Transcript Slide 1

The first order driven pan-European MTF
Faster, Cheaper, Smarter
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Overview
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In response to client demand Chi-X is addressing
competitive issues in both the trade execution and post
trade space to provide a more efficient and cost effective
wholesale solution that will compete with the European
Exchanges.
The Chi-X market model offers an order driven central
limit order book with micro second performance and an
embedded pan-European market structure. The
operating model: 10x faster and 1/10th of the cost
The Chi-X market model is anonymous both pre and
post trade with a guaranteed non exclusive central
counterparty framework.
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Overview
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Chi-X is now live with the following key milestones having been
achieved:
– 30th June 2006: License application approved by FSA
– 30th March 2007: Commencement of trading with a centrally cleared
counterparty service on the Dutch & German markets
– 29th June 2007:Launch first FTSE 100 stocks with full CCP Service
– 28th September 2007:Launch first CAC 40 stocks with full CCP service
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Chi-X will continue to increase the number of traded securities
leading up to and beyond MiFID go live on 1st November 2007,
based on a process driven approach
Chi-X provides a MiFID compliant alternative for clients ‘best
execution’ policy and can already demonstrate important price
improvements relative to the primary markets
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MiFID
Regulatory
Best
Execution/
Functionality
Technology
The
Core
System
Connectivity
Market Data
Chi-X Value Proposition
The first order driven pan-European MTF
Financial
Trading
Tariffs
Clearing and
Settlement
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Regulatory Framework
"New legislation will transform the landscape for the trading of
securities and introduce much needed competition and efficiency”
Charlie McCreevy Commissioner in charge of Internal Markets and
Services.
Legislation has permitted the creation of new pan-European MTF’s
(multi-lateral trading facilities) authorised and regulated in their
“Home State”. Once authorised, a firm will use the MiFID passport to
provide order matching services to customers in other EU member
states. Currently under ISD, a service is regulated by the member
state in which the service takes place.
Instinet Chi-X is an FSA authorised securities firm, operating as an
Alternative Trading System (ATS) pre MiFID. Post MiFID Chi-X will
automatically become an authorised MTF.
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Regulatory Hurdles
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FSA needed to rule on outstanding policy issues – January 2006
HM Treasury approval for SDRT – February 2006
ISO - Swift needed to issue us with a MIC – CHIX – March 2006
Crest needed to establish a TSO designation: Flag ‘N’ – May
2006

LSE needed to admit Instinet Chi-X to the list of approved ATSs
allowing LSE members to deal with us – May 2006
License application approved by FSA – June 2006
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Best Execution
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Article 21 of MiFID, ‘Best Execution’ is undoubtedly the most heavily
debated directive
Requiring minimum standards of pre trade transparency for shares
traded on regulated markets as well as post trade transparency
obligations.
Intermediaries will have to justify and regularly review their
execution policy to ensure clients are receiving best execution,
based on liquidity, price and speed to market. If alternative trading
venues regularly match or improve these criteria there will not only
be a commercial but legislative requirement for them to check
different sources of liquidity before executing an order.
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The first order driven pan-European MTF
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Stock Exchange Dead Ends
Seller on Chi-X @ 5.34
BEST
PRICE
AHEAD
BEST
PRICE
AHEAD
STOCK EXCHANGE
Seller @ 5.35
Buyer @ 5.34
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Trading Functionality
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Chi-X is a pan-European Central Limited Order Book
Chi-X takes into account functionality of the local market with
additional functional enhancements
Non-matched orders may be added to the Chi-X Central Limit Order
Book, a database of available limit orders, where they wait to be
matched in price-time priority
All Chi-X orders are anonymous on the order book
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Trading Functionality
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Market monitoring based on dynamic price range checking and
percentage of volume checks
A Clearly Erroneous Trades policy protects participants
All Chi-X orders are valid for the day by default with unexecuted
open orders cancelled at the end of the trading day
Continuous Trading Hours:
07.35 until 17.35 CET
A combination of ISIN, Currency and MIC can be used to uniquely
identify an instrument as well as SEDOL, Instinet symbol, vendor
codes (e.g. Reuters and Bloomberg) and exchange codes
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Tick Size & Order Types
Order Types /
Conditions Allowed
Chi-X facilitates potential price
improvements by allowing
participants to work within the
spread of the equivalent listed
exchange.
Chi-X
LSE
Limit
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Market
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Iceberg
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Execute or
Eliminate
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Fill or Kill
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Hidden
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No
Mid Peg
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No
Primary Peg
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No
The first order driven pan-European MTF
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Price Improvement
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Basis Points Savings On Chi-X
For Centrally Cleared Stocks
Month
April 2007
May 2007
June 2007
July 2007
Aug 2007
Sep 2007
Average
% of Trade
between the
spread
58%
54%
69%
60%
44%
45%
55%
Improvement
(BPS)
1.60
1.50
2.67
2.17
2.04
1.84
1.97
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Liquidity: Early Results From Chi-X
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Launching Chi-X is a process, not an event
Chi-X currently trades UK, German and Dutch index constituents with full
EMCF clearing. French equities are scheduled to go live by the end September
2007 and Belgium, Swiss and Scandinavian securities by the end Q4*
Trading highlights
– Philips Kon
44.07% of combined Chi-X/ Euronext volume
– ING
29.87% of combined Chi-X/ Euronext volume
– Royal Dutch Shell A
27.34% of combined Chi-X/ Euronext volume
– Fortis Ord
23.83% of combined Chi-X/ Euronext volume
*Note:These markets represent 79% of trading activity
on a pan-European basis by turnover
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Daily Trading Trend Analysis
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MiFID
Regulatory
Best
Execution/
Functionality
Technology
The
Core
System
Connectivity
Market Data
Chi-X Value Proposition
The first order driven pan-European MTF
Financial
Trading
Tariffs
Clearing and
Settlement
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The Core System
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A low cost, leading edge, open access technology model
Re-engineered 4th generation trading system with high speed connectivity
into the core system
Standardised connectivity – FIX 4.2
High throughput, low latency facilitating the trading of high volumes
Platform independent, with IP based connections eradicating the need for
any Chi-X specific hardware being deployed on client sites
The Chi-X core matching engine is a proprietary system that resides on the
Linux operating system
The core matching engine runs out of the primary data centre, with real-time
fail-over functionality at the secondary data centre
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Speed: Roundtrip Latency By Venue June 2007
Trading Venue
Average Latency
(milliseconds)
Chi-X
2
LSE SETS
20
Deutsche Börse Xetra
37
Euronext
75
OMX
137
Borsa Italiana
174
SWX
284
VIRT-X
291
Source: Instinet Europe Exchange Linkages gateway internal system performance measurement statistics for average DMA order messaging
during April 2007. These Instinet internal figures are for round trip latency message acknowledgement based on sending an average number of
messages to the exchange system and obtaining a response back to Instinet's system over the course of a normal trading day.
Please note:
These figures are provided for illustrative purposes only and are not intended to represent an independent performance measure of latency.
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Trading System Capacity
Chi-X is built on scaleable low cost hardware enabling increases in
current capacity quickly and easily at low cost
Trading Venue
Core cash equity system order
flow capacity
(messages per second)
Instinet Chi-X*
30,000
London Stock Exchange**
3,500
virt-x***
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Source:
*Independent Test with transact tools proved capacity in excess of 16000 messages per second.
** London Stock Exchange
*** virt-x
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Connectivity / Market Data
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Standardised FIX4.2 protocol. No other specific applications or architecture
required.
Connection to network via Radianz or similar. We recommend minimum
bandwith of 64K for market access and 256K for market data.
Chi-X is vendor neutral with regards to Smart Routing technology. A test
market is available to obtain conformity. A list of 3rd party vendors who
already provide a Chi-X compliant solution is also available on the web site.
Real Time data feeds can be accessed directly via a CHIXMD feed, from
the Chi-X web site bookviewer, or via third party data vendors in
standardised format.
There are no connection fees and market data is provided free of charge.
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Future Product Development
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Smart Routing Technology
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Trade Feeds and Consolidated Market Data
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Off Order Book Trade Reporting Service
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MIS Data Analysis
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MiFID
Regulatory
Best
Execution/
Functionality
Technology
The
Core
System
Connectivity
Market Data
Chi-X Value Proposition
The first order driven pan-European MTF
Financial
Trading
Tariffs
Clearing and
Settlement
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Trading Tariff
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Trading fees on Chi-X for execution are:
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0.20bps rebate for passive execution
–
0.30bps charge for aggressive execution
Trade reporting charges are £210 pcm
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Trading Costs: Chi-X ‘vs’ Exchanges
Trading Venue
Trading Costs (bps)
Instinet Chi-X
0.05*
London Stock Exchange
0.51*
Deutsche Börse Xetra
0.57*
Euronext Paris
0.50*
* based on a passive/aggressive execution ratio of 50:50.
Source: Instinet Europe internal statistics based on average daily DMA trades, volume and consideration.
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Trade Reporting Costs
Trade reporting off exchange trades to each trading venue:
Trading Venue
Reporting costs
Monthly fee
Reporting costs
per trade report
Instinet Chi-X
£210
£0
(£500 if not a participant)
London Stock Exchange
N/A
£2.75*
virt-x
£2,100
min activity charge
£0.10**
*
**
Maximum charge
High Volume Service
Chi-X will allow systematic internalisers to use trade reporting services to meet their MiFID
Article 28 post trade disclosure requirements
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Market Data Costs
Chi-X Market Data is non fee liable with no license fees
The following market data costs apply for members of each exchange for
domestic data. All charges are in local exchange currency.
Trading Venue
(per annum)
License Fee
Per workstation per annum fee for
level 2 data
License Fee
Trading Venue
(per annum)
Per workstation per annum
fee for
level 2 data
Instinet Chi-X
£0
£0
Euronext
€ 36,750
€ 696
Deutsche Börse Xetra
€ 32,400
€ 816
London Stock Exchange
£66,000
£1,260
Source: Exchange
websites
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Industry Cost Savings
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Estimated annual savings of Euros 140 million generated for market
participants if Chi-X received 25% of Total UK, German and Dutch
Market Volumes
Annual Industry Savings in Euros
$mm
Market
Industry Utilisation of CHI-X
Vendor
25%
100%
UK
LSE
67
270
Germany
Xetra
45
180
Holland
Euronext
28
112
140
562
Trading
Total
savings
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Clearing & Settlement
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An open non exclusive horizontal market model with
initial central counterparty services through Fortis EMCF.
Trading access rights uncoupled from clearing and
settlement
Dedicated solution for wholesale cash equity financial
markets
Focus on an efficient, maximum STP / minimum touch
solution
Use of domestic CSDs
An interoperable solution respecting the interests and
trade flows of the wholesale market participants
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Market Model
Structure
MTF
Trading
Participant
Trading
Trading
Trading
Participant
Trading
Participant
Participant
MCF
Clearing
Clearing
Participant
Settlement
Settlement
Agent
Relationships
Clearing
Clearing
Participant
Participant
Domestic
Domestic
CSD
Domestic
CSD
CSD
Settlement
Settlement
Participant
Settlement
Participant
Participant
Trading
Participant
Every Trading Participant requires a Clearing Participant (GCM equivalent) to guarantee trades / credit risk
Clearing
Participant
Every Clearing Participant will need to execute a Clearing Service Agreement
Settlement
Agent
Every Clearing Participant will need to have a Settlement Agent at the domestic CSD
MCF
Multilateral Clearing Facility
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Stocks Settling In The Domestic CSD
Trading
Participant
Trading
Participant
Post Trade
Participant
Post Trade
Participant
MCF
Novation
Netting / Compression
Position management (S-2 to S-1)
Stock Loan
Risk
DVP
CSD
etc ….
CSD
The first order driven pan-European MTF
CSD
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EMCF: Clearing Tariffs
Clearing fee.
• Charged per line (i.e. per execution).
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France:
Germany:
Holland:
UK:
28 euro cents
20 euro cents +0.00075% order value, cap at 1.2 euro
28 euro cents.
18 euro cents
Settlement fee.
• Only payable where a net delivery results.
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France:
Germany:
Holland:
UK:
Local CSD charge
FBGC Cost recovery
€1.43
€0.425
€1.35
€0.52
€1.00
€1.00
€1.00
€1.00
Total= €2.43
Total= €1.425
Total = €2.35
Total= €1.52
NB: FBGC cost recovery includes validation, enrichment, format to meet local CSD message standard,
transmission over relevant network, internal cost recovery for staffing, processing etc.
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MiFID
Regulatory
Best
Execution/
Functionality
Technology
The
Core
System
Connectivity
Market Data
Financial
Trading
Tariffs
Chi-X Value Proposition
The first order driven pan-European MTF
Clearing and
Settlement
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Chi-X Value Proposition
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High speed – Over 10 times faster than major European exchange
order driven systems
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Low cost – 90% cheaper than trading on major European markets
Standardised connectivity – FIX 4.2
No connection fees. Market Data provided free of charge.
Wholesale market CCP solution.
Proven price improvement relative to primary markets
Continued product development responding to client demand
Potential equity participation opportunities for the largest providers
of flow
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Fast Track: How to get connected to Chi-X
3 Streams:
Legal &Compliance
This process is to ensure that your firm is adequately regulated and authorised to
trade on the order book. Chi-X will also carry out a full ‘Know your Client ‘ exercise at
this point.
Complete application documents can be found on web site www.chi-x .com (Get
Connected/Document Library/Application Forms)
Technical Connectivity
This stage is to ensure your firm can physically connect to Chi-X via FIX 4.2 and
conforms with the Chi-X technical specification. A full Chi-X test platform is available.
Clearing & Settlement
You will require your General Clearing Member to be connected to EMCF CCP.
detailed information please contact the Chi-X Director of Clearing & Settlement,
[email protected] who will assist you in this process.
The first order driven pan-European MTF
For
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Additional Information
To learn more about the Chi-X value proposition, please contact :
Peter Randall
Director, Head of Business Development
+44 (0)20 7154 8855
[email protected]
Jonathan Woodward
UK, Ireland & Nordic Business Development
+44 (0)20 7154 8856
[email protected]
Graham Dick
European Business Development
+33 (1)7303 8661
[email protected]
Hirander Misra
Director - Product Development
+44 (0)20 7154 8596
[email protected]
Scott Riley
Director - Operations
+44 (0)20 7154 8408
[email protected]
The first order driven pan-European MTF
Website
www.chi-x.com
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©2007 Instinet, LLC. All rights reserved. INSTINET is a registered mark in the United
States. Approved for distribution in Europe by Chi-x Europe Limited which is authorised
and regulated by the Financial Services Authority. Instinet, LLC, member NASD/SIPC.
Instinet Europe Limited is a subsidiary of Instinet Incorporated.
This information is provided for informational purposes only. It does not take into account
the particular investment objectives, financial situation, or needs of any individual or entity.
Under no circumstances is it to be used or considered as an offer to purchase or sell any
security, or as a solicitation or recommendation of the purchase, sale, or offer to purchase
or sell any security. While the information has been obtained from sources deemed
reliable, neither Instinet nor its licensors, nor any other party through whom the user
obtains any such information: (i) makes any guarantees that it is accurate, complete,
timely, or contains correct sequencing of information; (ii) makes any warranties with regard
to the results obtained from its use; or (iii) shall have any liability for any claims, losses, or
damages arising from or occasioned by any inaccuracy, error, delay, or omission, or from
the use of the information or actions taken in reliance on the information. Reproduction or
redistribution of this information is prohibited except with written permission from Instinet.
System response times may vary for a number of reasons including market conditions,
trading volumes and system performance.
The first order driven pan-European MTF