James Sinclair CEO, MarketFactory jsinclair@marketfactory.com Platform Diversity: FX, Equities and Fixed Income

Today’s Discussion Issues we don’t have in FX Opportunities specific to FX How is it reflected in the platforms?

Issues we don’t have in FX

Throughput Not As Acute

Symbology Not As Broad

Substantial Regulation Nasdaq BATS NYSE Nasdaq OMX PSX CHX CBSX NSX Nasdaq OMX BX NYSE Amex NYSE ARCA EDGX ISE RegNMS: Plus dark pools (<15%) FX ECNs are not constrained and have incentive to differentiate themselves.

Rebate Trading Unlike US equities, very little rebate trading Perhaps because tick size is large relative to cost of execution (even after EBS upcoming changes)

In Addition…. LOW PROFILE For the world’s largest market - we attract little press as the market has self-regulated well.

Opportunities Specific to FX

Global and Fungible London $725bn per day Asia $375bn per day New York $400bn per day Chicago $100bn per day

Fungible also in Instrument Construction Unlike securities markets, but like other cash markets, synthetic instruments are identical to their traded counterparts e.g. cross currencies: EUR/JPY EUR/USD EUR/JPY USD/JPY

Other Key Notes Credit instrument Natural interest arises from non-FX activities. Ultimately, sustained exchange rate moves are because of: Cross-border capital market activity, FDI, trade Substantially a principal market (and likely to stay that way as the banks facilitate the natural interest) Doesn’t fall in value (you’re just on the wrong side) High growth in retail sector

So, what does this mean for the platforms?

They’re All Different Different : Location(s) Price distribution frequencies Depth of book: and indicators of depth Information about the quotes that make up a price level Tick size Some have Last Look Upgrades are frequent Different platforms for different currencies, purposes Understanding of each platform required Opportunity

Contrast with European Equities

Interdealer FX Market in 2011 Interdealer FX Market in 2003 Reu EBS CME DB Structure akin to US treasuries: Interdealer: Brokertec, eSpeed; Customer: Bloomberg, Tradeweb Still similar + GovEX. Prop Shop BoA JPM UBS Dres-dner Citi Prop Shop Prop Shop Prop Shop Prop Shop HS Real Money, Corporates CX FXall CX HS Integral Execution through ECNs, banks and some funds Not shown: Futures brokers Retail Com-merz FXall Barx

But Note… They are additive. New platforms in FX are not identical (similar to US equities, equity options) Liquidity rarely moves in absolute terms (exceptions: small markets, TIPS, TBAs)

Bringing It All Together

Complexities in Equities and FX are Inverted High technology needs vs. high market structure knowledge needs Equities 1million msgs per second Thousands Real-time broadcast Tick by tick – every tick! Thousands / second Centralized markets Heavy – e.g. Reg NMS Standardized NBBO Established; low difficulty Full depth of book None b/c of CCP Order routing from point of order submission Complex Easier Attribute Throughput Symbols MD Frequency Order Submission Fragmentation Regulation Market Structure Price Discovery TCA Transparency Price Filtering Order Routing OTC FX 1 million msg per day 20 pairs; 66% of FX in 6 pairs Real-time custom snapshots Max 100 orders per second Globally fragmented venues Unregulated – isolated venues All non-standard; all bespoke Venue specific Difficult – lack volume info 1-3 levels of depth common Heavy b/c of bilateral credit Complex decision process Complex Easier