Sales and Trader Case – 2025

OVERVIEW

The Sales and Trader Case challenges participants to demonstrate critical thinking and analytical skills in a dynamic environment. Participants will evaluate sales offers through tenders while managing associated liquidity risks. Throughout the case, participants will receive multiple tender offers tied to their roles, requiring swift decisions on whether to execute or reject each offer based on profitability. Profits are generated by leveraging price differentials between market prices and private tender prices. Once a tender is accepted, teams must collaborate to efficiently close out positions, aiming to maximize returns while minimizing liquidity and market risks.

The case also explores the impact of multiple trading venues on trading strategies. After accepting a tender offer, participants must identify arbitrage opportunities between exchanges to enhance profit potential. Varying commission structures and liquidity parameters across exchanges create unique incentives, challenging participants to optimize their trading decisions.

KEY OBJECTIVES

DESCRIPTION

The competition comprises 8 independent heats, with all team members participating in each round. Each heat spans 10 minutes, simulating one month of calendar time. During each session, participants will trade two securities listed on different exchanges, each with unique volatility and liquidity characteristics.

Tender offers will be generated by automated traders and distributed randomly to participants at unpredictable intervals. Based on their assigned roles, participants must assess the profitability of these tenders before deciding whether to accept or bid on them.

TEAM ROLES

In this case, each team member will have two trader roles: institutional trader and retail trader

MARKET DYNAMICS

In this case, two tradable ETFs, RITC and COMP, are available on both the main and alternative exchanges. These securities are labeled as RITC_M and COMP_M (traded on the main exchange) and RITC_A and COMP_A (traded on the alternative exchange). Positions are aggregated across exchanges, meaning if a trader buys 100 shares of RITC_M and sells 100 shares of RITC_A, their net position will be zero.

Commissions, liquidity, and trading frequency differ between the exchanges, creating distinct incentives for trading on each platform. Each independent heat in the competition will feature unique market dynamics and parameters, potentially including variations in tender order spreads, liquidity, and volatility. Consistent market dynamics and parameter details for each heat are outlined below, enabling participants to develop informed trading strategies.

Details of the securities across both exchanges are as follows:

Ticker	RITC_M	COMP_M	RITC_A	COMP_A
Expected Starting Price	$50.00	$95.00	$50.00	$95.00
Commision/Rebate	$0.025/0	$0.025/0	$0.015/$0.02	$0.015/$0.02
Max Order Size	12000	12000	10000	10000
Trading Limit(Gross/Net)	250,000/200,000	250,000/200,000	250,000/200,000	250,000/200,000
Liquidity	Medium	Medium	High	High
Volatility	High	Medium	High	Medium
Tender Frequency	Medium	Medium	Low	Low

This case highlights collaboration between one institutional trader and three retail traders. Institutional traders manage large tender offers directly from financial firms, whereas retail traders handle smaller, more frequent tenders through the exchange. While institutional traders can only operate within the main exchange, retail traders have access to both the main and alternative exchanges. Though retail traders invest independently, they work alongside their institutional partner to close positions and optimize profits across exchanges. For example, retail traders can leverage the alternative exchange for trading while supplying liquidity in the main exchange to support their team.

Each heat involves three types of tender offers: private tenders, competitive auctions, and winner-take-all tenders. Institutional traders receive all three types, while retail traders handle private tenders and winner-take-all tenders. Private tenders are generated by the server and distributed randomly. Institutional traders receive 10 private tenders per heat, each with a 25-second response window. Retail traders receive 16 private tenders, each with a 20-second window. While private tenders vary by trader type, competitive auctions and winner-take-all tenders are consistent across roles. Every participant receives an equal number of tenders based on their role, with variations in price and quantity. No trading commission applies to tender offers.

Private Tenders: These are assigned directly to individual participants, offering the chance to buy or sell a fixed volume of ETFs at a price influenced by the current market price. Accepted orders are executed immediately from the participant’s inventory at the specified price. Institutional traders receive tenders labeled as RITC_M or COMP_M, which can be fulfilled on either exchange. Retail traders, on the other hand, have access to private tender offers from both exchanges. However, for any accepted tender, the corresponding security is filled on both exchanges simultaneously.

Competitive Auctions: These tenders are distributed simultaneously to all institutional traders, who must submit competitive yet profitable prices for a specified ETF volume. Orders from institutional traders that exceed a hidden baseline reserve price are automatically filled, regardless of competing bids. If accepted, the transaction is executed at the price submitted by the participant.

Winner-Take-All Tenders: These require all participants, institutional and retail, to submit bids or offers for a fixed ETF volume. The tender is awarded to the highest bid or lowest offer that meets the hidden baseline reserve price. If no bid or offer meets the reserve, the tender is void. For instance, if all participants bid $2.00 for an ETF with a $10.00 reserve price, no trade is executed.

CALCULATION OF THE PROFIT OR LOSS OF TRADERS

The prices generated by the RIT for this case follow a random-walk process using a return drawn from a normal distribution with a mean close to zero. That is, at any point in the case simulation, the probability that the price will go up is equal to the probability that the price will go down. This means that participants cannot predict the future price of the ETFs without “taking a bet”. Therefore, the RITC scoring committee will consider trading ETFs for reasons other than reducing the exposure associated with accepting a tender offer to be equivalent to speculating (taking a bet) on the price movement. These types of trades will be flagged as “speculative trades”.

Participants will have time to think about the tender offer before they choose to accept it or decline it, and the time may be different for each security. For example, one may receive a tender offer at time t = 0 and will have until t = 30 to decide whether to accept or decline. Any trades made by a participant during this time without accepting or declining the tender offer will be considered as “front-running” [1] since the participant had the advance knowledge of a pending institutional order. The RITC scoring committee will flag these trades as “front-running trades”.

This case is designed to only reward participants for identifying, accepting, and closing out [2] tender offer positions at a profit, while managing liquidity risk and execution risk. Any other strategy will not be recognized and may incur penalties. In particular, the total profit of each participant [3] will be categorized into two parts: “profits from tender offers” and “profit from speculation”; the latter category includes the profits that are a result of speculative trades and/or front-running trades.

Profits from tender offers are the profits (or losses) gained from efficiently closing out the position from accepted tenders into the market. Profits from speculation are profits (or losses) generated through trades that are not associated with tenders (speculative trades or front-running trades). An “Adjusted P&L” will be calculated based on the following formula:

Adjusted P&L = P/L From Tenders + Min(0,P/L From Speculation)

Participants will be ranked and scored based on their Adjusted P&L.

For example, consider a participant who has made $10,000 from tenders and $50,000 from speculation, the total profit is $60,000 (=$10,000 + $50,000) but the Adjusted P&L will only be $10,000 [=$10,000 + min(0,$50,000)].

In another example, consider a participant who has made $35,000 from tenders and lost $20,000 from speculation (Profit from Speculation = -$20,000); the total profit is $15,000 ($35,000 – $20,000) and it is equal to the Adjusted P&L [$15,000 = $35,000 + min (0, -$20,000)]. Any losses from speculation will be included while profits from speculation will not be included.

The adjusted P&L with the total fines paid is computed and displayed by the RIT application, visible in the “Trader Info” section. Additionally, participants can review speculation fines in their “Transaction Log” within the RIT application.

Footnote:

[1] Front-running is the unethical and illegal practice of trading a security for your own account while taking advantage of the information contained in the pending orders from your institutional clients.

[2] “Closing out” a position means that a participant is executing a trade that is the opposite of the current position in order to eliminate the exposure.

[3] The total profit of each participant is the profit (or loss) that you can observe in the RIT Client at the end of a heat.

TRADING LIMITS AND TRANSACTION COSTS

A trading fee of $0.025 per share applies to orders that remove liquidity from the main market, while the alternative market offers a lower fee of $0.015 per share for similar orders. Additionally, the alternative market provides a net rebate of $0.02 per share for limit orders that are filled. For instance, a limit order for 1,000 shares that gets executed would earn a $20 commission rebate. Marketable limit orders (those that cross the bid/ask spread) are treated as market orders. The maximum order size for a single submission is 12,000 shares on the main exchange and 10,000 shares on the alternative exchange.

Each participant will be assigned gross and net trading limits, as outlined in the case description, with limits being reset before each heat. Traders are allocated a net trading limit of 200,000 shares and a gross trading limit of 250,000 shares. The gross trading limit represents the total of the absolute values of long and short positions across all ETFs, while the net trading limit reflects the balance of long and short positions, with short positions offsetting long positions. Trading limits will be strictly enforced, and participants will not be allowed to exceed them. The maximum order size and commission details, as specified in the case description, will remain fixed for each heat.

POSITION CLOSE-OUT

Any open position will be closed out at the end of each heat based on the last traded price. Additionally, a penalty of $0.50 per share will be imposed for neglecting to close a position, encompassing both long and short positions in any security. Computerized market makers will increase the liquidity in the market towards the end of trading to ensure the closing price cannot be manipulated.