European Bond Commission Fixed Income Markets & Electronic Trading Michael Ezra 8 October 1999, Paris APPENDIX E

Instinet - Equities world’s largest agency broker active in over 40 markets world-wide 30 years of financial services industry experience market leader in electronic transaction services wholly owned by Reuters over 300,000 equity market transactions per day

Instinet - Business Model Core Principals Anonymity Anonymity Transparency Transparency Neutrality Neutrality These same principals lend themselves to the bond markets

Dealer Access IFIM System IFIM Business Client D Client C Client B Client A Client EClient F Client G Client H Local Markets Local Markets Local Markets

Trading Functionality (Main View) “Market Level View” Of Top of Book (Best) Prices Per Instrument On the Instinet Fixed Income Service “Market Level View” Top of book (best) prices per instrument Price / time priority Lists are customisable by the user View of the Benchmark Instruments Relevant to the Market Levels Selected View of the benchmark instruments relevant to the market levels selected Client Can Customize of Instruments and Easily Switch Between Them Client can customise individual “pages” for classes of instruments and easily switch between them “Order Book” Depth of Book Shows All Live Orders for a Given Instrument Within the Instinet Fixed Income Service This is the Work Area for Managing Orders Client Can Have Multiple Copies With Different Instruments Up At One Time The System Supports Existing Pricing Conventions - e.g. “.xx” Denotes Decimal ” “Order Book” Depth of book Shows All Live Orders for a Given Instrument Within the Instinet Fixed Income Service This is the Work Area for Managing Orders Client Can Have Multiple Copies With Different Instruments Up At One Time “Info” provides information relevant to order e.g.: “R” indicates “Revenue Book” “N” indicates negotiable order

Trading Functionality (Order Book) Live orders in the system The Application Can Calculate an Average Price on a Series of Orders So That Clients Can “Sweep the Book” The Application Can Calculate an Average Price on a Series of Orders So That Clients Can “Sweep the Book” “Reserve” Orders Can Be Entered With Part or All of the Order “Shown” But Still Can Be Executed Against In Its Entirety In the Example Book to the Left, a Client Has Entered a “N” Non- Negotiable Order with a “R” Reserve Quantity that is Not Shown in the Book (i.e. the Order Size is Bigger than 10 Million Par Amount) “Reserve” Orders Can Be Entered Order “Shown” But Still Can Be Executed Against In Its Entirety In the Example Book to the Left, a Client Has Entered a “N” Non- Negotiable Order with a “R” Reserve Quantity that is Not Shown in the Book (i.e. the Order Size is Bigger than 10 Million Par Amount)

fully electronic broker platform complete anonymity one counterparty broker desk actively incentivises liquidity aggressive “hit and take”; no quote obligations global access best of breed technology Instinet Fixed Income Markets A new brokerage model - Instinet

What are the issues now? Ownership: consortium (utility) vs for-profit vendor supported solutions Name give-up or matched principal Quality of technology: Global or local access, how will the service be delivered Quotation obligations or natural liquidity Cost of market access Breakdown of barriers or two tier models Market makers only or wider participation

Liquidity takers…participation or not? Issues relating to “buy-side” participation debate over the value of an investor franchise intensifies amongst the banks costs of supporting the franchise escalate banks restructure their service offerings - margin chasing fragmentation of market place size and frequency of trades a two tiered market effect on specialist services research; broker expertise

Market Evolution Ownership - User-owned  Vendor-supported systems - Name give-up  Matched principal - Shareholders  Execution control / “Board” - Many counterparties  One counterparty / netting - Domestic  Global - Stand alone  Integrated; Through processing Anonymity Control Balance sheet, Risk Capital Access In-house development - Professional sell-side  Wider participation in future?Participation