportunitytocoverindepth,butthatareexcellenttopicstodrawfromforthecaseproject. For instance, a case project could focus on a significant capital market event (the Swiss exchange ratefloor,theflashcrash,theS&Lcrisis,BlackMonday,the1907Panic,etc.),anassetclass(interest rate futures, foreign currency swaps, etc.), or an important market topic or concept (the role of algorithmictrading,theeffectofofficialChineseassetpurchasesonU.S.capitalmarkets,etc.).

Thecomponentsofthecaseprojectthatshouldbecompletedandsubmittedareasfollows: DueThursday,March14 (1) SignupforProjectGrouponCanvas o Youmayworkindividuallyorwithupto6teammembers(Iencouragegroupwork). o YoumustsignupforaprojectgrouponCanvas,evenifyouareworkingindividually. o You will receive 1 point toward your final Case Project score by signing up your project grouponCanvasontime. (2) Submit23sentenceTopicSummary o Thesummaryisassignedtomotivateyoutoorganizeyourthoughtsonthisprojectearly on.Youwillonlyreceivefeedbackonyoursummaryifitdoesnotseemtobeheadedin areasonabledirection. o You will receive 1 point toward your total Case Project score by submitting the topic summaryinontime. DueTuesday,April23 (3) 515pagesofbackgroundcasereadingmaterial o This may be a single published article (if the article lends itself very well to your project asis),oracollectionofpartsofexistingarticles,oritcanbeawriteupofyourownthat referencessomeexistingliteratureonthesubject. o Inallcases,alwaysincludeanyreferencesthatyouuse. o Charts,figures,appendices,etc.,areoptional. (4) 46casediscussionquestionsthatcanbeansweredthroughtheprovidedbackgroundreading o Questions may teach a concept or emphasize an important caserelated point through anexplicitanswer. o Or, questions may raise issues that are subject to debate and discussion and thus have morethanoneresponsethatcouldbeconsideredacceptable. (5) 24pagesofcasediscussion,guidedbythecasequestions o Ifquestionsaresubjecttodebate,pleasepresentbothsidesoftheargument. o Charts,figures,appendices,etc.,areoptional. Grading: The case project will be scored out of 10 possible points. Two of the 10 points will already be scoredbyMarch14,dependingonwhetheryouhavesubmitted yourproject topicsummaryandsigned up your project group on time. Two top 3 points (separate from 10 possible points for the project score) will be awarded to the top three projects submitted, judged as the most wellconstructed, accurate,andcompleteworksthatcommunicaterelevantmaterialinanintuitiveandinsightfulway. Page 5

CourseOutline
Note:Thiscourseoutlineistentative.Boththetopicscoveredandthedatesonwhichtheyarecovered aresubjecttochangeandwillbeupdatedonCanvas.
CLASS SESSION
1 2 3

DATE
Thursday,January10 Tuesday,January15 Thursday,January17

TOPIC
Lecture:OverviewandIntrotoMonetaryPolicy Lecture:Repomarkets Case1:TipoftheIceberg:JPMorganChaseandBear Stearns QUIZ1 TBA Lecture:TreasuryMarkets Case2:ArbitrageintheGovernmentBondMarket? QUIZ2 Lecture:CreditRiskandCorporateDebt FeaturedSpeaker:JoshFrost VicePresidentandDirectorofTreasuryMarkets, FederalReserveBankofNewYork Lecture:CreditDefaultSwaps Case3:TheWeekendthatChangedWallStreet QUIZ3 FeaturedSpeaker:LeeC.Buchheit Partner,ClearyGottliebSteen&Hamilton(NYC) LeadadvisortoGreeceondebtrestructuring Lecture:Bankrunrisk QUIZ4 Case4:AIGBlamefortheBailout

DELIVERIBLES & Changein LOCATION/TIME

Case1DUE

4 5 6 7 8

Tuesday,January22 Thursday,January24 Tuesday,January29 Thursday,January31 Tuesday,February5

QUIZ1

Case2DUE QUIZ2

Thursday,February7

Time&Location 4:30pm SHDH,#351

10 11 12 13

Tuesday,February12 Thursday,February14 Tuesday,February19 Thursday,February21

Case3DUE QUIZ3 Time&Location 4:30pm ANNS,#110

14 15

Tuesday,February26 Thursday,February28

QUIZ4 Case4DUE

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SPRINGBREAK FeaturedSpeaker:MatthewRutherford,AssistantSecretary forFinancialMarkets,U.S.TreasuryDepartment TBA

16 17

Tuesday,March12 Thursday,March14

Time&Location 4:30pm SHDH,#351 CASEPROJECT:PROJECT GROUPSand23sentence TOPICSUMMARYDUE

18 19 20 21

Tuesday,March19 Thursday,March21 Tuesday,March26 Thursday,March28

Lecture:Securitization Case5:ATaleofTwoHedgeFunds:MagnetarandPeloton QUIZ5 FeaturedSpeaker:MichaelHenriques HeadofFixedIncomeandCreditInvestments, MagnetarCapital Lecture:LiquidityandMarketMaking Case6:UBSandAuctionRateSecurities QUIZ6 Lecture:CommercialPaper FeaturedSpeaker:ChristopherRicciardi Principalandcofounder,MeadParkManagement PioneerofCDOMarket Lecture:Equity Case7:PreparingfortheGoogleIPO:ARevolutioninthe Making? CourseWrapUp

Case5DUE QUIZ5 Time&Location 4:30pm SHDH,#351

22 23 24

Tuesday,April2 Thursday,April4 Tuesday,April9

Case6DUE QUIZ6

25

Thursday,April11

26 27

Tuesday,April16 Thursday,April18

Time&Location 4:30pm SHDH,#351

Case7DUE

28

Tuesday,April23

CASEPROJECTDUE

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