25865 Digital and Decentralised Markets

Warning: The information on this page is indicative. The subject outline for a particular session, location and mode of offering is the authoritative source of all information about the subject for that offering. Required texts, recommended texts and references in particular are likely to change. Students will be provided with a subject outline once they enrol in the subject.

Subject handbook information prior to 2024 is available in the Archives.

UTS: Business
Credit points: 6 cp

Subject level:

Postgraduate

Result type: Grade and marks

Requisite(s): 24 credit points of completed study in spk(s): C04048 Master of Finance OR 24 credit points of completed study in spk(s): C04258 Master of Finance (Extension) OR 24 credit points of completed study in spk(s): C07021 Graduate Diploma Finance OR 24 credit points of completed study in 24Credit Points spk(s): MAJ08984 c 36cp Finance Major MBA
The lower case 'c' after the subject code indicates that the subject is a corequisite. See definitions for details.
These requisites may not apply to students in certain courses.
There are course requisites for this subject. See access conditions.

Description

This subject introduces the internal workings of financial marketplaces - market microstructure. It covers the current state of practice in market design/regulation and empirical methods/metrics used to evaluate market quality and performance. The trading process is discussed, describing the interaction of different types of traders, the risks and inventory challenges faced by liquidity providers, the causes of variation in liquidity, and the process by which markets arrive at prices. The subject also discusses market design and how it affects the functioning of markets, including traditional market architectures and new, decentralised market types. This includes topical issues and challenges such as fragmentation of markets, transparency, automated/high frequency trading, asset custody challenges, and market integrity. The subject covers emerging marketplaces and potential future market design based on the 'digitisation' of assets, including the implications of real-time settlement, distributed marketplaces, and decentralised transaction processing.

Subject learning objectives (SLOs)

Upon successful completion of this subject students should be able to:

1.	Apply an understanding of different financial market architectures and design features
2.	Explain the key roles of financial markets, and their interactions with asset pricing and companies
3.	Critically evaluate technology-driven innovations in financial markets
4.	Evaluate and assess financial market quality using empirical techniques

Contribution to the development of graduate attributes

This subject contributes to the degree by exposing students to the core principles of financial markets. Financial markets play an important role in the economy, and the subject explains how financial markets fulfil that role. Students develop teamwork skills through collaborative in-class activities and group work. They also develop oral and written communication competencies via their individual and group assignments.

This subject contributes to the development of the following graduate attribute(s):

Intellectual rigor and innovative problem solving
Communication and collaboration
Professional and technical competence

Teaching and learning strategies

Students will have pre-readings to complete before in-class workshops and discussions, including a mix of chapters, journal articles, and industry reports. Additional (optional) extension materials will be provided in the form of recorded videos and further readings to allow students to delve deeper into topics of particular interest. During the interactive, hybrid-mode classes, students will work in small groups on empirical exercises and DeFi application case studies to encourage cohort building and peer learning. They will also have the opportunity to present their research proposals to obtain instant feedback and promote the exchange of ideas.

Content (topics)

Roles of markets
Market architectures (limit order books, dealer markets, decentralised markets, auctions)
Market microstructure theory, adverse selection, and learning from order flow
Financial markets, asset pricing, and corporate finance
Market liquidity
Price discovery
Innovations in traditional financial markets (fragmentation, algorithmic trading, and dark pools)
DeFi infrastructure (blockchain, smart contracts, tokenization, and oracles)
DeFi/FinTech applications (automated market makers, tokenised securities, non-fungible tokens, peer-to-peer lending/borrowing, insurance, and derivatives)
Challenges and future research areas

Assessment

Assessment task 1: Research Proposal (Individual)*

Objective(s):	This addresses subject learning objective(s): 1 and 3
Weight:	35%
Length:	Students will have up to 10 minutes of presentation* and 5-10 minutes of Q&A*. The written research proposals will be 1,200-1,500 words excluding references. The word limit can be relaxed with the explicit permission from the lecturer.
Criteria:	Originality of the research topic Significance of the identified research gap & justification for research focus Logic of hypothesis & feasibility of approach to testing it Evaluation of available data & its application in proposed research project Clarity of presentation *Note: Late submission of the assessment task will not be marked and awarded a mark of zero.

Assessment task 2: Market Evaluation (Individual)

Objective(s):	This addresses subject learning objective(s): 1 and 4
Weight:	35%
Length:	The written report will be up to 3,500 words excluding tables, figures, and references. Students will also submit their data and code - there is no limit on the length of this component.
Criteria:	Appropriate choices of empirical methods Accuracy of the application and interpretation of the empirical methods and results Critical evaluation of market architectures

Assessment task 3: Case Study (Group)*

Objective(s):	This addresses subject learning objective(s): 1, 2 and 3
Weight:	30%
Length:	Students will have 10 minutes of presentation* and 10 minutes of Q&A*. The written reports will be up to 2,000 words per group excluding tables, figures, references, and appendices.
Criteria:	Quality of analysis of the Fintech/DeFi application Ability to relate the application to the broader financial system Critical evaluation of the application’s novelty, strengths, and weaknesses *Note: Late submission of the assessment task will not be marked and awarded a mark of zero.

Minimum requirements

Students must achieve at least 50% of the subject’s total marks.

Required texts

Harris, L., 2015. Trading and electronic markets: What investment professionals need to know. CFA Institute Research Foundation. PDF available here.

Harvey, C.R., Ramachandran, A. and Santoro, J., 2021. DeFi and the Future of Finance. John Wiley & Sons. This short textbook can be purchased online, but the PDF that is freely available here.