Global Buy Side Trading Consultants Ltd Unbundling Commission 0

 Background  The FSA Rules  Implications and Implementation 1

 An initiative from the UK regulator following a government report by Paul Myners in 2001  Underlying themes  Commission is client money  Lack of transparency  Conflicts of interest  Market failure  Value for money  Accountability 2

 Apply to firms in the UK regardless of client location  Only execution and research  Disclosure to clients of the respective costs of execution and research (unbundled). IMA level 2 disclosure  Based on an ex-ante agreement between investment managers and brokers  Soft commission banned, but commission sharing allowed in Europe, and Asia ex Japan (on shore clients), third party research agreements / soft in the USA 3

 Response  To split the cost of execution and research  Negotiate commission sharing arrangements with brokers in Europe and Asia. Third party research agreement in the US  Change our trading process  New broker review process 4

Research Commission Execution Commission Bundled Commission  Phase 1  Client pays broker Phase 2 Broker divides commission Phase 3 Broker pays to third party Broker retains Paid to Third parties Execution Commission 5

 Execution Services  Demonstrably linked to the arranging and conclusion of a specific transaction (or series of related transactions) and  That arise between the point at which a fund manager makes an investment decision and the point at which the transaction is concluded  Research Services  Capable of adding value to the investment or trading decisions by providing new insights that inform the investment manager when making investment decisions  Represent original thought - that is the critical and careful consideration and assessment of new and existing facts  Has intellectual rigour and does not merely state what is commonplace and self-evident  Involves analysis and manipulation of data to reach meaningful conclusions 6

 The old system  Could only reward brokers through execution  Targets set by broker vote and applied on a ‘best endeavours’ basis (best execution comes first)  Voting according to execution venue was complex  The new system  Traders do not have to work to targets  Brokers rewarded separately from execution  Fund management teams get to allocate their own clients’ commission 7

 First Stage : Pan-European Implemented  Commission allocated according to broker vote  Commission given to Fund Manager and Research teams to allocate on the new basis  Second Stage : Australia, Asia (ex-Japan) and EMEA started commission sharing  Third Stage : US and Latam to start under third party research agreements  Japan to follow depending on regulatory progress. ( Possibility to under take CSA for offshore accounts). 8

Global Buy Side Trading Consultants Ltd. 9