Technology Outfitting of the Trading Desk Moderated by

Technology: Outfitting of the Trading Desk Moderated by: Andy Luro Venture FSG

Agenda Topics Panelist Introductions What Venture FSG is Hearing Panelist Presentations Questions and Answers

Panelists Andy Sommers, Senior Vice President, Investment Trading Systems Putnam Investments Rick Enfield CPA Director of Product Management Charles River Development Mark Clark Executive Vice President Direct Market Access Sun. Gard/BRASS

What Venture is Hearing Connectivity Intelligent Trade Automation Algorithmic Trading Trade Regulations Integration Market Data Access

The Trading Function Changes and Challenges Presented by: Andrew Sommers Putnam Investments

Agenda Topic Equity Trading – The Mature Environment Fixed Income Trading – The Opportunities

Equity Trading Maturity in Order Generation and Management Robust Electronic Communications Measuring the Effectiveness of Implementations

Fixed Income Trading Improving Electronic Communications Increasing Use of Derivative Instruments Increasing Demand on Compliance, Reporting, and Risk Analysis

Compliance & Regulations: Technology Impact on the Trading Process Presented by: Rick Enfield Charles River Systems Inc.

Agenda Topic Equity Fixed Income Derivatives Foreign Exchange

Equity Trading Automated Routing and Algorithms Ultra High Volume Executions Impact of Wealth Management

Fixed Income ATS Processing and Origination of the Order Generic Security Processing Post Execution Allocations Data Management and Consistency

Derivatives Measuring Exposure / Look-through Growth of Credit Default Swaps Intraday Valuation

Foreign Exchange Local Cash Overdrafts Currency Swaps vs. Overlay Management Intraday Exposure Management Counterparty Exposure Management

Changes in Trading Technology: A Sell-Side Perspective Presented by: Mark Clark Sun. Gard / BRASS

Changes in Trading Technology: A Sell-Side Perspective Structural Shifts in the Business of Trading Corresponding Movements in Trading Technology Closer Looks Direct Market Access Algorithmic Trading TCA/Trading Analytics Open Questions/Areas to Watch

Structural shifts in trading: client-driven changes 1. INFO/ACCESS: Broker-Dealers lose information/market access advantages 2. FEES: Clients demand get reduction in commissions 16 4. TRADING MIX: Clients drive algorithms, program trading 48% 0% Trade Reports 3. CLIENT MIX: Hedge Funds/ Quants become important clients 800 40% Quant 600 12 -5% -6% 8 Hedge Passive chart 30% Quant Hedge Passive 400 20% Insides (Level 1) -10% Active 4 200 -15% ‘ 98 ‘ 00 Active 10% -14% Quote Updates ‘ 96 chart 22% ‘ 02 NASDAQ: Average Messages Sent per Day [Millions] 0 ’ 95 -’ 00 0% '00 -’ 04 Annual Change in Per Share Brokerage Commissions [%] '03 US Buy-Side Trading Vol. [Billions of Shares] Source: Mercer Oliver Wyman Analysis, Morgan Stanley Research, NASDAQ; NYSE; SIA; Sun. Gard Analysis '00 '04 NYSE Program Trading Volume Percentage

Structural Shifts in Trading Pressures from evolving market structure and regulation Areas of Pressure and Change Estimated Total Compliance Costs: US $5 billion p. a. • Regulation NMS • Combinations and Evolving Market Micro-Structure (e. g. , NYSE / ARCA) • SEC and SRO Enforcement • Sarbanes Oxley Auditing 8% Legal 10% Training 55% IT 15% Staffing 12% … and increasing Source: Deloitte – 2003 Global Securities Industry Outlook)

The Results: Movements in Trading Technology Algorithms and Conditional Trading Smart Order Placement Automated and Rules. Based Trading Compliance Handling – Atand Post. Trade Alternative Execution Points Sponsored Direct Market Access Electronic Client Relationships Client Connectivity “Hubs” TCA/ Trading Analytics New Equities Trading Models Unified OTC/Listed Trading Global Markets/ Other Asset Classes

A Closer Look: Direct Market Access What Is It? • • • Broker-sponsored direct-to-market, broker, and algorithmic routing Tailored, “smart” execution tools; Staging or direct integration (FIX) Administrative, reporting and risk tools for the Sponsor Why Is It Important? • • Increased trading control / reduced information leakage Lower commission and administrative costs What Comes Next? • • • Smart order placement and trade-through compliance Increased execution points, e. g. , block systems, new markets/ECNs/ATSs OTC/Listed, cross-asset, and cross-market access

A Closer Look: Algorithmic Trading What Is It? • • Automated block/strategy trading; managed historically by traders Increasingly focused on analysis and identification of opportunities Why Is It Important? • • • Lower commissions Efficiency from electronic order entry and low(? ) maintenance Better execution quality - if strategies are used and monitored correctly What Comes Next? • • • Commodity “white labeled” algorithms Implementation outside of equities Strategy selection support and benchmarks/analytics

A Closer Look: TCA/Trading Analytics What Is It? : • • Post-trade transaction cost analysis tools Standard and customized reports and benchmarks Why Is It Important? • • Demonstrates compliance and value Facilitates trading improvement What Comes Next? • • • Pre-packaged reports, benchmarks, and standards Better accounting for new trading types, e. g. , algorithms and programs Integrated pre-trade and at-trade tools; OMS and DMA links

Open Questions/Areas to Watch Exchange Market Structure Market Data – More of It Regulation NMS Interpretations: Exemptions, e. g. , Block Trading Order Placement Compliance New Entrants

What Venture is Hearing Questions & Answers