1. New Market-Structure Realities Is IR Hanging in the Balance?

2. It’s harder to answer: "So…what happened to our stock today?” IROs AND vendors: the reasons may be life and death for our industry Oct 2009 2 Copyright October 2009, ModernNetworks IR LLC. All Rights Reserved. Not for Distribution.

3. Why Harder Now? “Before” Today Oct 20093 Copyright October 2009, ModernNetworks IR LLC. All Rights Reserved. Not for Distribution. Middle Men Buyers Sellers Middle Men Buyers Sellers

4. What Happened? Neither good nor bad, but true: 1996 – Order Handling Rules - ECNs 2000 – Decimalization - speed 2002 – Spitzer settlement – no research 2007 – Reg NMS – one entry point RESULT: Fragmented, high-speed, quantitative marketplace Oct 20094 Copyright October 2009, ModernNetworks IR LLC. All Rights Reserved. Not for Distribution.

5. The Fragmented Equity Market Oct 20095 Copyright October 2009, ModernNetworks IR LLC. All Rights Reserved. Not for Distribution. Consolidated Volume May 2009 Data courtesy Rosenblatt Securities, Inc. Very efficient for trading – high speeds, low costs. But…you have to drive all over town to fill your grocery cart!

6. The Results: The Good Low-cost, automated, accessible markets HFT is the modern “specialist” The Bad Tick-by-tick trading – no positions, small risk Rebate Trading (cashing coupons), Statistical Arbitrage (looking for gaps), Market neutral trading (balancing on a log) The Ugly No IPOs, “liquidity” has replaced “capital formation”…IR industry shrinks Oct 20096 Copyright October 2009, ModernNetworks IR LLC. All Rights Reserved. Not for Distribution.

7. Impact on Retail Investment NOISE E*Trade is.5% of Direct Edge This stock on “Cramer” on 10/6 Oct 20097 Copyright October 2009, ModernNetworks IR LLC. All Rights Reserved. Not for Distribution.

8. Impact on Institutions Oct 20098 Copyright October 2009, ModernNetworks IR LLC. All Rights Reserved. Not for Distribution. Institutional volume runs on algorithms So? Price changes on trading, not investment So institutions trade more than invest $20 billion market cap, constant algo trading:

9. How Trading Works Oct 20099 Copyright October 2009, ModernNetworks IR LLC. All Rights Reserved. Not for Distribution. Buyside volume “sprays” on algorithms Hitting trading facilities, exchanges, broker liquidity, traders… And attracting arbitragers, and HFT platforms, and rebate traders… And all of it changes the dynamics for risk-management systems constantly tweaking balances …which changes the behavior of program sellers, ETFs, retail traders, and profit takers…

10. HIGH-SPEED MARKETS HAVE TURNED INVESTORS INTO TRADERS High-frequency trading is response to inefficiency (of capital formation) and inefficient markets need vigilant and knowledgeable IR professionals Oct 200910 Copyright October 2009, ModernNetworks IR LLC. All Rights Reserved. Not for Distribution.

11. What You Need to Know Trading and ownership aren’t the same and are often unrelated Help management grasp that investment is just one use for your equity, along with speculation and risk management A more active balance sheet is likely “normal” for public companies IROs must know more than in the past Oct 200911 Copyright October 2009, ModernNetworks IR LLC. All Rights Reserved. Not for Distribution.

12. Capital Formation 1990-1999 – c 4,400 IPOs (+$5) US Markets 2000-2009 – c 1,200 IPOs (+$5) 1996 – total of 675 2008 – total of 21 Draw Your Own Conclusions Oct 200912 Copyright October 2009, ModernNetworks IR LLC. All Rights Reserved. Not for Distribution.

13. Views Be the only person in your company who gets this stuff – job security Great time to be an IRO – exciting, multi- dimensional job And… Capital markets strangling on rules Synthetic house of cards in equity market Oct 200913 Copyright October 2009, ModernNetworks IR LLC. All Rights Reserved. Not for Distribution.