Managing Operational Risk with STP Securities Operations Forum February, 2008 Sheldon E. Warrick

2 Why the focus on Hedge Funds today*? At $1 trillion, hedge funds constitute only 3% of buy-side assets, but….. According to various sources, hedge funds account for: 40-50% of daily turnover on the NYSE and LSE 70%+ of the volume in convertible bonds 80%+ of the volume in distressed debt 30% of the volume in non-investment grade debt 20-30% of the volume in active name Credit Default Swaps (CDS) There are unfortunately, some bad seeds that bring bad press to the hedge fund industry. * Source of slide: TowerGroup 2005

3 What risks are Hedge Funds facing ? ** Source: Hedge Fund Working Group Final Report, January 2008 The Hedge Fund Working Group cites three primary risk categories: Risk Category Overview** Category Portfolio Risk Operational Risk Outsourcing Risk Description Risk of loss in the investment portfolio Risk of breakdowns in internal controls or systems which can lead to financial losses Risk of failures in the delivery of services by third parties Risk for whom Direct risk for investors, indirect (reputational) risk for the manager Direct risk for the manager, indirect risk for investors

4 Preventing Operational Risk Failure “ To prevent trading and execution failures, a hedge fund manager should put effective trading and counterparty procedures in place.” - Hedge Fund Working Group HFSB suggested practices may include: “entering into master agreements with trading counterparties; agreeing well defined termination and collateral policies tracking changes in key provisions of any agreements with trading counterparties; and a robust trade confirmation and reconciliation process Sufficient back and middle office capacity to handle trading volumes Daily confirmation of trades and positions Use of electronic matching and confirmation systems (depending on scale of manager).”

5 Why Omgeo? Omgeo is the market leader in post-trade, pre-settlement solutions. We work with clients to streamline their post-trade process, connecting partners and systems across the globe. Our Mission To increase operational effectiveness in the financial community. By improving levels of efficiency, operations professionals can: reduce risk and costs better manage trade processing exceptions contribute to their organizations’ profitability Our Background Equally owned by DTCC and Thomson Financial Over 30 years of experience, serving 6000 users in 44 countries

6 Pre-Trade IM-Decision of TradeIM/BD Negotiation Trade Trade OrderTrade Execution Post-Trade, Pre-Settlement Trade AllocationTrade ConfirmationMatchingTrade AffirmationSettlement Enrichment3 rd Party Notification Settlement Netting/ClearingSettlement ofSecurities/CashReconciliationDepository Custody Omgeo Omgeo Where do we fit in the trade process? IM-Decision of TradeIM/BD Negotiation Pre-Trade

7 Broad experience with Hedge Funds Over 175 hedge fund clients globally Relationships with prime brokers and fund administrators worldwide.

8 Operations: In search of… Risk Reduction: As manual processes are removed, trade failures decrease. Transparency: As hedge funds evolve from being small, esoteric investment vehicles and cater more increasingly to institutional investors, the pressure to be as transparent as possible is more intense. Compliance: Being able to demonstrate real-time STP also increases transparency in the trade process and supports compliance with the U.S. requirement that all trades must be confirmed with a CSD. Scalability/Trade Support: The back office must keep up with the front office and be able to support volumes and various trading styles & instruments as organizations grow and expand their strategies. Alpha!

9 Benefits of Automation Statistics prove that when trade allocations are sent through Omgeo: Operating costs and trade failures are reduced by up to 70% Same day affirmation (SDA) rates soar to 80% and higher Affirmation rates jump as high as 94% by noon on T+2

10 Omgeo Hedge Fund Offerings Benefits Accelerate the post trade process, minimizing risks and costs Connect to an established community of over 1,600 broker dealers globally Increase transparency with an auditable, electronic trail for every trade Take advantage of volume independent automation across multiple asset classes to support new funds and volumes as you grow Focus on your core competency – executing on your trading strategies! Solutions Omgeo OASYS: U.S. domestic industry-standard trade allocation and acceptance service, communicating trade and allocation details between hedge funds and broker/dealers. Omgeo CTM: Single platform for your cross-border and domestic fixed income and equity trades, offering exception-only processing, real-time settlement instruction enrichment and automated settlement notification messaging.

11 In Summary… A great trading strategy + solid investment decisions alone = Success/Alpha

12 For more information Sheldon Warrick Executive Director, Global Relationship Management

13 APPENDIX

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