instinet chi-x – an overview the first order driven pan-european mtf

Instinet Chi-X – An Overview

The first order driven pan-European MTF

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Instinet, Providing Innovative Trading Solutions for More Than 30 Years

1969Instinet Founded‘Institutional Networks’ founded. Instinet launches first electronic block-trading capability

1980Direct Market AccessIntroduces PSE Scorex – first DMA to U.S. exchanges

1986Equities Block Crossing NetworkInstinet establishes after-hours equities crossing networks

1988Instinet Comes To EuropeTakes electronic agency execution global

1993Order Management SystemInstinet develops OMS, one of the first order management systems

1994Market-pegging – The First AlgorithmsInstinet offers the first advanced order types, starting with market-pegging

1997First ECNInstinet becomes the first recognised ECN under SEC order handling rules

2003Business Split, BrokerShare, CBXSeparates sell-side ECN from buy-side brokerage. Invents BrokerShare – the pre-cursor to commission sharing. Launches CBX, institutional block market

2005Silver Lake PartnersSLP buys Instinet brokerage. NASDAQ acquires Inet ATS

2006Instinet Europe Launches New ProductsInstinet launches Chi-X, a pan-European ATS and Instinet Block Match

2007Instinet Acquired by NomuraInstinet bought by Japanese Investment Bank, Nomura

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Our Core Principles

We trade only on behalf of our customers – a pure agency broker

We provide unbiased, transparent and efficient brokerage services – traditional and electronic

We are committed to delivering best execution for our customers

We use our electronic trading expertise to lower execution costs by developing better ways to trade

Instinet pioneered electronic trading and we are the largest global agency broker

We have a unique combination of the best traders and the

best technology which work for you, not against you

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Developing Tools to Cope with Dramatic Change

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6 Regulatory Hurdles

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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Increase in Competition will Change the Dynamics of Trading

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Key Benefits Of Chi-X

High speed – Over 10 times faster than major European exchange

order driven systems

Low cost – At least 90% cheaper than trading on major European

markets

Standardised connectivity – FIX 4.2

Liquidity provision model from high volume trading houses to ensure

flow

Natural liquidity of Instinet and other brokers who can smart route to

Chi-X as part of a MiFID compliant best execution policy

Instinet has been a pioneer of electronic trading services having

built a number of ATSs before

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Speed: Roundtrip Latency By Venue April 2007

Trading VenueAverage Latency

(milliseconds)

Chi-X 2

Deutsche Börse Xetra 60

Euronext 85

OMX 137

Borsa Italiana 174

LSE SETS 191

SWX 284

virt-x 291

Source: Instinet Europe Exchange Linkages

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Speed: Trading System Capacity

Chi-X is built on scaleable low cost hardware enabling increases in current capacity quickly and easily at low cost

No throttle, ‘brown out’ or other restrictions to access or indeed costs to access

Trading VenueCore cash equity system order

flow capacity (messages per second)

Instinet Chi-X* 10,000

London Stock Exchange** 600

virt-x*** 65Source:* Chi-X internal performance benchmarking statistics** London Stock Exchange*** virt-x

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Trading Tariff

Trading fees on Chi-X for execution will be:

– 0.20bps rebate for passive execution

– 0.30bps charge for aggressive execution

Trade reporting charges are £210 pcm

Market data: no charge

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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 VenueLicense Fee(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 £1,260Source: Exchange websites

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Trade Reporting Costs

Trade reporting off exchange trades to each trading venue:

Trading VenueReporting costs

Monthly feeReporting costsper trade report

Instinet Chi-X £210 £0

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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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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Basis Points Savings On Chi-X

Date% of Trade between the

spread Improvement

(BPS)

02 May 2007 82% 1.21

03 May 2007 69% 1.53

04 May 2007 93% 1.08

Weekly Average 1.27

07 May 2007 98% 1.20

08 May 2007 95% 1.39

09 May 2007 91% 1.35

10 May 2007 95% 1.53

11 May 2007 88% 1.58

Weekly Average 1.41

14 May 2007 86% 1.87

15 May 2007 92% 1.98

16 May 2007 94% 1.92

17 May 2007 79% 1.53

18 May 2007 94% 1.70

Weekly Average 1.80

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Trading Trend Analysis

Source: Instinet Europe Exchange Linkages

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Trading Activity

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Trading Functionality

A venue for professional investors to trade pan-European equitiesChi-X takes into account functionality of the local market with additional functional enhancementsTrading hours of 07:35 – 17:35 CET Chi-X is a pan-European Central Limited Order BookNon-matching 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 bookMarket monitoring based on dynamic price range checking, capitalisation per order checking and percentage of volume checksAn Clearly Erroneous Trades policy protects participantsAll Chi-X orders are valid for the day by default with unexecuted open orders automatically cancelled at the end of the trading day

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Clearing & Settlement

An open market model. 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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DomesticCSD

DomesticCSD Settlement

Participant

SettlementParticipant

TradingParticipant

TradingParticipant

Market Model

TradingParticipant

ClearingParticipant

TradingParticipant

DomesticCSD

SettlementAgent

SettlementParticipant

TradingParticipant

ClearingParticipant

SettlementAgent

Structure

RelationshipsEvery Trading Participant requires a Clearing Participant (GCM equivalent) to guarantee trades / credit risk

Every Clearing Participant will need to execute a Clearing Service Agreement

Every Clearing Participant will need to have a Settlement Agent at the domestic CSD

Clearing

Settlement

Trading

MTF

ClearingParticipant

MCF

MCF

ClearingParticipant

Multilateral Clearing Facility

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Early Results From Chi-X

Launching Chi-X is a process, not an event

Trading highlights

– Royal Dutch Shell A - 25/04/07 – 1.96% of total volume

– BASF - 07/05/07 – 4.27% of total volume

– Hanson – 18/05/07 – 4.17% of total volume

Since 30th March, Chi-X has traded a total volume of 83

million shares with 68,538 executions and a total

consideration of over 1 billion Euros

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Next Steps

UK stocks go live Q2

French, Belgium, Swiss and Scandinavian securities are

scheduled to go live Q4

– N/B -These markets represent 79% of trading activity

on a pan-European basis by turnover

New website

Physical separation from Instinet Europe Limited

Source: Federation of European Stock Exchanges

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Additional Information

To learn more about the Chi-X value proposition, please contact:

Peter Randall F.S.I. Director+44 (0)20 7154 [email protected]

Hirander Misra Director & Product Development+44 (0)20 7154 [email protected]

Scott Riley Director & Operations+44 (0)20 7154 [email protected]

Graham Dick Director, European Business Development+33 (1)7303 [email protected]

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 Instinet Chi-X 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.

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instinet chi-x – an overview the first order driven pan-european mtf

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