Delivering Liquidity and Efficiency to the Investor Community

Delivering Liquidity and Efficiency to the Investor Community in the Fixed Income Market Osijek, 13 May 06 Benedict Traill – MTS Group 1

Introduction: How has electronic trading brought efficiency and liquidity in the Fixed Income Markets in Europe? • Electronic Trading Platforms have built pools of liquidity over the past 5 years • Banks have shifted market making onto electronic systems • MTS Group and Bond. Vision: Electronic platform of Choice • Electronic trading has brought benefits to Dealers and Clients alike 2

Why have electronic trading platforms built pools of liquidity over the past 5 years? Electronic trading offers: • Liquidity & Transparency: transparent of investors as the need to “shop eliminated, creating market • Distribution: maximising access to the number of counterparties is convenient and cost efficient when delivering liquidity • Straight-through-processing: elimination of errors due to mismatching or late instructing, the simplification and automation of back office procedures and the zero rate of fail due to mismatching – these all bring significant cost savings • Access: electronic trading offers the same advantages to all, whereas traditional voice brokerage is more likely to favour larger accounts an asset class with consistent and pricing can attract new groups and increase overall turnover around” for prices is confidence 3

Why have Banks have shifted liquidity provision onto electronic systems? • Real-time, tradable liquidity: • Flows visibility: if issues market flows • Client Reach: salesforce can now reach a much broader client base globally • Sales force priorities: electronic distribution frees the salesforce from executing low margin business so that it can focus on higher margin areas & on giving valuable feedback to clients • Analysis: sales, traders, and the bank’s management have a better way to measure the quality of market making activity and the nature of client activity helps create a consistent smooth bond curve; in the medium term dampens the adverse effects of illiquidity on bond yields the market maker can monitor in real time are getting cheaper/richer because of 4

The Electronic System of Choice: MTS Group MTS Inter-Dealer Market Trading Volumes – EUR 80 billion daily (Cash & Repo) via MTS Liquidity – 70% Electronic Interdealer Mkt via MTS 5

MTS: Europe’s leading electronic government bond market From local market to pan-European platform Euro. MTS inception MTS S. p. a. privatisation 1998 MTS Portugal MTS France MTS Belgium 1999 2000 MTS Amsterdam MTS - Highlights • Largest fixed income cash market in terms of number of participants, geographic reach, and turnover • First exchange with presence in all EMU countries MTS Deutschland MTS Finland, Spain and Ireland 2001 2002 Merger MTS Spa - Euro. MTS Greece 2003 MTS Denmark MTS Austria MTS Poland New. Euro. MTS 2004 2005 Euro. MTS Global Geographic presence 21 markets with participants from 19 countries 690 participants 6

The Electronic System of Choice: MTS Group MTS Liquidity Providers : all European Primary Dealers ABN AMRO BANK (POLSKA) S. A. ABN-AMRO BANK NV LONDON AIB CAPITAL MARKETS ALPHA BANK B. SANTANDER CENTRAL HISPANOSA B. BILBAO VIZCAYA ARGENTARIA SA BANC OF AMERICA SEC. LTD BANCA AKROS S. p. A. BANCA CABOTO S. p. A. BANCA IMI BANCA FIDEURAM BANCA LOMBARDA S. p. A. BANCA MEDIOLANUM S. p. A. BANCA NAZIONALE DEL LAVORO BANCA POPOLARE DI LODI BANCA POPOLARE DI SONDRIO BANCA SELLA BANCO COMERCIAL PORTUGUES INVE BANCO DI SARDEGNA BANCO ESPIRITO SANTO S. A. BANK BPH S. A. BANK GOSPODARKI ZYWNOSCIOW. SA BANK HANDLOWY W WARSZAWIE SA BANK MILLENNIUM S. A. BANK PEKAO S. A. BARCLAYS BANK PLC BAYERISCHE LANDESBANK BAYERISCHE-HYPOVEREINSBANK AG BHF-BANK A. G. BNP PARIBAS SA BRE BANK S. A. C. R. DI FIRENZE S. p. A. CAIXA GERAL DE DEPOSITOS SA CALYON CAPITALIA SPA CITIGROUP GLOBAL MARKETS COMMERZBANK AG CREDIT SUISSE FIRST BOSTON DANSKE BANK DAVY STOCKBROKERS DEUTSCHE BANK AG DEUTSCHE BANK POLSKA S. A. DEXIA BANK BELGIUM DRESDNER BANK AG DZ BANK AG EFG EUROBANK ERGASIAS SA FIONIA BANK FORTIS BANK NV-SA GOLDMAN SACHS INTERNAT. HELABA HESSEN-THURINGEN HSBC - CCF HSH NORDBANK ICCREA BANCA SPA ING BANK SLASKI S. A. IXIS CORPORATE AND INVEST. B JP MORGAN SECURITIES LTD KBC BANK NV KREDYT BANK S. A. LA CAIXA LANDESBANK BADEN-WURTTEMBERG LEHMAN BROTHERS INTERNAT. LTD MCC SPA MERRILL LYNCH INTERNATIONAL MORGAN STANLEY INT LTD MPS FINANCE BANCA MOBILIARE NATEXIS BANQUE POPULAIRE NATIONAL BANK OF GREECE NOMURA INTERNATIONAL PLC NORDDEUTSCHE LANDESBANK NORDEA BANK DANMARK A/S NYKREDIT OKO BANK PIRAEUS BANK S. A. PKO BANK POLSKI S. A. RABOBANK INTERNATIONAL RAIFFEISEN BANK POLSKA S. A. ROYAL BANK OF SCOTLAND PLC SEB AG SOCIETE GENERALE S. A. SOCIETE GENERALE SA O W POLSCE SVENSKA HANDELSBANKEN SYDBANK SA UBS LIMITED UNICREDIT BANCA MOBILIARE SPA WESTDEUTSCHE LANDESBANK 7

Why is MTS the system of choice for Banks & Clients? • Corporate Structure – – • Governance – – • International ownerships between Euronext-LIFFE with Banking community Banks are stakeholders in the business, resulting that there is market representation in the decision making process of the Company. Participation in the governance structure establishing and tailoring of rules to suit local market needs and circumstances eg) benchmark size Governance of each market is handed over to the local banking community Network and Economies of Scale – – – Dealers can leverage on the technology already in use for the MTS markets allowing for economies of scale at the front and back office level Result is that new MTS markets can be established within 3 -6 months whilst minimising the cost for market participants who act as partners in the new venture Dealers can access Cash, Repo and Derivative markets through a single network • • Euronext can encourage its unparalleled pan-European and international network of participants (782 on derivatives and 286 on cash markets) to trade more on MTS and Bond. Vision Euronext. Liffe’s and GL Trade’s international networks, in particular in North Amercia and Asia (where Euronext also has a hub in Singapore); can provide additional connectivity points to global investors 8

Why is MTS the system of choice for Banks & Clients? • Cost Increase trading efficiency and reduced costs for members – Brokerage Fees: – Custody Fees: – Middle/Back Office Savings: • Since 1998 the cost per million traded in the market has dropped by around 98% 3 -5 euros per million cost per trade vs 7 -12 euros for non-MTS trades and from 15+ euros for OTC Full straight-through processing (STP) Liquidity – – The opportunity to rapidly build and unwind a position in a tradable instrument with minumum impact on its price Liquidity is positively correlated to: ü • Tightness of bid/offer spread; Size quoted; Size issued; Depth of market; Speed of execution; Traded volume Transparency – – Real-time distribution of tradable prices to direct participants Provision of price discovery to investors via quote vendors (Reuters, BBG etc) 9

Achievements of the Platform in EU and beyond 10

Universal Model: Extension to Local Currency Markets CASE STUDY OF MTS POLAND • • Growth in Liquidity as International participants joined the marketplace Exceptional volume growth of 400% since launch of the market. • This has helped with the integration of Local financial community with EU market and the internationalisation of the debt market • Sinception in Nov 2004, 88% of business has been transacted by locally-based liquidity providers. 11 Model to be extended with launch of MTS Israel in July 2006

How can Clients access the MTS Liquidity? BONDVISION: • Multi Dealer-to-Client Market powered by MTS, the leading e-trading platform in Europe • Regulated Market with a European Passport (4 June 2001) - Mi. Fi. D • Liquidity providers connect Using Existing Telematico (MTS) Infrastructure: full integration with the Inter-dealer Market • Clients Connect via light and user-friendly technology across the public Internet or VPN • Fast growing Market (2006: +50% year on year in volumes activity Q 1 06 vs Q 1 05) • 284 clients connected, 35 Liquidity Providers • Complete array of Fixed Income products available for trading 12

Bond. Vision Overview – Products Available 13

What advantages does Bond. Vision bring to Clients? LIQUIDITY PROVISION • Investors can access largest dealer panel – blend of global houses and regional specialistsand trade the largest available list of securities • MTS Dealers guarantee full commitment to Euro sovereigns ( incl. Fixed, Indexed, Zeros & short dated) as well as US Treasuries, Gilts, Central and Eastern European bonds (International and Local currency) within one trading platform • Possibility to set pre-set alert trading levels for clients REGULATORY • Bond. Vision satisfies both regulatory (ISD passport) and compliance needs (proof of best execution) of Clients. ü • Client now has the electronic trail to prove the transaction was traded at the best possible level Bond. Vision enhances the automation of the process portfolio strategy and trading orders/execution/post-trading which is becoming a key factor for the rating agencies view of portfolios. COST • FREE to investors. Also post trading functionalities and efficiency allows further cost savings 14

What efficiency and liquidity does Electronic trading bring to the marketplace? CONCLUSION: ENHANCED LIQUIDITY: - Liquidity and the availability of pricing on a wide variety of products established together with tools to access this liquidity Constant ability to trade provides comfort to investors to deal, which can grow the size of the overall market Better price dissemination and more efficient matching on bonds including illiquid securities REGULATORY BENEFITS: - Practice of best execution introduced in Europe has speeded up the transition to electronic distribution of plain vanilla products IMPROVED EFFICIENCY: - Possibility for customer to compare prices (for the full size of the order) from a number of counterparties Size and Scope of Trading network provides wide counterparty selection Cost Savings : Brokerage & Settlement Costs Straight Through Processing Availability of statistics for Quantitative analysis 15