Liquidity Panel CADC – August 18, 2005 Joseph P. Perry Managing Member RedSky Financial, LLC Speed Trading Partners, LLC “The Relationship Between a Broker/Dealer and Proprietary Trading Groups”

Proprietary trading group founded in 2000 Initially traded equities and equity options but quickly moved into futures Employed black box type strategies including arbitrage and hedging Wrote to a system’s API for programmed order routing and then used that system’s front-end for order management Speed Trading Partners

Minimizing market data and order routing latencies Minimizing costs Accessing multiple asset classes Directly accessing exchange matching engines Challenges for Speed Trading Partners

Created Broker/Dealer and FCM in 2001 –Achieved cost savings Lowered clearing fees Lowered execution fees –Joined exchanges thereby gaining direct market access Improved system’s performance RedSky Financial

Built own technology –Additional streams of revenue Flexible clearing solutions –Currently interface with the clearing systems of 6 global clearers and 4 domestic-oriented clearing firms RedSky Financial

Proprietary trading platform - R3 –Provides direct market access to multiple asset classes –Offers a FIX API and a proprietary API –Supports special order types such as VWAP, reserve (hidden quantity) and pegging –Seamlessly integrates with leading third-party software vendors RedSky Technology

Stocks –ARCA –AMEX –INET –NYSE –NYFIX –BRUT –NASDAQ –BTRD –TRAC FX –espeed –HOTSPOT –EBS** Futures –GLOBEX –ECBOT –XEUS –ONE –CFE –EUREX –LIFFE –MX –IPE** Options –BOX –ISE –CBOE –AMEX –PHLX –PSE Bonds –espeed –BTEC RedSky Market Access Access to 24 exchanges/ECNs

Hedge Funds Institutions Proprietary Trading Groups (liquidity providers) Professional Traders Family Offices RedSky Clients

Facilitate clients’ trading –Continuously improve software –Establish additional clearing relationships –Join additional exchanges Compliance Risk Management Role of RedSky

Establishing a clear distinction between B/D and proprietary trading group (client) –No selling or internalization of order flow –Orders sent directly to exchanges/ECNs Technology –Maintaining existing infrastructure –Creating new infrastructure Pricing (costs) –Negotiating rates Challenges for RedSky

Identifying new trading opportunities Creating profitable trading strategies and algorithms Driving direction of technology development for the broker/dealer Role of Proprietary Trading Groups

Risk Management Costs –Commissions Technology Challenges for Proprietary Trading Groups

The successes of both a broker/dealer that provides technology and a proprietary trading group are very much tied to each other. Conclusion