Information Post MiFID – How far are we? Niki Beattie Managing Director, The Market Structure Practice BØRSMÆGLERFORENINGEN

AGENDA 1.Start at the beginning – how did we get here? 2.The impact of MiFID on pre and post trade information 3.The cost of market fragmentation 4.What do we mean by a consolidated tape? 5.Do we need one or can we manage without? 6.What are the barriers to consolidating data without regulation? 7.Is regulation likely and if not what happens? 8.The impact of further data consolidation on the market

Start at the beginning Pre MiFID Trading on domestic Exchange mandatory in some European countries and domestic Exchange owned and transmitted 100% of the data set Off Exchange Trading allowed in some countries but differing rules e.g. UK – mandatory reporting to the Exchange Exchange owned 100% of the on and off exchange data set and sold it to consumers e.g. Germany – no mandatory reporting of trades Approximately 50% of trades by value went unreported to the market Post MiFID On Exchange trading monopoly broken by introduction of competition Off Exchange trading allowed by must be reported to a venue of choice – new reporting venues such as BOAT and Reuters Best Execution Policy established with very broad parameters

Incumbent market share is declining Market share transfers to new Venues Incumbent Exchanges not yet competing Fragmentation Is regional The impact of MIFID: Electronic Order Books TRADING VENUE MARKET SHARE BY INDEX SEPTEMBER 2009 FTSE 100CAC40DAX 30SMI 20IBEX 35MIB 40AEX 25OMXS 30OMXH 25OBX 25OMXC 20 LSE Group 65.11% 91.75% Euronext 74.46% 74.71% Chi-x 19.60%15.28%15.99%11.00%0.47%5.05%15.91%12.77%11.48%3.19%8.84% Deutsche Borse 76.11% Bolsa de Madrid 99.60% NASDAQ OMX 82.41%82.93%2.10%89.52% SIX Swiss Exchange 81.27% Turquoise 6.66%4.97%4.08%5.74%0.03%0.83%4.56%3.49%4.31%0.47%1.11% BATS Europe 7.21%4.22%3.32%1.24% 2.30%4.15%0.77% 0.15%0.28% Oslo Børs 94.06% NASDAQ OMX MTF 1.42%1.07%0.49%0.74%0.00%0.06%0.66%0.45%0.50%0.04%0.18% NYSE Arca 0.01% 0.00%0.01%0.11% 0.01%0.00%0.06% Source: BATS Trading Europe,

Market Share of all venues including OTC – Sept 2009 New venues take a large share of OTC business Off Exchange business not increasing The impact of MiFID: On and Off Exchange Source: Reuters Sept 2009 Markit BOAT LSE Group Euronext Euronext OTC Chi-x Deutsche Borse Spanish Exchanges NASDAQ OMX Nordic SIX Europe 3.23% 20.18% 19.44% 11.46%9.42% 8.01% 6.62% 4.77% 4.08% Turquoise 2.07% BATS Europe 1.74%

MiFID lowered explicit trading costs but did not address implicit costs There is more information than ever before Information costs money Incumbent Exchanges have not changed data pricing since MiFID, despite losing market share Some Exchanges trying to put up data prices to compensate for loss of revenue in trading Most MTF’s don’t charge for data but ultimately have a strong incentive to monetise it if they can New Venues (e.g. Markit Boat) introduced charges for OTC data The cost of fragmentation

The precedent for a consolidated Tape The US has a consolidated Tape - in fact 3 consolidated tapes : A, B, C Clear best execution rules and a trade through rule exist Consolidated Tape association established in 1970’s (pre demutualization) to disseminate real time trade and quote information world wide Exchanges act as Administrators Tape A for NYSE listed stocks – Administrator NYSE Tape B for AMEX listed Stocks – Administrator AMEX Tape C for NASDAQ listed stocks – Administrator NASDAQ CHICAGO BOSTON NASDAQ NYSE BATS Amex Tape A NYSE Listed Stocks = $X,XXXX,XXXX Onward distribution globally Contribution made by each platform Redistribution of profits Calculates the NBBO

8 Source: Equiduct Consolidated data for BP on 17 Nov :51:52 Do we need a Consolidated Tape?

PRE TRADE Does everyone know or need to know what’s changed? Large sell sides have created their own consolidated tape in order to assess smart order routing options and achieve optimal execution Buy Side rely on brokers to achieve smart order routing and best ex Broad definition of best execution allows some brokers to continue to execute only on the primary market Market led solutions exist (Reuters, Bloomberg, Equiduct) but you have to pay for the underlying data feeds Currently only paying for the primary incumbent exchange fees Bespoking possible. No standard view – are you looking at the same as me? Do we need a Consolidated Tape?

POST TRADE Market lead solutions exist (Reuters, Bloomberg, Markit Boat, Equiduct) but you have to pay for the underlying data feeds in real time Off Exchange data more fragmented and the value and accuracy of the data is uncertain Does everything get captured? Poorer quality of data and possible double counting Effect of fragmentation has been regional - Most complaints coming from the UK where the biggest change has been felt Hard to support trading decisions What benchmark do you use for TCA? Do we need a Consolidated Tape?

COST Exchanges no incentive to reduce cost New providers need to charge but how valuable is their data? Overall costs increase BUNDLING Exchanges bundle their data offering Data vendors bundle their services LACK OF STANDARDS AND POLICING No one monitoring data across different countries No clear standards and calculations devalues the data CLEARING AND SETTLEMENT & MULTI CURRENCY Lack of a single clearing house complicates the price/cost Stocks may trade in more than one currency Key barriers to consolidation without regulation Exchange CSD CCP

Regulators remain silent; may be protecting national interests Fragmentation still seen to be a regional issue Not in the interest of the incumbent exchanges It’s an issue of economics – can financial regulation solve that problem? Closely related to best execution Without regulation you need: Strong supplier management Clear messages to regulators A convergence of accepted standards Are we likely to get regulation?

Impact of improved data consolidation Better visibility, transparency and execution for all Increased cost of capital commitment Continued loss of market share for the incumbent exchanges (NYSE dropped below 30%) Indices forced to change their calculations Ability to better define best execution Improved adoption of smart order routing Cost of data aggregation should go down

Conclusion Significant fragmentation of the market has occurred but the effects have been regionalised The cost of obtaining a consolidated view of the market is greater than it was pre MiFID and the value less certain The US has one tape with clear standards. Europe has several commercial alternatives with no clear standards Post trade data is causing the most problems Cost is a huge barrier to further consolidation Lack of standards and monitoring is a significant issue Regulation similar to the US is unlikely in the near term Many market providers will be losers when data consolidation increases but the end user should be a beneficiary