1. The State of STP Scott Atwell American Century Investments Co-chair FIX Global Technical Committee February 5, 2004

2. Scott Atwell - American Century® Investments2 Financial Technology Forum – The State of STP – Los Angeles - February 5, 2004 Agenda Institutional trading communication categories Buyside case study: American Century Investments Discussion starters - What is STP? Summary

3. Scott Atwell - American Century® Investments3 Financial Technology Forum – The State of STP – Los Angeles - February 5, 2004 American Century Investments Investment Manager Manages over $85 billion in assets Headquarters in Kansas City, Missouri Formerly named Twentieth Century and The Benham Group Live with FIX since April 1996

4. Scott Atwell - American Century® Investments4 Financial Technology Forum – The State of STP – Los Angeles - February 5, 2004 Speaker’s Background Co-chair of FIX Global Technical Committee since 1997 Member of FIX Global Steering Committee Member of FIX Americas Steering Committee since 1995 GSTPA technical subcommittee member in 2000 Member of FIX working group for ISO 15022 XML WG 10 in 2001/2002 Member of SIA T+1 Standards Working Committee in 2001/2002 Developed American Century’s FIX engine and interface to Order Mgmt System Responsible for American Century’s Order Mgmt System

5. Institutional trading communication categories Who? What? When? How? Why?

6. Scott Atwell - American Century® Investments6 Financial Technology Forum – The State of STP – Los Angeles - February 5, 2004 Who? Investment Manager Broker/Dealer Custodian Depository Local Custodian

7. Scott Atwell - American Century® Investments7 Financial Technology Forum – The State of STP – Los Angeles - February 5, 2004 What? Broker Research: Research Reports Pre-Trade: IOIs, Advertisements, Quotes, News Trade: Orders, Confirmations, Fills Post-Trade: Allocations, Settlement Inst Clearing/Settlement: Backoffices to custodians

8. Scott Atwell - American Century® Investments8 Financial Technology Forum – The State of STP – Los Angeles - February 5, 2004 When? Broker Research: Research Reports –as written/available Pre-Trade: IOIs, Advertisements, Quotes, News –real-time Trade: Orders, Confirmations, Fills –real-time Post-Trade: Allocations, Settlement Inst –end of trading day Clearing/Settlement: Backoffices to custodians –end of day (typically batch driven)

9. Scott Atwell - American Century® Investments9 Financial Technology Forum – The State of STP – Los Angeles - February 5, 2004 How? Broker Research: Research Reports –paper, web-sites, vendor systems, RIXML Pre-Trade: IOIs, Advertisements, Quotes, News –phone calls, FIX, vendor systems, fax Trade: Orders, Confirmations, Fills –phone calls, FIX, vendor systems Post-Trade: Allocations, Settlement Inst –vendor systems, fax, FIX Clearing/Settlement: Backoffices to custodians –vendor systems, fax, ISO 15022 (ISITC/SWIFT)

10. Scott Atwell - American Century® Investments10 Financial Technology Forum – The State of STP – Los Angeles - February 5, 2004 Why? Standard data formats –Allow systems to scale and process data from many counterparties without incremental effort Standard real-time session-level transport –Allow systems to scale and communicate with many counterparties without incremental effort Combination –Enables automated processing into/out of OMS and settlement systems--focus on exceptions –Commodization, vendor solutions available

11. Buyside case study American Century Investments

12. Scott Atwell - American Century® Investments12 Financial Technology Forum – The State of STP – Los Angeles - February 5, 2004 American Century’s STP Today Order Management System Portfolio Accounting System PMs Traders Accountan ts Broker/Dealer Custodian FIX ISITC

13. Scott Atwell - American Century® Investments13 Financial Technology Forum – The State of STP – Los Angeles - February 5, 2004 American Century’s STP Today Use broker web sites and vendor systems to access broker research –Member of the RIXML initiative Use FIX for all pre-trade, trade, and post-trade communication with brokers in real-time Use ISITC for batch-driven communication with custodians 2Q 2004 - Establishing SWIFT connectivity via “branch code” of a custodian acting as a “SWIFT gateway” –Continue to send/receive “older” ISO 7775 messages which are reformatted by service provider to ISO 15022 (SWIFT Network)-compatible –Msgs to/from that custodian are handled w/o using SWIFT network –Msgs to/from other custodians are sent via SWIFT network –Deal with approximately 10 custodians

14. Scott Atwell - American Century® Investments14 Financial Technology Forum – The State of STP – Los Angeles - February 5, 2004 AC’s FIX Activity: Jan 1, 2003 - Dec 31, 2003 Processed 8.5 million IOIs –peak day over 45,000 Processed 4.7 million Execution Reports –peak day over 35,000 –99.9% of total U.S. and int’l equity trading –99.9% of all U.S., 99.7% of all int’l trading Sent FIX Orders for 97% of all orders (98% U.S., 91% int’l) –peak day over 1100

15. Scott Atwell - American Century® Investments15 Financial Technology Forum – The State of STP – Los Angeles - February 5, 2004 AC’s FIX Allocations: Jan 1, 2003 - Dec 31, 2003 Sent 98,500 FIX Block Allocation messages –88% of US and ADRs, 33% of int’l Represented 258,000 account allocations (within block) via FIX –80% of US and ADRs, 27% of int’l Virtually all major brokerage relationships accept US and ADR FIX Allocations from ACIM

16. Scott Atwell - American Century® Investments16 Financial Technology Forum – The State of STP – Los Angeles - February 5, 2004 AC’s “STeP” Rates  “STeP” – settlement messages sent electronically and processed without human intervention For U.S. – flows through the bank’s system and to DTC For non-U.S. – flows all the way to local agent bank  U.S. Equities 98-99% STeP rate for U.S. 97-99% DTC equity affirmation rate (industry avg is 88-89%)  Non-U.S. Equities Around 80% global STeP rate –Currently lower due to special inst/handling with 7 markets which is being addressed – excluding these then rate would be in low 90’s

17. Scott Atwell - American Century® Investments17 Financial Technology Forum – The State of STP – Los Angeles - February 5, 2004 Buyside case study: Benefits of Automation  American Century has realized significant benefits from FIX Productivity –Handle more trades with fewer personnel –Process and prioritize information –Manage global “book” around the globe Error and Risk Reduction –Reduce errors overall and detect them earlier –Reduce settlement cycle and likelihood of errors –Global equity trading desk had NO reimbursable errors in 2003

18. What is STP? Discussion Starters

19. Scott Atwell - American Century® Investments19 Financial Technology Forum – The State of STP – Los Angeles - February 5, 2004 From: SIA STP Buy-Side Committee White Paper (Dec 2003 – Final Version)  Current SIA definition of STP: “The STP scope for the industry is from Notice of Execution (NOE) through to settlement for institutional trading. For retail and corporate actions, the STP scope is broader. For individual firms, STP is also defined more broadly, and encompasses the streamlining of the operational infrastructure—front-, middle-, and back-office—of all industry participants (broker/dealers, investment managers, custodians, and clearance/settlement utilities).”  Underlying the formal definition is the concept of centralized matching “The SIA recommends centralized matching as an important component and end goal for the STP program.” Derived from source: http://www.sia.com/stp/pdf/SIA_STP_Buy-Side_White_Paper__Final_.pdf

20. Scott Atwell - American Century® Investments20 Financial Technology Forum – The State of STP – Los Angeles - February 5, 2004 From: SIA STP Buy-Side Committee White Paper (Dec 2003 – Final Version)  Executive Summary Most IMs have an understanding of “STP” that is more broad (in terms of scope and inclusive (in terms of methods) than the SIA’s STP program definitions In short, IMs roughly equate “STP” with “automation” without the underlying assumption that central matching need be involved STP (using the broader IM definition) is uniformly a high priority in buy-side firms of all types and sizes Derived from source: http://www.sia.com/stp/pdf/SIA_STP_Buy-Side_White_Paper__Final_.pdf

21. Scott Atwell - American Century® Investments21 Financial Technology Forum – The State of STP – Los Angeles - February 5, 2004 From: SIA STP Buy-Side Committee White Paper (Dec 2003 – Final Version)  IMs can be broadly separated into three groups Those in favor of STP (including centralized matching) –Have been convinced of value to their operations Those unsure or skeptical of STP –See value to industry overall but not necessarily themselves Those against STP (with centralized matching) –Generally includes firms with an installed set of solutions for transaction automation (not using centralized matching), and sees the reengineering of this to include centralized matching as an unnecessary burden, achieving no better than marginal improvement in automation rates  The second and third groups need to see an improved ROI before they will move ahead Reduced costs – more solutions with lower implementation/maint costs Increased benefits – include additional markets and security classes Derived from source: http://www.sia.com/stp/pdf/SIA_STP_Buy-Side_White_Paper__Final_.pdf

22. Scott Atwell - American Century® Investments22 Financial Technology Forum – The State of STP – Los Angeles - February 5, 2004 What is STP?  My definition: Reducing risk and improving efficiency in the trading and settlement process  Two perspectives: Involves both intra-firm and inter-firm perspectives. –Intra-firm: improving the linkages between disparate internal systems and functions (i.e. front office and middle office) –Firms have to “get their own house in order” –Inter-firm: improving the linkages between the firm and its counterparties –Connectivity: communication and message formats/protocols

23. Scott Atwell - American Century® Investments23 Financial Technology Forum – The State of STP – Los Angeles - February 5, 2004 What is STP?  Risk Reduction Risk reduction is the primary motivating factor for STP. –Reduce the likelihood and opportunity for error throughout the process – goes beyond simply shorter settlement cycles –Ensuring that both the buyside and sellside “know” the same security is the first step. Settlement is the last step. There is a myriad of risk reduction “opportunities” in between. At American Century: –The Portfolio Manager is the only person who “keys in” a security symbol and buy or sell on his or her order –OMS and Portfolio Acctg systems simply use that info throughout the rest of the process including external communication msg flow

24. Scott Atwell - American Century® Investments24 Financial Technology Forum – The State of STP – Los Angeles - February 5, 2004 What is STP?  Efficiency Efficiency is a key tenet of STP and is often the byproduct of automation or process improvement Not necessarily about headcount, but rather maturing to a state in which resources are focused on resolving exceptions that are systematically identified vs. having to “handle” every transaction  Buyside point of view Trading and settlement is a cost center for the buyside – revenue-related for sellside and custodians

25. Scott Atwell - American Century® Investments25 Financial Technology Forum – The State of STP – Los Angeles - February 5, 2004 Summary Reviewed institutional trading communication categories Buyside case study: American Century Investments Discussion starters - What is STP? FIX website: www.fixprotocol.orgwww.fixprotocol.org SIA website: www.sia.comwww.sia.com