Jerry Avenell, VP Business Development Chi-X Europe Limited European equity market fragmentation: One year on from MiFID Jerry Avenell, VP Business Development January 2009

Which Route do we take? First there was the long straight road to the primary exchange

Inefficiencies of the Incumbents "Nasdaq was an incredibly costly provider. They sucked down all that tape revenue, and their equipment was old and clunky" (Analyst, Celent Communications)

ECNs "America sneezes…" 1969 Instinet founded 1976 Consolidated Tape System introduced 1997 Instinet becomes the first Electronic Communication Network (ECN) to be recognised by the SEC. Other major players include Archipelago, Brut and Island The emergence of ECNs offers traders greater speeds at lower costs, in addition to anonymity 2001 Up to 40% of the volume in NASDAQ listed shares being traded on ECNs 2002 NASDAQ launches SuperMontage trading platform in response to competition ECN Archipelago gains stock-exchange status under the name of ArcaEx Island ECN acquired by Instinet to form INET 2005 INET taken over by NASDAQ 2006 Merger between NYSE and ArcaEx ECNs

US Equities: November 2008 Volumes Total ADV = 10.6 Billion Shares (-13%)

Different reasons for European fragmentation Regulation Currency Culture Technology

Incumbents Response To Change “The test for MiFID will be whether competition will increase liquidity and efficiency. The risk is that the benefits of competition for investors will be lost to the increase in fragmentation. Wider spreads and an increase in the cost of trading and the cost of market data would undermine the whole aim of MiFID….” Source: Financial News quoting LSE CEO Clara Furse speaking at FESE Conference June 2007 7

Exchanges v MTFs – What’s the difference? RIE (Listing function)  No Market data fees Technical costs Membership fees Complex trading tariffs Closed Communications network Pan European trading Pan European clearing Obligated Market Making No (except TQ) Heavy duty rulebooks

Out with the old….

In with the new…Chi-X’s Value Proposition Technology Capacity Connectivity options FASTER Lower trading costs Free market data Lower clearing costs CHEAPER Visible & non-displayed order types Simplified trading process Smart Order Routing SMARTER

Smarter Connectivity Options The diagram below shows the various connectivity options that are available as of December 2008 Following the migration of Chi-X’s primary data centre, participants will have the option to co-locate with Equinix Round trip latency in all cases

Speed: Roundtrip Latency By Venue Chi-X internal latency is 550 microseconds Trading Venue Average Latency (milliseconds) Chi-X Europe Ltd 5 (third-party extranet) 3 (leased lines) 1 (proximity hosted) LSE SETS 14 Deutsche Börse Xetra 37 Euronext 75 OMX 137 Borsa Italiana 174 SWX 284 SWX Europe 291 Source: Internal system performance measurement statistics for average DMA order messaging in November 2007, supplied by Chi-X trading participant. These internal figures are for round trip latency message acknowledgement based on sending an average number of messages to the exchange system and obtaining a response back to the participant's system over the course of a normal trading day. Please note: These figures are provided for illustrative purposes only and are not intended to represent an independent performance measure of latency.

More Capacity = Faster Trading, No Time Lag Chi-X can currently handle up to 115,000 messages per second without a degradation in latency At its peak on 14th November, the number of messages handled per second (31,091) was around 41% of the total capacity A peak market data output of 40,953 messages per second occurred on the same day = 14

Trading Tariff Trading fees on Chi-X The Chi-X business model is based on the principle that the user pays only for services consumed Trading fees on Chi-X Aggressive execution fee 0.30bps Passive execution rebate 0.20bps Order entry, amendments & deletions no charge Membership & application no charge Market data FREE OTC trade reporting (optional) £210 pcm Aggressive execution Order hits Chi-X order book and immediately results in execution Passive execution Order is placed on Chi-X order book and executed as a result of being hit by an incoming order

Order Types on Chi-X Order types permitted Chi-X LSE Deutsche Borse Euronext SWX Europe Limit  Market Iceberg Execute or Eliminate Fill or Kill Hidden* No Mid Peg* Primary Peg* *Hidden, Mid Peg and Primary order types are not available on many of the existing European exchanges

Simplified Trading Process Chi-X offers a simplified trading process and uniform, straight forward pricing across European securities markets Flat rate for both execution and clearing throughout Europe and flat rate for settlement which varies by market Clearing performed by EMCF across European Markets Traditional Trading Process Chi-X Trading Process Trading Participant Domestic CSD Execution Settlement Clearing Trading Participant Other Marketplaces(1) Ltd SA Respective Clearing Agent(1) Agent(1) Note: EMCF is a full service clearing provider across European markets (1) Each marketplace has a separate and distinct trading process

Cheaper: EMCF Clearing Fees EMCF has introduced further fee cuts with effect from 1st August 2008 All clearing fees are stated in Euros Market Initial fees 1 October 2007 1 March 2008 1 May 2008 1 July 2008 1 August 2008 Overall difference Netherlands 0.30 0.28 0.19 0.14 0.10 0.05 -83.3% Germany 0.25+0.075 bp 0.20+0.075 bp -80.0% UK 0.18 0.17 0.15 0.12 -72.2% France n/a -82.1% Switzerland 0.08 -50.0% Scandinavia -73.7% Internal / Self 0.03

Results: Market Share Growth by Market Market shares are by market rather than by index Market share: % of Combined Primary Exchange & Chi-X Turnover

Market share highlights

Cheaper: Basis Points Savings on Chi-X Average basis points improvements in December were 3.59 bps Total price improvement savings in Q4’08 were just under €60 million (1) Represents percentage of trades executed on Chi-X that are inside the spread of the primary market Execution Savings on Chi-X Chi-X Results (1)

European Order Book Volumes Value of Equity trading, October 2008 Exchange / MTF Order Book Trades Order Book Turnover € 1 NYSE Euronext 23,619,285 257,330,000,000 2 Deutsche Borse 14,507,972 243,740,000,000 3 London Stock Exchange 21,389,300 219,570,900,000 4 Spanish Exchanges (BME) 4,249,194 119,009,300,000 5 Chi-X Europe Ltd 14,288,749 109,157,247,286 6 SWX Europe 4,290,604 92,880,600,000 7 Borsa Italiana 6,979,379 72,875,300,000 8 Nasdaq OMX Nordic Exchange 6,113,982 69,942,100,000 9 Oslo Bors 1,563,760 16,937,500,000 10 Wiener Borse 723,204 5,874,000,000 11 Athens Stock Exchange 1,108,738 5,405,100,000 12 Warsaw Stock Exchange 1,105,139 4,668,000,000 13 SIX Swiss Exchange 648,359 4,593,100,00 14 Prague Stock Exchange 129,799 3,367,200,000 15 Budapest Stock Exchange 314,422 2,538,500,000 Value of Equity trading, October 2008 Figures sourced from FESE, Chi-X Europe figures inserted for comparison

Results: European Order Book Volumes Value of Equity trading, November 2008 Exchange / MTF Order Book Trades Order Book Turnover € 1 NYSE Euronext 14,020,309 136,029,000,000 2 London Stock Exchange 14,460,036 129,585,100,000 3 Deutsche Borse 8,766,787 107,252,900,000 4 Spanish Exchanges (BME) 3,334,569 72,912,900,000 5 Chi-X Europe Ltd 8,573,927 57,158,483,917 6 SWX Europe 2,693,138 49,360,500,000 7 Borsa Italiana 4,349,417 42,657,700,000 8 Nasdaq OMX Nordic Exchange 4,171,811 40,429,900,000 9 Turquoise 2,435,028 19,665,636,989 10 Oslo Bors 1,201,920 11,111,000,000 11 Athens Stock Exchange 781,705 3,273,200,000 12 SIX Swiss Exchange 440,571 3,155,500,000 13 Warsaw Stock Exchange 835,287 2,788,200,000 14 Wiener Borse 378,606 2,447,000,000 15 Prague Stock Exchange 85,176 1,550,200,000 Figures sourced from FESE, Chi-X Europe figures inserted for comparison

Fragmentation Illustrated * Source: Chi-X Europe **Source: Fidessa Fragmentation Index Market Share by Venue** % Market Share**

Smart Order Routing A range of algorithmic strategies can be deployed with a high level of configurability on a per participant basis A Smart Order Router allows direct gateway connections to multiple destinations Enables participants to execute against all eligible quotes on the exchange/ MTF when the price is equal or better than the consolidated best bid and offer Marketable orders can be sent to all eligible destinations Non-marketable orders can be posted to the participant’s chosen destination Client Order Broker Smart Router FIX Gateway Broker Network Broker Network Smart Order Routing Other MTFs/ Exchanges

Chi-X Europe Consideration October 2008-January 2009 Smart Order Routing… Chi-X Europe Consideration October 2008-January 2009

Participant A Consideration October 2008-January 2009 As it should be Participant A Consideration October 2008-January 2009

Trading Participant B Consideration October-December 2008 Clearly not working! Trading Participant B Consideration October-December 2008

Smarter: Chi-X’s Response to the F word On 8th September 2008 the LSE SETS system had an outage. Trading continued on venues such as Chi-X. However most smart routers and automated market making machines were referencing the primary market resulting in reduced trading Most banks/ brokers/ liquidity providers have said that they are now changing this to reference a consolidated EBBO/ tape If a primary market goes down some time in the future it is highly likely that trading will continue across the alternative venues that trade those stocks The LSE outage, coupled with the entrance of MTFs to the market, provides a strong reason for the creation of a consolidated tape. This would prevent a repeat of the problem of traders having no reference prices Chi-X is currently collaborating with other new trading venues with the aim of developing an EBBO and consolidated tape, planned to launch in 2009 Chi-X is also working with NASDAQ OMX Europe and BATS on a common symbology Tape A – Primary Tape B – Primary + MTFs Tape C – MTFs

The importance of technology: Is it an arms race? MTFs and Exchanges are seen to battle for the coveted status of ‘fastest’ However there is no point having lots of arms in the armoury if they do not function effectively More can be less in some cases as diminishing returns set in

Constant Innovation: Sponsored Access Sponsored Access will allow the clients of Chi-X Trading Participants to have a direct technical connection to Chi-X This will minimise latency, which is essential for the growth in algorithmic trading and, as a result, trading volumes A real time drop copy feed will be provided by Chi-X to the Sponsoring Trading Participant relating to all activity by Sponsored Clients. Other validation checks and controls will also be in place

The Future: Consolidation In the US a consolidated tape was established when NYSE accounted for less than 80% of the flow The Consolidated Tape System, introduced in the US in 1976, consolidates data from several market centres including NYSE, NASDAQ and AMEX, among others, before distributing the ticker via Multicast FTSE 100 MTF Market Share 7 November 2008 FTSE 100 Overall Market Share 7 November 2008

The Players on the Landscape

What does the future hold? More trading venues are expected to launch in the coming months. MTF fatigue? Fragmentation of liquidity will increase however this will be followed by a period of consolidation in the market Algorithms will continue to become more sophisticated and as part of that Smart Order Routing will continue to evolve However there is still a lot to do and we, as an industry, can work together Following the launch of Chi-X in March 2007, up to 25% of the UK volume and 15% in other major markets is now being traded away from the Primary market, yet this volume is not being taken into account as part of benchmarks and index calculations What does VWAP now really mean? If the primary market is down and trading continues on other MTFs, how will indices update? Cooperation between venues on harmonised symbology, trading hours and ticks sizes will create standards so that each venue can compete on its own merits

“It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” Charles Darwin, 1859 35 35

Questions? Thank You 36

©2009 Chi-X Europe Ltd (“Chi-X”). All rights reserved ©2009 Chi-X Europe Ltd (“Chi-X”). All rights reserved. Chi-X is a registered mark. Chi-X Europe Limited is authorised and regulated by the Financial Services Authority. This information is provided for informational purposes only. It does not take into account the particular investment objectives, financial situation, or needs of any individual or entity. Under no circumstances is it to be used or considered as an offer to purchase or sell any security, or as a solicitation or recommendation of the purchase, sale, or offer to purchase or sell any security. While the information has been obtained from sources deemed reliable, neither Chi-X nor its licensors, nor any other party through whom the user obtains any such information: (i) makes any guarantees that it is accurate, complete, timely, or contains correct sequencing of information; (ii) makes any warranties with regard to the results obtained from its use; or (iii) shall have any liability for any claims, losses, or damages arising from or occasioned by any inaccuracy, error, delay, or omission, or from the use of the information or actions taken in reliance on the information. Reproduction or redistribution of this information is prohibited except with written permission from Chi-X. System response times may vary for a number of reasons including market conditions, trading volumes and system performance.