BRIEFING BOOK

Data Information Knowledge WISDOM

SETH MERRIN

is co-founder, president and CEO of Liquidnet, an electronic marketplace that coordinates institutional equities trading for asset management firms worldwide.

Location: Forbes, New York, New York

About Seth Merrin……………………………………………………….... 2 Debriefing Merrin................................................................................

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Forbes on Merrin “Secrets of the Self-Made: Seth Merrin,” 9/17/08..................... “400 Richest Americans: #377 Seth Merrin,” 9/17/08.............. “Liquidnet Moving Into the Light,” 07/02/08.............................

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The Merrin Interview……………………………………………………… 13

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ABOUT SETH MERRIN Intelligent Investing with Steve Forbes

Seth Merrin is co-founder, president and CEO of Liquidnet, an electronic marketplace that coordinates institutional equities trading for asset management firms worldwide. Prior to founding Liquidnet in 1999, Merrin co-founded VIE Systems, a financial services application integration software company. In 1985, Merrin founded Merrin Financial, an order management, compliance and electronic order routing systems for asset managers. Merrin Financial was sold to ADP in 1996. Before 1985, Merrin was a Risk Arbitrage Trader for CIBC Oppenheimer. Merrin was named 2008 Ernst & Young’s “Entrepreneur of the Year Metro New York in Financial Services” and is ranked 7th among Institutional Investor magazine’s 2008 Online Finance 40. Liquidnet was named 2008 Best Crossing Network by Waters magazine, Best Trading System for the Buy-side at the Financial News IT Awards 2008 (Europe), and Best Electronic Alternative Trading Venue 2008 AsianInvestor Service Provider Awards. Merrin graduated from Tufts University in 1982 with a degree in political science and now serves on Tufts’ Board of Trustees. He, his wife Anne Heyman, and their three children live in New York City.

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DEBRIEFING MERRIN Intelligent Investing with Steve Forbes

By Michael Maiello December 22, 2008 Forbes: 2008 was terrible for everyone except for companies that run exchanges (or run like exchanges) like Cantor Fitzgerald, BATS and your company, Liquidnet. What did you see in the market and how does Liquidnet fit in? Seth Merrin: What we've done is we've created an institutional market place. You used to be able to go to the floor of the exchange for color on the markets, but most of the volume has left the floor. 70% of all the buy-side assets come through our system. We know what the latent intent of the buy side is. We've seen tremendous order flow and imbalances between buys and sells. We understand where the long only are selling, where the hedge are selling. We've seen the largest sell to buy imbalances in our history. We've been around for nine years now. Clearly, tremendous selling going on. We have a tremendous amount of data we can pull. There is competition in this marketplace. What we've done is we have historically, the institutions themselves have pieced out their order flow into the marketplace, which fragments the orderflow tremendously. We've re-aggregated all those pieces and have created a marketplace where there wasn't one before. Take a look at the Asian markets that have monopolies in whole markets in terms of exchanges. Their markets are down 25% more than European and U.S. markets. If everyone is lining up at one store that obviously creates more demand in that one venue. We've helped out tremendously--we've created more opportunities and greater capacity to buy and sell merchandise. We launched right around 9/11. It was not the best of timing. People were not trading a lot and the assets stopped flowing into the mutual funds and the hedge funds.

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The whole ETN (Electronic Trading Network) explosion started happening in 2000. That's when there were eight ETNs, those were competitors to the exchanges and the regionals were pretty much left out of that. All of the ETNs consolidated, New York and Nasdaq bought the rest. Everyone thought we were back to a duopoly. They bid up exchange shares to a huge multiple because a duopoly is a great business model. Internet stocks trades have been around for a long time. Why were institutions so slow to pick up on this? The Internet itself has really brought a lot of automation to the retail sector but it bypassed the institutional sector. The institutional sector was very manual. Now, for the first time, blocks are traded electronically. There's so much money in this industry that efficiency is not always the number one criteria. If we had margins like supermarkets, we would have had automation right away. How are retail investors affected by this? Every time they (institutions) try to buy and sell stocks, they move the markets. That comes out of your returns. It's about a $50 billion a year tax on all of our returns every year. This is a highly inefficient market place. What we're trying to do is make it an efficient market place. Fifty billion dollars added back is real stimulus. A $50 billion tax refund equals an enormous stimulus package. How did the recent volatility affect Liquidnet? It's good for us. Unlike in a retail play, if you have an account with Schwab you pull up a screen and hit a button. The institutional marketplace is so inefficient. Sometimes liquidity is there, sometimes it's not. If you miss the liquidity it can cost you dollars per share on a large trade. Who's left for Liquidnet to compete with? Our competition is Goldman Sachs, JPMorgan and what's left of Merrill Lynch. We offer a quantity discovery mechanism. With an exchange, the average size of a trade is 200 shares and the average order size for an institution is 250,000 shares. That's a supply-demand imbalance that has to be fixed. Exchanges offer price discovery not quantity discovery. Our average execution size is 54,000 shares. What about algorithmic trading, that some investors want for secrecy?

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The purpose of the algo is to break it up into little tiny pieces to introduce it into a retail market. If they had their druthers, they would rather buy it in one shot. How does this work? We have MFS, Janus, Schroder Investment Management, all of those guys, not the prop desks of the broker dealers. It loads in all of the intent from all of the clients from around the world. We match up size with size, if one firm wants to buy a million and another wants to sell half a million, we tell them it's a match. We don't tell them how much, we just have them negotiate on price. The total quantity is left out of the picture until they agree on price. They want to negotiate but not divulge too much of their hand. MFS doesn't want somebody on the other side knowing it's MFS so the parties will never know who the counterparty is. What's the future for a manual stock exchange like NYSE? Two forms of market structure are really required: one is a system like ours where trades can happen electronically because there is a buyer and seller. You need capital commitment, which is why there are market makers and specialists to put capital up. NYSE had greater than 80% market share. But REG NMS [a best-price trade execution rule enacted in 2005] took the moat that circled the NYSE away and they are now down to 40% market share. The market has simply opted away from a manual intermediation to more of an electronic process. Even though Nasdaq billed itself as the "Exchange for the Next 100 Years" it was very manual and intensive. ECNs came along with no human intervention and Nasdaq lost 70% of its market share in a couple of years. Certainly the floor brokers and specialists are having less to do every single day. Only one market's left with human intermediaries and that's the NYSE. There's still a lot of vested interests on the floor. Thain bought [Eletronic Trading Firm] Archipelago and said "let the market decide." Clearly the people are opting for the electronic and not for the human execution. What about specialists who create an orderly market? Not with the amount of assets out there--$12 trillion at the beginning of the year, probably $8 trillion now. You can't expect that a specialist firm has the amount of capital to really create an orderly market.

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It's like when the Fed tries to intervene and buy currency. Ultimately currency and the markets will find its own equilibrium.

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FORBES ON MERRIN Intelligent Investing with Steve Forbes

Secrets Of The Self-Made Edited by Brett Nelson 09.17.08, 6:00 PM ET

Net Worth: $1.3 billion

Age: 48

Source of Wealth: Liquidnet

1. What is the difference between a millionaire and a billionaire (besides the three extra zeros)? A billionaire is only limited by his imagination as to what he can do. 2. Is sleep overrated? I think sleep is underrated. 3. As you became wealthy, what relationships did you leave behind? I don't see the people at the Laundromat very often ... 4. What event will touch off the next economic crisis? It will be some other product that Wall Street creates and pretties up that transfers risk from themselves to less sophisticated investors. 5. What's the bigger turn-on: the chase or the kill? It's the chase. If it's killed, it's dead. What's the turn on in that? 6. Whom do you turn to for advice? I ask my wife, Anne. She's the oracle of the family. I do what I want anyway, but it's very consistent. She's always right and I'm always wrong. Statistically speaking, I'm due for a win soon. 7. Your house is on fire. You can save one thing besides your family. What do you grab on your way out the door? My kids would never forgive me if I didn't take the cat and the dog. If I had to pick one it would be the dog. I'm afraid she's not smart enough to get out of harm's way. 8. Is writing checks to charity effective philanthropy? It's a major part of what charities need, but it's not fulfilling. Today's philanthropy is about getting your hands dirty and making a difference. 9. What is the best bar on the planet?

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The VIP area at the Delano Hotel in South Beach. 10. The estate tax: yes or no? I think the estate tax is fair. I believe there are so many ways to transfer wealth that people get around it. If there is money left in the estate, it creates a great incentive to give all your money to charity rather than have politicians misspend it. 11. How much cash do you usually carry in your wallet? It's between $20 and $200. It depends entirely on elapsed time since my last visit to the ATM. 12. You can be James Bond or Michael Jordan for an evening. Who do you choose? Michael Jordan. I am big on being the best in the world. My sport is business. It's my connection to Michael Jordan. 13. Where do most of your deals go down (restaurants, golf courses, poker table, cellphone)? All my biggest deals actually happened on ski lifts. 14. How do you spot a liar? Go to a conference of general contractors. 15. You can have a front-row seat to any event in history. Where is your time machine taking you? The U.N. vote in 1948, which created the state of Israel. 16. What are the first and last questions you ask in any job interview? What are you passionate about? Do you have any questions for me? 17. What's the coolest number in your cellphone? Black Tie Ski Rental. Call them up and they bring your rental equipment right to your room. 18. What is the future of the U.S. dollar? I believe the future of the U.S. and the dollar will be much brighter when Bush is out of the White House. 19. Will the government be cutting Social Security checks in 20 years? I believe gloom and doom is always overstated. It is always on the political agenda and some day we might get a politician who is both smart enough and cares enough to figure out how to secure its future.

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20. You have $100,000 to invest. What do you do with it? I would invest in the future of Africa by sending it to the Agahozo Shalom Youth Village we are building to house and educate the orphans of the Rwandan genocide.

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The 400 Richest Americans #377 Seth Merrin 09.17.08, 6:00 PM ET Net Worth $1.3 billion Source Technology, Self made Age 48 Marital Status Married, 3 children Hometown New York, NY, United States Education Tufts University, Bachelor of Arts / Science Grew up wealthy on New York's Upper West Side; father owned a gallery that sold ancient art. Applied for jobs waiting tables after studying at Tufts; restaurants said he wasn't qualified. Founded Merrin Financial: made brokers' lives easier with electronic order-management software. Sold for $23 million to ADP in 1996. Created Liquidnet; "dark pool" allows institutional investors to trade large blocks of securities without wild swings in prices. Sales up 115% since 2005 to$350 million. Public offering imminent.

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Liquidnet Moving Into The Light

Ruthie Ackerman, 07.02.08, 4:00 PM ET

Liquidnet Holdings is taking its dark pool investing out of the dark and into the light of public trading.

On Tuesday the electronic trading platform filed with the U.S. Securities Exchange Commission to raise up to $500 million in an initial public offering.

The filing did not disclose the number of shares the selling stockholders planned to sell or the expected price.

Liquidnet is a New York-based company founded in 1999 and trading in 29 countries across five continents. It manages electronic networks that lets institutional investors trade so-called dark pools, where large blocks of shares can be traded away from public view. It is among the 10 largest brokers in the United States.

Liquidnet is in talks to link its liquidity pools to major exchanges such as the New York Stock Exchange, a unit of NYSE Euronext, and Nasdaq OMX.

The company is also setting its sights overseas, having entered the Japanese market in June. In May, it had traded $2.3 billion in Asia.

Liquidnet is not alone. On Sept. 5, Turquoise, an upstart trading platform, will start being traded on by the nine large securities dealers that own it. (See “Dark Turquoise”) When it starts trading Turquoise will be taking a bite out of the market share of the London Stock Exchange and its established peers.

But the LSE is not sitting back and letting the competition walk away with its hard-earned cash. Last month the exchange announced its own plans to set up a dark liquidity pool together with Lehman Brothers, which isn't one of the firms backing Turquoise.

NYSE Euronext is planning to launch its own European dark pool, SmartPool, in the fall.

Meanwhile, Liquidnet's first-quarter earnings rose 11.0% to $30 million from a year earlier, while revenue increased 38.0% to $107 million, according to the unaudited financial information included in the filing.

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For all of 2007, net income was $115 million on revenue of $345 million.

Underwriters of the IPO are Goldman Sachs, Credit Suisse, JPMorgan, Lehman Brothers, Liquidnet and Sandler O'Neill + Partners.

Reuters contributed to this article.

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THE MERRIN INTERVIEW Intelligent Investing with Steve Forbes

[00:08] Steve: Classic Capitalism Welcome, I’m Steve Forbes. It's a privilege and a pleasure to introduce you to our featured guest, Seth Merrin. A self-made billionaire, Seth is founder and CEO of Liquidnet-- a “dark pool” that lets institutional investors trade large blocks of securities without wild price swings. My conversation with Seth Merrin follows, but first… At the World Economic Forum this year "the new capitalism" was on everybody's mind. How do we put the financial crisis behind us and get growing again? The answer is rediscovering the essence of entrepreneurial capitalism. There are bull and bear markets. There are calamities that shake our faith. But the principles that support economic growth endure. Democratic capitalism requires: The rule of law, especially property rights. Money that is stable in value. Low tax rates. Minimal impediments to doing business and starting new businesses. Reducing or removing trade barriers. The blunt truth is that government spending is a poor substitute for private business and consumer investing and spending. Were it otherwise, the Soviet Union would have won the cold war and Japan, which had numerous government funded stimulus packages in the 90s would have escaped its 12 year recession. As Joseph Schumpeter, the 20th century's foremost economist observed, dynamic growth in the standard of living requires constant innovation and volatility. That's capitalism and it works. It is our way forward. In a moment, my interview with Seth Merrin… [01:40] He'll Save You $50 Billion STEVE FORBES: Seth, thank you very much for being with us. You're in a business that'll certainly surprise retail investors who are accustomed to doing

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trades instantly, nanosecond. Yet among the biggest traders, that hasn't been true until you came along. Can you explain? SETH MERRIN: That's a great question, Steve. You know, the amount of assets that have flown into the institutional sector over the last 30 years. You talk about 30 years ago, Fidelity managed about three billion dollars. Today, it's well over a trillion dollars. The whole institutionally managed sector was only 300 billion dollars in total, 30 years ago. And as of last year, it equaled over 12 trillion dollars. So, you have a massive amount of assets flowing in. STEVE FORBES: A little less now. SETH MERRIN: It's probably a little less now. I hazard to even guess what it is, half maybe. But you know, with that kind of asset inflows, you have to do something. You can't manage it manually. You have to start automating it and creating more efficiencies with the trading process. The big problem that has happened is that, because of the size of the assets that have come in, every time the institutions, and these are people that manage pension funds and 401k plans and mutual funds on behalf of all the viewership and all the readership, every time they go into the marketplace and they place a trade, they move the market. They have simply outgrown the current market's ability, the exchange's ability to handle those trades efficiently which leads to a big problem. A problem that actually costs the investors 50 billion dollars from their returns. STEVE FORBES: Quickly go through your arithmetic on that. Eleven cents a share. SETH MERRIN: On average, the industry that measures this-- and it's unfortunate that there's even an industry that measures how much the market moves every time an institution trades, but on average-- it's about 25 cents per share. And if you add up all the shares traded by all the institutions across the year, you can add it up to a 50 billion dollar, what is 50 billion dollars of tax that is taken out of the individual's returns every single year. So, any time you have a 50 billion dollar problem, you have a problem that needs a solution. And if I can put 50 billion dollars back into the investors' pockets every single year, think about what kind of economic stimulus that could be. All right? [04:05] Inefficient Wall Street STEVE FORBES: Now, in terms of small trades which are instantaneous and fairly cheap, you make the point that with institutional traders, it's, until recent years, was manual in effect. You had to dribble these things in a handful of

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shares at a time which was inefficient and also, as you say, price inefficient. Why did that last so long? Why wasn't this tended to? We had technology 20 years ago that could have started to take a real bite out of that. Is it the margins were too big and nobody cared? SETH MERRIN: Do you remember back in the '70s when they had to close the brokerage firms just to keep up with the back office? STEVE FORBES: Right. SETH MERRIN: Why didn't they automate it back then? And I think the reason is the same answer to your question. And that is-- there's so much money to be made here, to toss another few people into the back office to handle it, you would do that. To have more people down on the floor, you would do that. If Wall Street ran on the margins that supermarkets ran on, I will bet you that we would have been automated dozens of years ago, but that simply wasn't the case. STEVE FORBES: So, simply a side show in terms of cost? SETH MERRIN: I think it was cheaper basically to toss human beings at it than the time and the expense that it took to automate it. But the interesting thing about automation is the exchange used to provide all of the information that issuers needed, that the companies needed, that people needed to understand where the markets are going. The buy and sell demand, the sentiment. And with all of the automation that's going on, the exchanges have lost a lot of their market share, and a lot of the information flow that they were able to provide. And that's a service that they lived on, and that was a very valuable service that's gone away. With creation of the institutional marketplace that's solely institutional, it's very interesting that you've got in our marketplace, we've got ten billion shares a day coming into our systems. And that's the equivalent of all the exchange volumes added all together. And it's institutional flow, so it's the people that manage money every single day as a business. And you would hope that that would be considered smart money. And you take a look at what these people are doing, and all of a sudden you have that same kind of insight, the lens, into what perhaps you would say the smart money is doing. [06:31] Vs. Nasdaq & NYSE STEVE FORBES: So, your customers are most of the large institutional?

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SETH MERRIN: Our customers are 70 percent of all the buy side, all the institutional assets in this country. STEVE FORBES: Now, to put it in perspective, you mention that in effect taking it off the traditional exchanges. The companies listed on the NASDAQ, how much does NASDAQ actually handle of the trades done in the stocks listed on the NASDAQ? SETH MERRIN: I think that the percentage right now is 40 percent or less on NASDAQ. And I think it's about the same for the New York Stock Exchange. And that's very different. Back in 2000 and before, if you wanted to trade a New York Stock Exchange stock that was listed on the New York Stock Exchange, you had to go to the New York Stock Exchange. Same with NASDAQ, and it's that way pretty much around the rest of the globe today. STEVE FORBES: Now, give a contrast to Asia where you're not allowed to, in effect, do this, are you? SETH MERRIN: We are, however, you have each exchange is the monopoly that the New York Stock Exchange and the NASDAQ were in this country just in 2000 and before. STEVE FORBES: So, you have to run it through them? SETH MERRIN: But you know something that's interesting that you bring up Asia. And in effect, the Asian markets on average, last year, were down about 25 percent more than the more sophisticated markets in the United States and Europe. Now, one of the reasons, I believe, is because they have sort of the old Soviet command and control model where you only have one store. Now, when everybody's going for the exits, everybody lines up and that puts massive pressure on it. It's good on the upside, but it's really negative on the downside. I believe that one of the reasons why the Asian markets were down so much more than the European and the western markets was simply because you have no competition. If you only have one store to go and buy and sell your goods, everybody has to go there. STEVE FORBES: So, and one that's not just P/E ratios and economics, it's just the fact that you can't move this stuff over there the way you can here? SETH MERRIN: I believe it's a very large factor. If you have multiple outlets to go and buy and sell, and you have competition between them. Obviously, a monopoly has never been good for the end consumer. Competition always has been.

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STEVE FORBES: Now, talking about competition, when you started to get this idea eight years ago, others have imitated you since then. How fierce is the competition? SETH MERRIN: Well, we started off 2007 with about five competitors. We ended 2007 with about 40. And this is every bit of a herd mentality as every other part of Wall Street is. So, people think that they want to get into it. They see that we're making money. We're very visible in the institutional sector, so they come in. The fact is that we are very different. We've created this institutional marketplace. And by that I mean we've brought exchange liquidity. We've brought brokerage liquidity. We have 70 percent of the institutional liquidity all centralized. And that's truly what a marketplace is, you have one place to go to. The other competition is really about automating the institutional trades from what they were at the major bulge bracket firms. The Goldman's and the Morgan's, they do this. And they've always done institutional trading. And when they put a black box in the middle of it, when they start executing electronically, the SEC says you have to create it, you have to call it an ATS, an alternative trading system. That then is that's what we are, therefore, the competition. So, it's nothing new, we've always competed against them. We have different models, and we have different value propositions. There's always a reason to do business with them. There's a reason to do business with us. [10:18] Traders Anonymous STEVE FORBES: One of the things you have is anonymity, and so, people don't necessarily know what an institutional trader is doing. Is that one of your big selling assets? SETH MERRIN: It is one of the big selling points. And it's a big differentiation between what we do and what the exchanges do. And the exchanges provide transparency. And they have to provide transparency to provide a pricing mechanism. And that's clearly what the retail traders need, and what the retail clientele needs. But when you have a situation on the exchange where there's 200 shares bid for and there's 200 shares offered. There's not an institution on earth that ever would put their entire demand down on the floor for everyone to see with that transparency. So, a hundred thousand shares bid for, and 200 shares offered, you know where that stock is going. So, what they need is they need a separate venue that they can go to trade anonymously where people and different types of forces and different types of

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investors don't take advantage of that. And the more advantage that they take of it, the more money comes out of the pockets of the people who are investing in the pension fund and the 401k funds. STEVE FORBES: Leads to front running and things like that? SETH MERRIN: Absolutely. STEVE FORBES: Is that why you're called the dark pool of liquidity, which has an ominous sound, but? SETH MERRIN: Yeah, we're not a dark pool. We're an institutional marketplace. But the dark pools are those upstairs automated trading of institutional flow that the bulge brackets have. What we've seen is when we have so much liquidity coming into a true marketplace, what's the purpose of the marketplace? And what are the advantages? And some of the things that we see with all of this liquidity is, for instance, at the end of last year, we saw a tremendous sell pressure, obviously. But in our system, we saw a three to one ratio, which is more than we've ever seen in our history. And that ran all the way through December. But what we've seen in the first few days of January is very interesting. And that is that the sell pressure has eased. In fact, we're seeing a bias toward the buy. Which, again, if you consider these people the smart money-- STEVE FORBES: That at least they can move the money. SETH MERRIN: I would say they're cautiously entering the markets again. Now, I think it's a little too early to state a trend. You know, if we come back in three months after the first quarter, we'd have a trend, we'd have some trend data. But it's very positive because the sell pressure was so enormous all the way through the end of December. [12:51] Smart Money Moves STEVE FORBES: Now, sell pressure last year, you mentioned, started around when? June? SETH MERRIN: That's another interesting point in that we have, if you categorize the institutions, you have hedge funds, and then you have long-only. STEVE FORBES: Right. SETH MERRIN: And those are the pension funds, and those are the mutual funds. The hedge funds generally have outperformed the long-only, maybe not

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last year, and maybe they did, I'm not sure. But the hedge funds started selling en masse in June. STEVE FORBES: Now, what do you think brought that about? Was it a reaction to Bear Sterns in March and people saying, "Gee, want to get some of this money out, have profits on paper"? SETH MERRIN: I think that Bear Sterns, a three-month reaction from March would be way too long for hedge funds. I think that they, it's a great leading indicator. I think, certainly, they had to start preparing for redemptions. But I think even that is not a great answer. I think the answer was that they simply felt that the market was overpriced at that point. The long-onlys, the pension funds, the mutual funds, started selling en masse in September when the market started dipping. So, I think truly, if you take a look at that, STEVE FORBES: That's an interesting question, what did the hedgies see that the others did see in June? SETH MERRIN: I'm not in their seat, but I never know what they see ahead. But, there are good hedge funds. But in mass, in terms of the entire category, we thought it was very interesting that they actually sold three months, or started selling three months prior to the market going down. And they generally have a tight community. They generally talk to each other. They are much more correlated than I think they even thought they were. So, it was a very interesting discovery. STEVE FORBES: But getting back to the liquidity thing, could it have been, the crisis has been building since August of 2007. You had what seemed like an unprecedented collapse in March. And hedge fund customers, would they have then started to put pressure to give the notices of redemptions that would have the hedgies start to want liquidity? SETH MERRIN: I don't believe that the individual investors in the hedge funds, or even the patient money, the plan sponsors, would have exited-- STEVE FORBES: Reacted? SETH MERRIN: Wanted to exit en masse. I think that really only started in September. STEVE FORBES: So, it was truly an investment decision? SETH MERRIN: I really believe it was.

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[15:21] Algos Amock STEVE FORBES: And last year, you saw the real selling pressure in areas such as finance, obviously, and IT. Why IT? SETH MERRIN: In fact, there was not one sector throughout all of 2008 that had a positive bias in any sector. But the major sectors, as we know, were certainly, the major sell pressures were financials and IT. STEVE FORBES: Why do you think there was such volatility last year? Why did the VIX [Volatility Index] go so berserk? SETH MERRIN: I think that according to some of the people at the New York Stock Exchange and NASDAQ, fully two thirds of the trading now, 60 percent to two-thirds of the trading, is all electronic. Electronic market making, quant electronics. Very different than it was, again, just at the beginning of the new millennium. And that really exacerbates. That's just computer models feeding off of each other. And I think that just because of that, you have just greater volatility in both ways. Certainly, in last year, you can understand volatility to the downside. But why was it that we had five percent up days? And the only thing that I can really attribute it to was just massive amounts of computer buying and computer selling. STEVE FORBES: And in terms of your own business, IPO, you have a patent fight, regulation perhaps on the horizon, how does it look to you? SETH MERRIN: Well, we did file for an IPO. We have filed the S-1. From a regulatory perspective, you know I can't talk about it. And from a markets perspective, this is not a good market to be going public in. I thank God I'm not public right now. But we'll continue to monitor the situation and at the right time. Thank God we don't need the money. At the right time, when the markets are receptive, we'll go public. STEVE FORBES: And has the patent fight been resolved? Or is that still out there? SETH MERRIN: No, the patent fight is out there. We are suing another company that we feel has infringed on our intellectual property. I don't think that that makes a difference one way or the other, but that will be resolved, hopefully, some time in 2009. [17:43] Trust No One STEVE FORBES: Fascinating business. Looking at the world today, what do you think is the one big misplaced assumption in the business world today?

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SETH MERRIN: Well, off the back of the [Bernie] Madoff scandal, I think the biggest misplaced assumption is the smart guy. It's rampant throughout Wall Street. And I think it's probably lost more people more money than anything else. And that is this guy is smart. He invested with this guy. He must have done his homework. Therefore, I can give my money to this guy. And it's the same thing that affected the mortgage-backed securities and the alt-A's, and I think that that's the biggest problem. You have to do your own homework, I think. STEVE FORBES: How does that apply to the individual investor? SETH MERRIN: Well, I think what you want to do is, and I think after Madoff there's probably going to be a flight to quality. Probably a flight to the larger asset management firms, the more well known asset management firms. You want to take a look at long term track records. I understand Madoff had one. And there's very little that you can do about fraud. You know, a lock is only there to keep out the good guys, not the bad guys. The bad guys will come in. But you have the name brand fund managers, and they will probably aggregate more assets. And ultimately, you have to take a look at the long-term track record. You have to make sure that the portfolio manager, what the tenure of that portfolio manager is. You have to see how they've performed in the good markets and the bad markets. You have to take a look at expense ratios. And because of the asset deflation, watch those expense ratios very closely. [19:24] Solve Big Problems STEVE FORBES: Yeah, over time compounding does take a bite. What's the best financial lesson you've learned over your lifetime? You've seen quite a bit. Started companies. SETH MERRIN: I would have to go back to my experience as an entrepreneur. What I've done over my entrepreneurial lifetime is take a look at large problems that need to be solved. The first company that I created which I was 24 years old, and it was called Merrin Financial. And I thought it was a great idea, and it was certainly a large problem. What I did not do well is I had to educate that market to inform them that there was a problem. It wasn't a well known problem established already. I had to take the time and the effort. STEVE FORBES: What was the problem? SETH MERRIN: We automated the trading of the institutions. It was all manual, it was all paper based. STEVE FORBES: But this was when you're 24 years old?

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SETH MERRIN: Yes, this was 1985. And the PC was considered a toy by Wall Street. And we took that PC and we captured those trade tickets, and we automated it and computerized it. And it took a very long time to educate the marketplace. Liquidnet is a massive problem that we're solving, but at least I learned you go into a marketplace where the prospects are well educated and there is a big desire to solve that problem. If I had to give any advice to entrepreneur, make sure that you have those three check marks checked: that it's a big problem to solve, that there's knowledge that there's the problem, and that there's a desire to solve that problem. STEVE FORBES: Acknowledge that there's the problem. Are you going to be able to use the same know how in a big way in terms of currencies, options, and other assets? SETH MERRIN: I don't know, and I don't believe that our model necessarily applies to the model that we're using for equities applies to the other asset classes. I don't know that it doesn't either. But we're completely focused on the equity market space. We've just finished laying our global footprint. We are now in Japan and Hong Kong and Singapore and Australia, in Europe and Canada. And there's a lot of work to be done. And these are all markets that are in desperate need of creating more efficiencies. And from the marketplace perspective, to actually be able to create a global perspective of what these institutional players are doing-- if there's a shift in sectors from Europe to Asia going into the United States or the Americas-- it's going to be absolutely fascinating. STEVE FORBES: So, in Asia, do you think what's happening here and a lesser extent in Europe is going to break the monopolies in Asia? SETH MERRIN: I do, absolutely. In Europe, we have a little bit of a head start because there is the European Union. STEVE FORBES: Right. SETH MERRIN: There are regulatory regimes that say you have to, that just came in last year or two years ago and said the exchanges must have competition. In Asia, every country has its own regulatory regime. It's going to take a lot longer. We understand a little bit about how Asia works. But it's going to come in different time spans in each one of those countries. Japan, interestingly enough, is very receptive. Singapore, very receptive. Hong Kong, very receptive. And those are really the major markets. That and Korea. [22:49] Big Returns Ahead STEVE FORBES: So, what is your bold prediction for the future?

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SETH MERRIN: Okay. I'm going to go out on a limb here. And I believe that 2009 is going to be an excellent year for returns for the people, for equity and for fixed income. STEVE FORBES: Even treasuries? SETH MERRIN: I don't know so much about treasuries, probably not. But corporates and even munies. STEVE FORBES: Munies would seem to all right. SETH MERRIN: But for those people that have the guts to put the money to work, I think that the returns can be spectacular this year. And just in the early days, we're somewhat optimistic that the institutions, we saw a massive decline in liquidity in the last three months of last year from the institutions. Much more so than with just fund redemptions, and to us that means there's a massive amount of cash on the sidelines, massive. And we see that some of that cash is starting to trickle in. I really believe that we're at, it might not happen January, it might not happen February, but in 2009, I think that the market's going to do very well. STEVE FORBES: Well, given we're earning three percent on a 30 year treasury, that probably the itch to earn some real returns will be there. So, glad to hear that prediction especially at the beginning of the year. Thank you, Seth. SETH MERRIN: I hope it comes through. Thank you.