Integrated Financial Markets

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Integrated Financial Markets

• The Drive Towards Increased Efficiency Liquidity

Emma Shand Vice President, South East Asia
Hanoi, Vietnam 30 August 2006
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Presentation Agenda

• Introduction to OMX
• Emerging markets and the quest for efficiency
  across the securities transaction chain
• Electronic trading patterns trends
• Integrated Markets global trends and technology
  as an enabler
• An Asian ASEAN Perspective

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Introduction to OMX

• A Leading Expert in the Exchange Industry

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• OMX owns and operates Northern Europes largest
  securities market and is the world-leading
  provider of technology solutions and services for
  financial markets.

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Stockholm
Oslo
Helsinki
Iceland
Tallinn
Riga
Copenhagen
Vilnius

• OMX
• Listed in Stockholm, Helsinki, Copenhagen
• Market value EUR 743 billion
• Turnover/business day EUR 2,99 billion
• 680 listed companies
• 148 trading members

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Experts in the Exchange Industry Settlement
and depository

• Owns and operates national CSDs
• Estonia
• Latvia
• Lithuania (40)
• NCSD (Finland and Sweden) (20)
• Commitment and Solutions to meet needs of CSDs
  worldwide
• Range of services to ensure business continuity
  and competitiveness
• IT operations
• IT consulting
• Advisory services

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OMX has expertise across the entire transaction
chain
and a track record in efficiency
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Market presence More than 60 customers

• Americas
• AMEX - American Stock Exchange
• Bahamas InternationalSecurities Exchange
• Barbados Stock Exchange
• Bermuda Stock Exchange
• Boston Stock Exchange
• Canadian Trading Quotation System
• ICAP
• ISE - International Securities Exchange
• Jamaica Stock Exchange
• NASD - National Associationof Securities Dealers
• Trinidad Tobago Stock Exchange
• Middle East Africa
• Abu Dhabi Securities Market
• Bahrain Stock Exchange
• Bourse Regionale des Valeurs Mobilieres
• Cairo Alexandria Stock Exchange
• Doha Securities Market

• Europe
• Athens Exchange
• Borsa Italiana
• Bucharest Stock Exchange
• Budapest Stock Exchange
• Copenhagen Stock Exchange (OMX)
• Cyprus Stock Exchange
• EDX London
• Helsinki Stock Exchange (OMX)
• ICAP
• Iceland Stock Exchange
• Icelandic Securities Depository
• Istanbul Stock Exchange
• Malta Stock Exchange
• MICEX
• Nord Pool / Nord Pool Clearing
• NOS
• NYMEX Europe
• OMIP Iberian Power Exchange

• Asia
• Hong Kong Exchanges and Clearing
• Jakarta Stock Exchange
• Korea Exchange
• Philippine Dealing Exchange Corp
• Port Moresby Stock Exchange
• Singapore Exchange
• Shanghai Stock Exchange
• Surabaya Stock Exchange
• Thailand Futures Exchange
• Australasia
• Australian Stock Exchange
• Bendigo Stock Exchange
• Newcastle Stock Exchange
• New Zealand Exchange Limited
• SFE Corporation

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OMX business model creates a unique advantage
Globalcustomerbase
Efficient SecuritiesTransactions
Home market operations
Technologydevelopment and operations
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Emerging Markets the Quest for Efficiency
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From the helicopter view, the goal is efficient
capital supply
Infrastructure
Exchange
CSD
Clearing House
Central Bank
Supervisory Authority
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Well functioning securities markets jobs,
growth and prosperity
Liquidity is key
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An efficient securities transaction chainis
essential for competitive markets and for
economic growth
Clearing CSD
Front office
Exchange
Back office
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The transaction chain will always be subject to
increased efficiency demands
Clearing CSD
Exchange
Back office
2025
3035
5045
100
100
100
7580
Costs
6570
5055
Future
Today
Future
Today
Future
Today
Share of total cost base
12-15
70-75
9-12
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Securities value chain analysis
Brokerage
Exchange
Clearing-house
Settlement delivery
Depository
Investor
Central Securities Depository
Clearing settlement
Member access
Trading

• Efficient trading applications for order entry as
  well as market making
• Access through open API
• Modern connectivity solutions, ensuring
  cost-efficient and reliable access

• Highly scalable and reliable trading system
• Flexible trading model, catering for multi-asset
  classes
• Transparent market data handling, facilitating
  sales of market data
• Efficient market supervision tools

• Cost-efficient and flexible clearing and
  settlement catering for participants choice of
  settlement provider
• Highly scalable and reliable clearing/ settlement
  system
• Risk Management through CCP structure
• Handling of all instruments

• Streamline domestic cross-border clearing and
  settlement by providing participants and
  settlement providers with one standard for
  clearing and settlement when trading

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Improved efficiency increased liquidity
End user costs Indexed
60
50
40
30
20
10
0
25
50
75
100
125
150
Turnover velocity Percent
Source FIBV, Elkins McSherry, McKinsey
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Electronic Trading
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Securities market characteristic trends

• Characteristics
• Almost 40 manually enter data at least twice for
  the same transaction
• 49 use electronic links to communicate trades
  between internal and external counterparts
• Multiple systems
• Trends
• Automation
• Increased competition
• Globalization of markets
• New Trading models
• Falling commissions

Market Participant
Trading
Order Mgmt
Back Office
SIA/Gartner July 2003 Tabb Group 2004
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Change in Order Flow Patterns
Source TABB Group Institutional Equity Trading
2005
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Key Integrated Trading Components

• Order Management/Trade Order Management Systems
• FIX Connectivity
• Compliance
• Pre-Trade Analytics/Risk Management
• Data Acquisition Decision Support
• Execution Management Systems, potentially DMA
• Connectivity to Trading Partners Destinations
• Allocation Settlement

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Exchanges opportunity to facilitate broker
trading efficiency

• Shorter time to market with an application for
  new products, functionality and features
• Easier, faster, lower cost access to market
  increasing transaction flow
• Secure high performance flow of market
  information to clients
• Lower TCO for market participants lowering the
  bar for profitable trades
• Foundation for integrating players and markets
• Foundation for local brokers to add more
  sophisticated routing, order management, program
  trading for themselves and their clients

Attractsliquidity
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Securities Market Trends
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The trend is globalization
Foreign securities
Local securities
Local investors
Foreign investors
Today
Tomorrow
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Being able to respond to change is a strategic key
Globalization/Integration
Margin pressure

• Alliances, links
• Round the clock trading
• Harmonization/Standardization

• Tight spreads pressure members
• Automation
• Outsourcing

Competition
Technology

• Cross-listings
• Cross-border
• Internalization

• Electronic trading increasing
• Market data links under pressure
• Key to competitiveness

Consolidation
Regulation

• Cross-border

• Regulatory pace of change
• Eastern Europe and Asia opening up
• DR requirements

• The pace of change in the financial industry is
  high and increasing
• Being able to respond to change is a strategic
  cornerstone

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Global trading puts new demands on harmonization

• System scalability and interoperability
• Tailor-made systems make adaptations costly
  time consuming
• New and more complex demands
• Automation and STP
• Standardization of business processes
• New message standards
• New technology standards
• Time to market
• New securities
• New functionality

Its expensive and difficult to keep up with
demands
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What is common for all markets Emerging
developed?

• Technology is key enabler
• Technology blueprint for future growth
• Lower the barrier for entrance
• Create a trading environment recognized by global
  players
• Technology contributes to revenue
• Channels for participant service e.g. data
  distribution
• Supports business development activity

Technology is of strategic importance
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OMX Offerings covering the entire transaction
chain
Exchanges andmarketplaces
Clearing organizationsand CSDs
Marketparticipants
CLICK XT Trading system for securities SAXESS
Trading system for securities X-Stream Trading
system TARGIN Information dissemination
system Horizon Trading system CONDICO Trading
system for energy markets
SECUR System for clearing Securities EXIGO
CSD System for settlement and central
depository of securities Equator Depository
system
CLICK TRADE XT Trading Application SAXESS
TRADE Trading application OMX Link Web
Front-End Orc Software Multi-asset Advanced
Trading Applications FIX Solutions
OMX Products
OMX Outsourcing Operation and support

• Software support maintenance
• Technical operations
• Advisory

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OMX Advisory Services Work throughout the
securities value chain, a few CSD project
examples

• CSD study for Latin-American market OMX created
  a vision for the central systems of the whole
  financial market in the country in Americas.
  Including 20 interviews with the American CSDs
  main stakeholders. Some specific deliverables
  were
• Business strategy, operational and organizational
  recommendations
• Increased service offering for the CSD
• Financial implications and recommendations

• IT Feasibility study for Asian CSD Defining the
  future business requirements of the CSD and
  mapping those against potential systems provider.
  Some deliverables
• Detailed functional and technical requirement
  definition
• Functional Service Offering mapped and
  benchmarked
• Future IT system vision

• CSD Review for Middle East market Including
  analysis of current situation and challenges,
  definition of target model, transformation plan
  and roadmap. Some of the concrete actions that
  the project recommendations resulted in were
• A new decentralized business model
• Increased STP (straight through processing) in
  the transaction chain
• Implementation of international standards for
  securities numbering and transactions

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The Asia Market Perspective

• Several trends suggest the potential for
  considerable growth in integrated trading in Asia

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Asian Growth Drivers

• Sustained equity market trade volumes
• Derivatives trading surge
• Retail participation (some cases retail cash
  trading 70 market share, natural flow through
  to derivatives given high degree of speculation)
• Increased institutional hedge fund capital
  flows into Asia
• Greater degree of market making activity
• Regional cross-boarder trading activity set to
  rise
• Challenges to electronic execution growth versus
  US Europe
• Market structure either in development or wide
  jurisdictional differences exist
• Lack of a common currency
• No region-wide benchmark interest rate as credit
  risk standard

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Asian Market TrendsAvoiding marginalization/attr
acting liquidity

• Asian electronic advanced trading - behind US
  Europe, but growing fast!
• More Exchange competition linkages
• Increased DMA support
• from Exchanges (e.g. Taiwan SE to offer DMA
  end-06)
• 15 of total trading volume via DMA, those with
  system capabilities (Greenwich, Feb 2006)
• FIX uptake continues expansion of product
  coverage via FIX
• Future efficiency initiatives
• Potential for SEA Shared Services Platform
  relating to Exchanges technology
• Steps towards Integration ASEAN harmonization of
  standards and a regional clearing depository
  utility?

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Thank you