Finance Assignment 2 Question 1 Your company is asking you to analyze dark pool volume and bid-ask spreads for two stocks: American Water Works (symbol: AWK) and Uber (symbol: UBER). This involves going to the ATS Issue Data section of the FINRA Transparency website (ats.finra.org) and recording the total number of shares traded on the ATS platforms for each stock for the week beginning January 22, 2024. (For convenience, we will refer to ATS platforms as dark pools.) Your manager would like answers to the following questions: a) For each of the two stocks, what percentage of total share volume was traded in dark pools during this week? Daily trading volume from 1/22/24 to 1/26/24 can be found on Yahoo! Finance. b) For each of the two stocks, what is the current percentage bid-ask spread? The percentage bid-ask spread is calculated as the difference between the ask price and bid price, divided by the midpoint of the bid price and ask price. The current bid and ask prices can be found on Yahoo! Finance. c) Why do you think percentage dark pool volume and bid-ask spread are different for AWK and UBER? Question 2 Firm ABC is selling 500,000 shares in its initial public offering (IPO). Firm ABC hires an investment bank that reaches out to its institutional clients to populate the demand curve for the shares of Firm ABC. This is called the book building process. Firm ABC wants to sell the 500,000 shares for no less than $25 per share. The investment bank receives the following orders:      Institution A: Buy 200K shares for any price; Institution B: Buy 100K shares for no more than $33 per share; Institution C: Buy 150K shares for no more than $31 per share; Institution D: Buy 50K shares for no more than $28 per share; Institution E: Buy 150K shares for no more than $26 per share. a) Graph the supply and demand curves in the IPO auction. Provide the set of prices at which the market could clear (that is, the set of prices at which volume is maximized and order imbalance is minimized). Provide the price that the investment bank would choose so that all 500,000 shares are sold and the IPO price is maximized. b) Suppose that a large retail trader does not have access to the IPO. The trader would have been willing to submit an order to buy 75K shares for no more than $32 per share. Recreate the supply- demand graph in (a) with this order included in the demand curve. At which price will the market clear? How much money is “left on the table” because this retail order was not included in the IPO? Question 3 The designated market-maker (DMM) for stock XYZ is in charge of running the daily closing auction at 4:00pm. The DMM must determine the closing price and volume based on the following orders: BUY ORDERS: Amy (900 shares, market order); Bob (800 shares, limit $50.00); Cathy (800 shares, limit $49.97); Derek (500 shares, limit $49.95). SELL ORDERS: Erin (600 shares, market order); Frank (700 shares, limit $49.95); Gary (400 shares, limit $49.97); Hannah (900 shares, limit $50.00). a) Create a graph of the supply and demand curves in the closing auction. Provide the set of clearing prices at which volume is maximized and order imbalance is minimized. Also provide the volume and order imbalance outcomes at these clearing prices. b) The DMM chooses an auction price from the set of potential clearing prices from (a) that minimizes the distance between the auction price and the last observed bid-ask midpoint during trading hours, which currently equals $49.92. What closing auction clearing price will the DMM choose? Question 4 The upcoming Liability Trading 3 (LT3) case involves accepting or rejecting a series of institutional orders. Suppose that you will accept an institutional sell (buy) order if, following the acceptance of the order, you can instantly place a market order to sell (buy) 80% of those shares at a volume-weighted average price that is greater (less) than the price of the institutional sell (buy) order. Assume the following limit order book for parts (a) and (b) of this question. Like the “Book Trader” from the RIT Client, the best bid price is found at the top of the bid side of the limit order book, and the best ask price is found at the top of the ask side of the limit order book: Bid Price $9.98 $9.97 $9.92 $9.90 Bid Quantity 10,000 12,000 30,000 12,000 Ask Price $10.02 $10.03 $10.06 $10.15 Ask Quantity 15,000 15,000 13,000 10,000 a) An institution wants to sell 60,000 shares to you at a price of $9.95 per share. Calculate the VWAP of immediately selling 80% of this 60,000 share order. Will you accept the order? Explain. b) An institution wants to buy 50,000 shares from you at a price of $10.04 per share. Calculate the VWAP of immediately buying 80% of this 50,000 share order. Will you accept the order? Explain.