www.sungard.com

Burgundy Seminar - How to stay competitive in a fragmented market!

10 September, 2009

Philippe Ramkvist-Henry - Business Expert, SunGard Front Arena

The need for smart order routing in a

fragmented market

Networks

Institutional

Customers

Other

banks

Bank

System

Stock

Exchanges

Sell Side business – Today

Bank

System

Bank

System

Warrants &

Structured Prod.

Exchanges

Derivatives

Exchanges

Data vendors

(Reuters, Bloomberg)

Institutional

Customers

Networks

Stock

Exchanges

and

MTFs

Orders(indication of interest) IOI’s

TradesTrade Adverts

Order Network &Internal Market

InternalMatching

Internal Matchingof Order flow –Manual or Automatic

MiFIDReporting

FIX

SalesPersons

Tel

Excel

Programs

Bank

System

Bank

System

Other

banks

Integration

RoutingRules

FIX

FIX

ExecutionTraders

FIX

Industry View

SMART

web

TNP SDK

DMA clientRetail

Customers

Branch

Offices

There is only one market!

Consolidation

Ownership consolidation

Fewer platformsNew owners

New platforms

Orderbook liquidity fragmentation

Fragmentation

Screenshots are from the test systems!

Before – Recent – Now – StatoilHydro

What does a SOR do?

� Can connect and trade on multiple markets

� Uses realtime consolidated price view

� Where is the liquidity?

� What are the prices?

� What’s the multi market spread (EBBO of connected markets)?

� Manages venue specifics

� Rount lots

� Hours of service, trading phases etc

� Tick Sizes

� Preference venues based on

� Prices, Liquidity, Phase

� Market Share

� Execution & Settlement costs (price promotions etc)

Internal MarketInternal Market

Strategy example (Exhaust)

SMARTSMART

Order

Instruction

Volume available

No volume available

SMART Algo:

“Exhaust”

• Order moved to the markets in sequence.

• Remaining quantity moved to the next market.

Bank using

Synthetic SOR Strategies

� Use out-of-the-box in combination to create unique strategies suiting your business.

� Exhaust, Sweep

� Post, Post Best, Spray

� Cross Protect

� Hunter

� Retail order flow

� Sweep, Post (to Primary), Cross Protect

� All parameters hidden to user

� RetailStrategy

� Institutional order flow

� Exhaust, Post Best

� Some parameters available, example: MinQty

� InstStrategy

Exhaust example – Audit log (example 1)

Sell 50 000@70,5 executed in full at Chi-X at the average 70.5337! ~4,8bps improvement

Detail

� Order is sent as IOC 50 000@70,55

� 7974 is matched (all visible and Iceberg qty at 70,55)

� Order is returned to SMART for new decision

� Someone adds 4 961@70,55!

� Only possible to discover this newly added liquidity with low latency market data!

� SMART discovers the new 4 961@70,55

� Order is sent as IOC 42 026@70,55

� etc...

Exhaust example 2 - Audit log

Hits the market 10 times! Chi-X, Burgundy, SAX

Price improvement on

21084 shares!

50 000@76,008

~1,1bps improvement

Burgundy Statistics – August 2009

9,7%

8,8%

8,2%

17,8%

Note! Chi-X, NEURO, BATS etc are missing from market share statistics

8%

Sell Side – Do you need to own the SOR?

� You’re working for the buy-side

� Add value!

� Don’t use buy-side tools

� Differientiate!

� Oustsource your flow?

� Stay in control of your valuable assets!

� Be transparent with your customers!

� Internalization of customer order flow

� Difficult when acting on multiple markets

� Integrate SOR in your ALL you orderflow

� Leverage increased automation and transparency!

Internalization of customer order flow

Before MTF’s

� Crossing customer orders facilitated by exchange

� Internalization not really needed

With the MTF’s

� With more fragmentation likelihood of two customer orders being at same venue is lower.

� In order not to decrease chance of execution in-house internalization needed.

Necessary Solution

� Smart Order Routing with Internalization interaction

� Withdraw of moved crossing orders in the market

More statistics – OBX Market share

Data from BATS, http://www.batstrading.co.uk/market_data/venue/index/OBX/

� About 5-7% traded away from Oslo Börs

� Already reached +11% one day!

More statistics – OMXS30 Market share

� Already ~22% traded on the MTFs

Data from BATS, http://www.batstrading.co.uk/market_data/venue/index/OBX/

History repeating?

OMXS30 7 Months ago

OBX 1 Month ago

20% traded outside Oslo Börs

in 6 months?

Thank you!

Philippe Ramkvist-Henry

Business Expert – Order Management and Distribution

SunGard Front Arena

Philippe.ramkvist-henry@sungard.com

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