Next GenerationTrading

Nigel Woodward – Global Business Mgr Capital Markets and Securities

Agenda

• What is Next Generation Trading

• Market Dynamics

• SUN technology views

• Introducing STAR

• Food for thought, context for the following sessions

So – for the business – how is this yeardifferent than prior years ?

BUSINESS DRIVERS2004-2005

1. Industry scandals leading to moreregulatory scrutiny

2. Refocus on Investment Return andClient Service

3. Increasing investor sophisticationcoupled with greater demands fortransparency

4. Changing market structures5. Recognition of innovation as

differentiator6. High expectations for Operational

Resilience7. Capturing Efficiency gains to reduce

costs and risk8. Strategic IT budget management9. Rebirth of new products and services10. Industry Consolidation and

Convergence

N

N

NIncreasing Importance

Decreasing Importance Same Importance

New to Top 10

BUSINESS DRIVERS2002-2003

1. Cost Containment

2. Shift from Strategic to Tactical ITInvestment

3. Business Continuity Planning

4. Refocus on Investment Return

5. Decreased confidence in / increasedscrutiny by clients

6. T+1 is out, STP is in

7. Regulatory Changes / Focus (Patriot Act,Analyst conflict of Interest, Accountingstandards)

8. A Split between Product Manufacturing andDistribution

9. New Investment Products (ETF, HedgeFunds, 529)

10. Consolidation / Convergence Hangovers

Source: TowerGroup

Business Drivers

AUTOMATEDTRADING

SCALABILITY- Growth

BUSINESSCONTINUITY

COMPETITIVEADVANTAGE

- Time to Market-- Service reach

REGULATIONSOX

BASLEMIFIDEtc.

OPERATIONALMANAGEMENT

COSTMANAGEMENT

STRAIGHTTHROUGH

PROCESSING

TOTALCORPORATE

PERFORMANCE

Global Securities Industry IT Spending (in US$ Billions)

1996 1998 2000 2001 2002 2003 2004 2005 2006 2007 2008

InternalSpending

External Spending

57%

43%55%

45%51%

49% 49%48% 47% 46%

51% 52% 53% 54%

45%

55%

$39.0

$71.0$69.9$78.2

$83.5$86.2

$62.5

$73.9

Source: TowerGroup estimates

44%

56%

43%

57%

42%

58%

$76.8 $80.1 $83.0

CAGR = 4%CAGR = –7%CAGR = 49%

Global IT spendingstabilizes…and rises

-2.5%

2.5%

4.1%

4.3%

4.5%

4.5%

5.0%

7.0%

-4% -2% 0% 2% 4% 6% 8%

Market Data

Middle Office

Back Office

Retail Trading & Sales

C.C. & Custody

Other

Institutional Trading & Sales

Asset Mgmt.

Source: TowerGroup estimates

Global Securities Industry IT Spending (Percentage CAGR, 2004 – 2008)

But it won’t be spent all in the same place…

The global growth in hedge funds has notslowed down

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

Assets Under Management (right axis) No. of Funds (left axis)

Source: Van Hedge Fund Advisors International LLC *estimates

$billions

Assets continue to flow into hedgefunds

Source: Tremont Research

$0

$20

$40

$60

$80

$100

$120

$140

2002 2003 2004

$billions

0

1,000

2,000

3,000

4,000

5,000

6,000

Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

NYSE Shares (Right Scale) Nasdaq Shares (Right Scale)

NYSE Trades (Left Scale) Nasdaq Trades (Left Scale)

Average Daily Shares (Mils)Average Daily Trades (000s)

Sources: NYSE, Nasdaq, TowerGroup

While Trade Volumes Continue to Set Records…

0

200

400

600

800

1,000

1,200

1,400

1,600

Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

NYSE Shares (Right scale) Nasdaq Shares (Right scale)

NYSE Shares / Trade (left scale) NASDAQ Shares / Trade (left scale)

Average Daily Shares (Mils)Average Shares per Trade

Source: NYSE, Nasdaq, TowerGroup

…Large Block Trading Becomes Much More Difficult

0

10

20

30

40

50

60

Mar-0

2

Jul-02

Nov-02

Mar-0

3

Jul-03

Nov-03

Mar-0

4

Jul-04

Nov-04

ITG Posit

NYFIX Millenium

Liquidnet

Pipeline

Harborside+

ADV Shares (millions)

Source: Company Reports, Towergroup estimates

The buy-side has propelled Liquidnet to the top of theATS landscape

DMADMA Auto-ExAuto-ExTrading

Desk

Trading

Desk

Crossing networks

ExchangesInternalization

Negotiation

single orders

basketslists

programs

ECNs Block tradingfacilities

listed OTCderivatives sectors

equities

Order flow is being re-categorized

Inter-dealer

Volume53%

Dealer to Customer

Volume47%

D2C Traditional

78%

D2C Electronic

22%

2004 Total Average Daily Volume inGlobal Foreign Exchange

$1,773 Billion

$935 B

$840 B

$840 Billion

$655 B

$185 B

Dealer to Customer Volumes

Of the $1. 77T in daily FX turnover, approximately $185B isDealer-to-Customer electronic volume

59%

13%

28%

Interdealer

Dealer to Corporate

Dealer to Buy-side

1998

2001

Source: BIS & TowerGroup

2004Dealer to Institution up 13%Corporates down 3%Interdealer down 10%

53%14%

33%

20%

17%

63%

With the Buy-side becoming moreimportant even in the FX market

The Dealing Room Environment

ResearchTrading/

ExecutionSales

Middle Office

Corporate RiskManagement

Back Office

Clearing- houses

Customer Custodians/ Prime Brokers

Exchanges/ ECNs

Inter Dealer Brokers

OtherDealers

Dealing Room

1999 2000 2001 2002 2003 2004 20050

1

2

3

4

Unconstrained Growth

CostContainment

CostMinimisation

BU $

The Financial Services ITmarket has been turbulent overthe past 8 years

FTSE 100index

City ITCity ITCAPEXCAPEX

CostEffectivene

ss

7,000

Next Generation Trading Infrastructure

What is “Next Generation Trading”?

Market Infrastructure Trading Room

OmgeoArchipelegoLIFFETokyoClaimonitorC and WBT RadianzPhiladelphiaChicagoDeutsche Bourse

What is “Next Generation Trading”?

Market Infrastructure Trading Room

An Architecture for Trading Room

Applications which addresses

Business Issues:Move from Client/Server

High Maintenance Costs/support

Heat Dissipation

Operational Risk Basel 2

Complex Integration

Enabling STP

Reducing Latency – Algo trading

Multiple Data - Latency, AccuracyNeed for Automated Trading SystemsBOTTOM LINE:

“OLD” 1990S DEVELOPED TRADING ROOMS NEED RE ARCHITECTING TO MEET TODAYS DEMANDS

S.T.A.R

S UN: Corporate scale, global reach, RandD

T echnology: Choice, platform, O/S, middleware, Java,SUNRay, Tarantella, JIS

A rchitecture A pplications: Partners

R esources: partners, SUN Services

Next Generation TradingInfrastructure:key partners

Legacy layer: Calypso, ADP Wilco, Sungard

Trading Application layer:Tarantella, Citrix, Dsynapse, Metatomix, CSK, ORC, R-Blue, Sungard, C24, Caplin, Apama Lightstreamer, Transact Tools,Reuters

Presentation layer: Caplin, ePulse, Microsoft. TT Altio

Mobile:BT, LucentTT Altio

Next generation Trader Desktop:KeyTechnologies

Legacy layer: Solaris/SPARC(Mainframe, non stop, AS400)FpML, FinML, SWIFTML

Trading Application layer: Grid,JES, J2EE, Linux-Sol/X86, XBRL, FIX, SUN-GRID,R-Desktop (JES), Identity

Presentation layer: SunrayPortal, JDS, Identity, DirectoryVOiP, Security, Looking Glass,Windows, MSOfficeMobile:

Security, J2ME

Market dataData distribution/TSeries

Trade routing

Platform/S/w Telephony

Presentation

Market

Back Office

Desktop

TradeProcessing

Time seriesStore/load

SavvisReuters

LightstreamerCaplinReuters

ORC

Platform/S/wNew HeightsBT

Presentation

Market

Back Office

Desktop

Transact Tools

Integra

SybaseWombat

20%

The Vision

57%

35%

To develop, sell and implement STARthrough working with Sun's key

financial services partners to create anintegrated cross functional global go to

market plan with supporting demos,collateral and business processes –

leveraging incremental revenue for SUNand partners

Thank you for your time