Technology: Outfitting of the Trading Desk

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

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

3. 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 • SunGard/BRASS

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

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

6. AgendaTopic • Equity Trading – The Mature Environment • Fixed Income Trading – The Opportunities

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

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

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

10. Agenda Topic • Equity • Fixed Income • Derivatives • Foreign Exchange

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

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

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

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

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

16. 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

17. 1. INFO/ACCESS: Broker-Dealers lose information/market access advantages 2. FEES: Clients demand and get reduction in commissions 3. CLIENT MIX: Hedge Funds/ Quants become important clients 4. TRADING MIX: Clients drive algorithms, program trading 48% 0% 800 16 40% Quant Trade Reports 12 600 30% Quant -5% Hedge Hedge Passive Passive -6% chart chart 22% 8 400 20% -10% Active Insides(Level1) 4 Active 200 10% -14% Quote Updates -15% 0 0% ‘96 ‘98 ‘00 ‘02 '00 '03 '00 '04 ’95-’00 '00-’04 NASDAQ: Average Messages Sent per Day [Millions] Annual Change in Per Share Brokerage Commissions [%] US Buy-Side Trading Vol. [Billions of Shares] NYSE Program Trading Volume Percentage Structural shifts in trading: client-driven changes Source: Mercer Oliver Wyman Analysis, Morgan Stanley Research, NASDAQ; NYSE; SIA; SunGard Analysis

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

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

20. 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

21. 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

22. 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

23. 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

24. What Venture is Hearing Questions & Answers