1 DTCC Executive Forum Managing Market-wide Risk at Warp Speed Low Latency in a Fragmented World Rob Hegarty Managing Director, Market Structure DTCC November 23, 2009

2 Market Structure Isn’t Just for Trading Anymore! Trading business models: Exchange Auction Crossing Order-book Open outcry Over-the-counter Electronic Voice Clearance & Settlement business models: Centrally Bi-laterally Multi-laterally Uncleared Physical Settlement Book entry Source: DTCC

33 A comparison of Equity Market Structures in the US and Europe draws a deep contrast between models United States Trading Clearing Settlement Single CCP Clearing cost per side $ € $ € Exchange rate € 0.67 to $ as of November 17, 2009 Europe WBS ENX NOX DBS ISE BSI OBS SIX LSECHX TQS NOEBTS SMPNAE NEM CPACLNLCHERXCCGXCLECPFEF AT BEFRNLPT SEDKFI DEGB IT NO CH SXBSXE IE 60 DTCC (NSCC) Single CSD DTCC (DTC) Source: DTCC

4 In US equities, technology-based trading has completely redefined the landscape… NYX NDAQ TRF (ex BATS, DE) Direct Edge BATS EDGX Source: BATS Exchange, Inc. Market Share, US Equities

5 …with off-exchange venues (i.e. dark pools) steadily gaining market share in the last 2 years Source: Rosenblatt Securities Percent of Consolidated Volume VIX Average Close

6 …leading to the emergence of some big players in the equity execution business – that aren’t exchanges Source: Rosenblatt Securities, August 2009 Breakdown of Dark Pool volume (8.6% of total volume)

7 With the same effect spilling over to Europe Source: Federation of European Securities Exchanges

8 When the geeks make the cover of Forbes, you know their time has come High Frequency Trading has garnered headlines…and the attention of the SEC and FSA The debate rages: Are they providers of liquidity or bandits Not to be confused with “flash trading”, co-location, dark pools, ….

9 Competing forces within the global financial markets help shape the future of market structure

10 Post-trade or at-trade risk management for high frequency trading: Why? More feasible for cross-market monitoring Low-latency platforms make “at-trade” or “simul-trade” risk management more of a reality…and a necessity Cancellation rates of 99.99% – Imagine doing pre-trade on all those orders that never get executed Protect the HFT business from systemic failure

11 DTCC Executive Forum Managing Market-wide Risk at Warp Speed Low Latency in a Fragmented World Rob Hegarty Managing Director, Market Structure DTCC November 23, 2009