1. © 2007 The Tower Group, Inc. May not be reproduced by any means without express permission. All rights reserved. After the Starting Gun: October 15, 2007 Rob Hegarty Managing Director Securities & Investments The Race for Domination in Global Capital Markets is on! 2007 Annual Meeting

2. © 2007 The Tower Group, Inc. Agenda Globalization is all the rage How do we know that globalization is for real? Stronger than ever TowerGroups annual health check on the global securities and investments industry Opportunities and challenges in a globalizing economy Conclusions

3. © 2007 The Tower Group, Inc. Key Take-Aways Globalization isnt just a catch phrase in securities – its a key driver for expansion The securities industry continues its torrid pace of growth, buffeted by a strong global economy Technology has moved from supporting role to primary – and required – enabler for growth The combination of new geographies, new asset classes, and new business lines is creating once unimaginable opportunities for landlocked companies The globalization of exchanges foreshadows a truly global investing marketplace

4. © 2007 The Tower Group, Inc. So how do we know that globalization is for real? Daisuke Matsuzaka

5. © 2007 The Tower Group, Inc. The cost of globalization: The Red Sox perspective $14-21 millionAnnual Advertising and Marketing revenue Annual Tourism Economic boom to Boston$14 million Cost to speak with Daisukes Japanese club$51.1 million Cost to sign Daisuke to a 6 year contract$52 million Annual Merchandising boom to the Red Sox$6 million Becoming the recognized global leader in U.S. Sports Priceless Annual estimated ancillary Red Sox revenue$10 million $103.1 million $44-51 million

6. © 2007 The Tower Group, Inc. The drivers of the Red Sox global expansion are eerily similar to the securities industrys Legal/Regulatory The new MLB Collective Bargaining Agreement and its Posting process –Created the ability for MLB teams to bid on players in other countries Payments to post do not count against the salary cap and are not subject to the 40% luxury tax Competitive Landscape changes The premium on pitching has skyrocketed –Elite pitchers now get ~$500,000 - $1,000,000 per win Drive for new revenue sources Look to new geographies

7. Back to Reality Globalization in the Securities Industry

8. © 2007 The Tower Group, Inc. The market is stronger than ever, and not just in the United States Note: (f) = forecast. CAGR = -9.1% CAGR = 25.2% Global Securities Industry Revenues by Country/Region (USD in Billions) Source: Securities Industry and Financial Markets Association (SIFMA) OTHER LATIN AMERICA OTHER ASIA CANADA AND AUSTRALIA BRICKs (Brazil, Russia, India, China, Korea) JAPAN EUROPEAN UNION (except UK) UNITED KINGDOM UNITED STATES

9. © 2007 The Tower Group, Inc. US share of global capital markets has declined since the early 1980s US Share = 56% US Share = 39% Source: Securities Industry and Financial Markets Association, S&P Global Stock Markets Factbook 2006 Percentage of Global Market Capitalization by Region

10. © 2007 The Tower Group, Inc. Growth is in smaller, less-developed markets Source: Securities Industry and Financial Markets Association, S&P Global Markets Factbook 2006 Market Capitalization (USD in Billions)

11. © 2007 The Tower Group, Inc. Positive trend in US investors cross-border activity (1986–2006) Source: US Treasury, TowerGroup analysis Gross Purchases and Sales of Foreign LT Securities by US Residents (USD in Millions) 0 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 $12,000,000 19861988199019921994199619982000200220042006 EQUITIES BONDS Gross Purchases and Sales of Foreign LT Securities by US Residents (USD in Millions) 0 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 30,000,000 35,000,000 $40,000,000 19861988199019921994199619982000200220042006 EQUITIES BONDS

12. © 2007 The Tower Group, Inc. Gross Purchases and Sales of Foreign LT Securities by US Residents (USD in Millions) 0 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 30,000,000 35,000,000 $40,000,000 19861988199019921994199619982000200220042006 EQUITIES BONDS But its nothing compared to foreign investment in US markets CAGR = 17.5% CAGR = 14.5% Will the US investors be able to catch up? Source: US Treasury, TowerGroup analysis Gross Purchases and Sales of Domestic LT Securities by Foreigners (USD in Millions) 0 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 30,000,000 35,000,000 $40,000,000 19861988199019921994199619982000200220042006 EQUITIES CORPORATES AGENCIES TREASURIES

13. © 2007 The Tower Group, Inc. Americas led the charge in processing until 2000, when Asia-Pacific assumed the high-growth track Source: World Federation of Exchanges, Towergroup analysis Exchange Transactions (In Billions) 1995–2000 CAGR = 67.8% CAGR = 53.0% CAGR = 33.6% 2000–2006 CAGR = 20.5% CAGR = 8.7% CAGR = 43.5% CAGR = 29.7%

14. © 2007 The Tower Group, Inc. Although global growth in mutual funds has been very healthy… CAGR = 4.2% CAGR = 16.2% Source: Investment Company Institute, European Fund and Asset Management Association, TowerGroup analysis Worldwide Total Net Assets of Mutual Funds (USD in Trillions)

15. © 2007 The Tower Group, Inc. …the greater growth has been outside the Americas Americas CAGR = 7.6% Europe CAGR = 11.9% Asia-Pacific CAGR = 10.4% Source: Investment Company Institute, European Fund and Asset Management Association, TowerGroup analysis Worldwide Total Net Assets of Mutual Funds, Percentage

16. Opportunities and Challenges In a Globalizing Market

17. © 2007 The Tower Group, Inc. Challenge 1: NYSE is forced to expand overseas after losing internal market share 66.2% 32.5% NYSE share = 88.4% Nasdaq share = 2.3% After breaking away from the pack in the early 1990s, Nasdaq has emerged as the only viable US-based competitor for NYSE-listed trading Source: NYSE, TowerGroup analysis Percentage of NYSE-Listed Equities 0 20 40 60 80 100% 1975198019851990199520002005 NYSEPSECHXPHLXBSECSE/NSXNASD

18. © 2007 The Tower Group, Inc. The story for the NYSE is even more dire in recent months NYSE share = 82.8% Nasdaq share = 12.4% 66.2% 32.5% Source: NYSE, TowerGroup analysis Percentage of NYSE-Listed Equities NYSE share drop after 12/05 cant all be blamed on the Hybrid launch, but that certainly didnt help

19. © 2007 The Tower Group, Inc. Challenge 2: Trading without a floor: Floor-based trading continues contraction 4Q051Q062Q063Q064Q062Q071Q07 UBS cuts 23 employees (77%) of its floor operation NYSE Euronext doubles profit. Is it working? BofA cuts 83 employees (50%) of its floor operation Van der Moolen cuts 55 employees (30%) Credit Suisse cuts 9 employees (31%) of its floor operation Goldman lays off 30 traders as electronic volumes rise NYSE Hybrid system begins trading Source: TowerGroup

20. © 2007 The Tower Group, Inc. Drivers of globalization Opportunity Regulation Restrictions in US are encouraging migration to non-US capital markets Emergence of the Euro zone –The sum is greater than the parts Getting used to post-9/11 travel restrictions Business travel on rise after a 3-year decline Travel is easier in UK, Europe, APAC Generational shift From baby boomers to tech-savvy Gen X and Millennial generation –Each new generation operates in a more borderless world Borderless technology Web 2.0 makes software (and the data behind it!) More accessible

21. © 2007 The Tower Group, Inc. Challenge or opportunity? The lines between buy side and sell side are blurring Buy-side firms are registering as broker-dealers Brokers are registering as advisors (because of AND despite the Merrill Lynch rule being upheld) Hedge funds are registering as both Sell-side analysts are migrating to the buy side, following the route of the traders DE Shaw becomes the first hedge fund to join the NYMEX

22. © 2007 The Tower Group, Inc. Exchanges The rapid globalization of Capital Markets begins at the core – the exchanges Exchanges Source: TowerGroup

23. © 2007 The Tower Group, Inc. The road to globalization has many obstacles Information security remains a significant issue Information theft and fraud are far too commonplace Software As A Service (SAAS) will not be fully realized until the information security threats are all but eliminated Poor corporate governance leads to over-regulation, lower valuations Lowers firm valuation, making them less attractive to investors and making it more difficult to raise capital Cultural differences Although the cultural gaps are slowly narrowing Politics Always the wild card

24. © 2007 The Tower Group, Inc. The new, borderless technology paradigm will continue to drive global expansion Speed of change, commoditization faster than ever From process automation to network and community development and use Once landlocked by perceived boundaries, firms are using technology to expand overseas An entire industry has been borne of compliance Compliance Technology and Consulting The regulatory burdens will contract ever so slowly, if at all – there is too much money at stake now

25. © 2007 The Tower Group, Inc. So who wins and who loses in the race to globalization? New YorkLondon The middle tierScale and capital Regional playersThe global economy BrokersInvestors EquitiesDerivatives Floor-based tradingElectronic venues LosersWinners The hold-outsTechnology-savvy firms

26. © 2007 The Tower Group, Inc. Conclusions The greatest growth opportunities arent away from US shores... they are on ALL shores The demarcation between winners and losers is being defined by their global capabilities New asset classes (e.g., derivatives) and new markets (e.g., Insurance/Securities) pave the road to globalization The Red Sox are exploiting global opportunities. See what happens when you cross hedge funds and baseball The foundation for global capital markets is being formed by the exchanges in 2007... prepare for the next wave

27. © 2007 The Tower Group, Inc. Questions rhegarty@towergroup.com ?

28. © 2007 The Tower Group, Inc. May not be reproduced by any means without express permission. All rights reserved. After the Starting Gun: October 15, 2007 Rob Hegarty Managing Director Securities & Investments The Race for Domination in Global Capital Markets is on! 2007 Annual Meeting