2000 – 2011 April, 2011 EVOLUTION OF U.S. FINANCIAL MARKETS

Evolution of U.S. Financial Markets 2 How Do You Navigate Todays Markets? Confused about how the U.S. markets work? If you did not have a solid grasp of the U.S. market structure in 2000 (prior to Reg. NMS), you will probably have a tough time navigating the various players and their value proposition today The markets have evolved: –Exchanges M&A –Continued market fragmentation –Introduction of new players Totally lost? See the next page …

Todays Market Landscape Evolution of U.S. Financial Markets 3

Growth of electronic trading / contraction of open outcry: equities, options and futures; spread compression Growth and sophistication of the buy side The Internet has matured, so has trading technology Demutualization and for-profit business models Evolution of exchange revenue models, market makers, payment for order flow (maker-taker, taker-maker) Exchange mergers and acquisitions, continued globalization. Evolution of U.S. Financial Markets 4 Trends and Background

Maturity of prime brokerage business model De-leveraging and impact of global financial crisis post Lehman Bros. Introduction of new broker-sponsored exchanges, clearing houses Continued market fragmentation – equities and options Regulatory evolution: –Commodity Futures Modernization Act (2000) –S.E.C. Reg. NMS, demise of InterMarket Trading System for equities (2005) –Dodd-Frank Act regulations Evolution of U.S. Financial Markets 5 Trends and Background (Contd) …

Inter-relationship of asset classes, markets; portfolio margining Growth of algorithmic and high-frequency trading Madoff. Evolution of U.S. Financial Markets 6 Trends and Background (Contd) …

U.S. Equities Markets Evolution of U.S. Financial Markets 7

Implementation of SEC Reg. NMS, demise of the Inter- market Trading System Exchanges demutualized, went for-profit and public Exchange consolidation, continued globalization Evolution of NYSE, NASDAQ duopoly, internalization of order flow, rise of new, more nimble ATS Growth of algorithmic trading, new order types, high frequency trading and proximity hosting as differentiators. Evolution of U.S. Financial Markets 8 What Happened ?

U.S. Options Markets Evolution of U.S. Financial Markets 9

Growth of electronic trading / consolidation of open outcry trading Decimalization, penny quoting, spread compression Payment for order flow, growth of electronic market makers Continued market fragmentation Exchange acquisitions Algorithmic and high frequency trading New order types Evolution of new players - 5 markets are now 8! Evolution of U.S. Financial Markets 10 What Happened ?

U.S. Futures Markets Evolution of U.S. Financial Markets 11

Growth of electronic trading / consolidation of open outcry trading Exchanges demutualized, went for-profit and public Exchange consolidation and globalization Demise of Enron Introduction of new players - some came, some went, some stayed New products that align risk to users needs Convergence of OTC and ETD products - rise of OTC clearing, futures look-alikes. Evolution of U.S. Financial Markets 12 What Happened ?

U.S. Clearing Houses Evolution of U.S. Financial Markets 13

Exchange consolidation, clearing member consolidation (Bear Stearns, Lehman Bros., Refco) Exchanges demutualized, went for-profit and public Member-controlled versus exchange-owned clearing houses Clearing house silos versus non-profit, industry utilities New products / convergence of OTC and ETD products Futures look-alikes, cleared OTC products as new revenue streams Introduction of new clearing houses. Evolution of U.S. Financial Markets 14 What Happened ?

Need to Navigate Todays Landscape? Evolution of U.S. Financial Markets 15

Tellefsen and Company, L.LC Evolution of U.S. Financial Markets 16 Call Us for the Roadmap