September 15, Industry Update Exchanges & Order Execution 2011

Niamh Alexander Global Exchange Notes - September Volume Down Modestly from August Spike Analyst 212-887-3695 Summary-- [email protected] We address the recent surge in trading activity as high volatility persists and macro fears KBW Inc (North America) hit risk asset valuations. We reiterate our Outperform ratings on DB1, ICAP, BGCP, ICE, NDAQ, NYX and SGX. All eyes are now on the European Competition Justin Bates Commission's review of the DB1/NYX merger as competitors shape their strategies Analyst amid a changing market structure. In the U.S, the CFTC has outlined a rough timetable +44 207 663 3219 for rules to be finalized by 1Q12. A draft legislative MiFiD II proposal in Europe is [email protected] KBW Ltd (Europe) expected on Oct. 21, with implementation likely in early 2013.

Sam Hilton Key Points-- Analyst +852 3973 8330 [email protected] ■ Tempered September Follows August Surge. Volume and volatility surged in KBW Asia Ltd August, stemming from uncertainty over the slowdown in global growth, the debt crisis in Europe, and speculation around global monetary and fiscal policy. Investors exiting risk assets drove record exchange volumes. We caution that extraordinary Karl Morris Analyst storms of volume and volatility often precede extended periods of calm, and already +44 207 663 5296 OTC activity in Europe has slowed. Volume in September so far has been modest, [email protected] though still remains higher than last year. That said, exchanges and inter-dealer KBW Ltd (Europe) brokers should be positioned for a solid 3Q11. ■ NYX-DB1 Merger--December Decision Anticipated. We estimate NYX is Nassime Ruch-Kamgar, CFA currently trading at a slight premium to its implied merger price of $26. As expected, Analyst the European Commission extended its review of the merger to December 13th. The 212-887-7715 EC will be focused on the tie-up of the Eurex/LIFFE exchanges as this would create a [email protected] near monopoly for trading index, equity and interest rate futures in Europe. The KBW Inc (North America) company denied recent speculation of a deal between the EC and European market structure regulators to let the merger pass with restrictions on vertical integration Thomas Mills from MiFiD/EMIR. Analyst ■ Exchange Valuations Compressed with the Market. Macro fears pushed down +44 207 663 5295 exchange P/E multiples alongside the broader financial services sector, with Europe [email protected] down the most at 17% on average since 2Q11, even as business spiked. Historically, KBW Ltd (Europe) August has been an ideal time to go long exchange stocks as activity seasonally picks up following the summer. Our note on August 10th highlights that U.S. exchange Alim Shaikh stocks appear to already price in risk to earnings of stagnating volume. Analyst ■ Key Regulatory Events Upcoming. In its Sept. 8 meeting, the CFTC outlined a 212-887-7730 [email protected] timetable for the finalization of proposed rules and a proposal for phased KBW Inc (North America) implementation in regard to clearing, documentation and margining requirements. At its Sept. 22 meeting, the CFTC will consider rules on clearinghouse core principles and position limits. Other items to be finalized before year-end include: entity/product definitions, swap data record-keeping, and real-time reporting. In 1Q12, the CFTC will tackle capital and margin requirements and Swap Execution Facilities (SEFs). In Europe, the draft legislative proposal for MiFiD II is expected on Oct. 21, though implementation could be early 2013 after it is reviewed, revised and voted on by the European Parliament. ■ Please view PDF version for full note.

Please refer to important disclosures and analyst certification information on pages 7 - 9 of this report. 1 September 15, 2011 Global Exchange Notes - September Volume Down Modestly from August Spike Global Exchange and Interdealer Broker Comp Sheet

Market Cap Market Target Dividend EV / NTM KBW Estimates P/E Consensus Symbol Company Name Rating (USD Mil) Price Price Yield EBITDA 2010 2011E 2012E 2011E 2012E 2011E 2012E

Exchanges - Americas CME CME Group MP $18,090 $271.86 $300 2.1% 7.6x $15.44 $17.16 $18.14 15.8x 15.0x $17.34 $19.49 ICE Intercontinental Exchange OP $9,012 $123.68 $137 NA 9.1x $5.64 $6.78 $7.76 18.2x 15.9x $6.68 $7.51 NYX NYSE OP $7,349 $28.16 $38 4.3% 6.7x $2.10 $2.58 $2.81 10.9x 10.0x $2.59 $2.94 NDAQ OMX Group OP $4,415 $25.14 $33 NA 6.7x $1.99 $2.47 $2.85 10.2x 8.8x $2.47 $2.75 CBOE CBOE Holdings MP $2,689 $26.34 $25 1.8% 8.1x $1.08 $1.63 $1.85 16.2x 14.2x $1.51 $1.72 BVMF3-BR BM&FBOVESPA NC $10,885 9.16 NA 4.3% NA NA NA 0.71 0.77 X-AC TMX Group NC $3,041 40.65 NA NA NA NA NA 3.66 3.90 BOLSA.A-MX Bolsa Mexicana NC $933 20.40 NA NA NA NA NA 1.15 1.32 Median 15.8x 14.2x Exchanges - EMEA DB1-XE Deutsche Boerse OP $11,441 44.00 68 6.8% 6.7x 5.10 4.78 5.66 9.2x 7.8x 4.33 4.84 LSE-LN London UP $3,620 859.38 666 2.9% 8.0x 60.10 66.90 71.10 12.8x 12.1x 80.28 84.01 BME-MC Bolsas Y Mercados Espanoles MP $2,185 19.08 21 6.8% 7.4x 1.84 1.73 1.73 11.0x 11.0x 1.81 1.80 EXAE-AT Hellenic Exchanges Holdings MP $349 3.80 6.31 0.0% 7.0x 0.29 0.44 0.48 8.6x 7.9x 0.35 0.41 JSE-JO Johannesburg Stock Exchange NC $765 6,506 NA 3.0% NA NA NA 514.00 616.30 GPW-PW Warsaw Stock Exchange NC $545 42.51 NA NA NA NA NA 3.03 3.39 Median 10.1x 9.5x Exchanges - Asia-Pacific 388-HK Hong Kong SE & Clearing MP $18,870 136.70 155 2.9% 21.9x 4.67 4.80 5.09 28.5x 26.9x 5.20 5.91 S68-SG Singapore Stock Exchange OP $5,862 6.81 9.4 4.0% 14.0x 0.28 0.30 0.34 22.9x 20.3x 0.33 0.37 ASX-AU Australian Stock Exchange MP $5,214 29.01 32 6.0% 8.4x 1.91 2.10 2.21 13.8x 13.1x 2.18 2.34 BURSA-KU MP $1,100 6.37 8 4.6% 11.4x 0.21 0.27 0.30 23.6x 21.2x 0.29 0.33 8697-JA Osaka Securities Exchange NC $1,382 393,000 NA 2.4% NA NA NA 26,730 28,423 PSE-PH Philippine Stock Exchange NC $342 242 NA 1.4% NA NA NA NZX-NZ New Zealand Stock Exchange NC $228 2.30 NA NA NA NA NA 0.12 0.15 Median 23.3x 20.8x Inter-Dealer Brokers IAP-LN ICAP OP $4,887 480.94 610 3.7% 6.7x 39.30 40.60 43.00 11.8x 11.2x 46.51 52.13 TLPR-LN Tullet Prebon MP $1,249 386.44 400 3.9% 4.2x 46.30 46.80 49.10 8.3x 7.9x 47.98 51.73 BGCP BGC Partners OP $1,607 $6.86 $8.00 9.0% 3.7x $0.64 $0.81 $0.87 8.5x 7.9x $0.77 $0.83 GFIG GFI Group MP $514 $4.19 $4.50 4.8% 3.0x $0.27 $0.32 $0.39 13.1x 10.7x $0.31 $0.42 CFT-EB Tradition NC $548 78.95 NA 10.1% NA NA NA Median 10.2x 9.3x Non-Public/Other Exchanges Americas EMEA Asia Oslo Borse Bourse de Casablanca Dubai Mercantile Exchange Tokyo Stock Exchange Bolsa de Comercio de Santiago (Listed) Irish Stock Exchange Kuwait Stock Exchange Bolsa De Valores de Colombia (Listed) MICEX Russian Stock Exchange Stock Exchange of Mauritius Thailand Stock Exchange Bolsa de Valores de Lima (Listed) Bourse de Luxembourg Stock Exchange of Tehran Bolsa de Comercio de Buenos Aires SIX Swiss Exchange The Wiener Borse Oman Exchange Nigerian Stock Exchange National Stock Exchange of India Ljubljana Stock Exchange Abu Dhabi Securities Exchange Saudi Stock Exchange Stock Exchange of Thailand Instanbul Stock Exchange Borse Dubai Prices as of market close September 15, 2011. Note: All values in local currency, Estimates have been calendarized for those companies not on a Dec. year-end. UP = Underperform, MP = Market Perform, OP = Outperform, NC = Not Covered Source: Bloomberg, Reuters, FactSet, KBW Research

Please refer to important disclosures and analyst certification information on pages 7 - 9 of this report. 2 September 15, 2011 Global Exchange Notes - September Volume Down Modestly from August Spike Global Volume on Exchanges

Listed Derivatives - August Volume Surges As Volatility Spikes Global Share of 2010 Listed Derivative Volume

In August, volume surged from July and 2Q11 levels with global volatility spiking, though has tempered Other Latin America 1% somewhat in September so far. August U.S. futures volume was 26% higher than 2Q11, while European 7% futures volume was about 8% higher. U.S. options volume was up 32% from 2Q11 while the average VIX for the month more than doubled to 35. Relative to 2Q11, August derivatives volume was up about 25% in Asia, with Australia and Hong Kong growing the most. Although we expect volume to decelerate, we believe 3Q11 earnings will strong for the exchanges. Europe 20% Asia-Pacific YoY, derivatives volume in August 2011 was ~55% higher on Asia‐Pacific exchanges, ~65% higher on 40% European exchanges and ~60% higher on U.S. exchanges than last year's typically slow August. OTC derivatives volume on ICAP's electronic platforms in August 2011 was 28% higher than August 2010 and 3% higher than 2Q11. North America 32%

Derivatives Exchange 2010 / 2Q11 / Aug-11 / ADV (000s) 2010 2009 2Q11 2Q10 Aug-10 Aug-11 Aug-10 Source: FIA CME 12,167 19% 13,528 0% 11,723 17,096 46% ICE U.S. 426 16% 436 -5% 388 502 29% Cash Equities - Volume Surges in the Americas/EMEA, Lags in Asia-Pac CBOE 4,445 -1% 4,399 -17% 3,853 6,573 71% NYX U.S. options 3,670 39% 4,052 0% 3,006 5,751 91% Below we show cash equity volume by value‐traded as most European and Asian NDAQ U.S. options 3,916 39% 4,629 17% 3,183 4,514 42% exchanges earn a fee based on value‐traded rather than shares traded. DB1 (ISE) 2,974 -22% 2,853 -13% 2,353 4,125 75% Total North America 28,679 13% Value‐traded in the Americas was 68% higher than August 2010 driven by very high ICE Europe 862 32% 1 011 10% 795 1123 41% volatility,volatility though has tempered somewhat in September so far.far Excluding the USU.S., ICE Europe 862 32% 1,011 10% 795 1,123 41% value‐traded in the Americas was up 55% YoY in August. Similarly, volume in EMEA was DB1 (Eurex) 7,365 11% 8,790 -11% 5,173 9,129 76% up 71% from last year. The Asia‐Pac region had the smallest increase in value traded at Hellenic 34 8% 44 -5% 31 39 26% only 13%, though has been growing in prior months, compared to declines for the other BME 273 -25% 272 0% 148 123 -17% two regions. LSE (EDX and IDEM) 172 3% 430 -3% 234 358 53% NYX (LIFFE CONNECT) 3,422 11% 3,161 -20% 2,590 3,966 53% Total Cash Equity Value Traded by Exchange Total Europe 17,534 15% 2010 YoY Growth Aug-11 / ASX market 88 15% 110 9% 89 154 72% bln of USD 2010 / 2009 2Q11 / 2Q10 ASX24 market (SFE) 337 33% 461 29% 326 474 46% Aug-10 HKEx 468 18% 531 15% 421 719 71% Total Americas $32,902 -1% -19% 68% SGX 246 13% 260 1% 253 360 43% Bursa 25 0% 32 44% 27 36 32% Total EMEA $11,276 4% -5% 71% Total Asia-Pacific 35,179 43% Total Asia-Pacific $18,912 5% 6% 13%

Global Total 88,473 26% Source: World Federation of Exchanges. Data through August 31, 2011. Source:ICAP Electronic Company Volume reports, KBW 746 Research 25% 877 10% 704 904 28%

Please refer to important disclosures and analyst certification information on pages 7 - 9 of this report. 3 September 15, 2011 Global Exchange Notes - September Volume Down Modestly from August Spike The Global Exchange Landscape

Americas EMEA Asia-Pacific

Oslo Borse

LSE ICAP MICEX

TMX Warsaw SE Tokyo SE Tullett TOCOM Chi‐X GFI Deutsche Borse KRX Osaka SE NDAQ SIX BGC Shanghai SE CBOE CME BATS Tradition BME Shenzhen SE NYX Instanbul SE Taiwan FE Hellenic SE Kuwait SE Tel‐Aviv SE Taiwan SE ICE Saudi SE HKEx Qatar SE Borse Dubai DME NSE NYX DB1 Bombay SE Thailand FE Bolsa Mexicana Thailand SE Philippine SE Bursa Malaysia Indonesia SE

Bolsa Colombia Nigerian SE SGX

Bolsa Lima BM&F Bolsa Santiago ASX Johannesburg SE NZ SE Bolsa Buenos Aires

Note: Size of bubble represents market cap excl. non-public exchanges. Non-public exchanges indicated by white bubbles. SE = Stock Exchange, FE = Futures Exchange Source: World Federation of Exchanges, Reuters, KBW Research

Please refer to important disclosures and analyst certification information on pages 7 - 9 of this report. 4 September 15, 2011 Global Exchange Notes - September Volume Down Modestly from August Spike Global Exchange M&A Continues to be Relatively Active

Announced Exchange Mergers and Targeted Closing Dates

Deutsche Boerse (DB1) ‐ NYSE Euronext (NYX) ‐ The targeted closing date for the DB1‐NYX merger remains late 2011. On September 12, the German regulator BaFin officially approved the proposed merger, but the deal still needs approval from the European Commission (EC), the U.S. Department of Justice (DOJ), and the full college of 27 European Commissioners. As expected, the EC extended its review on August 4 into the Phase II period with a new deadline of December 13, 2011. In September/October the EC will investigate preliminary concerns and issue a "Statement of Objections" with which NYX/DB1 will have a formal opportunity to respond. The EC is particularly focused on the tie‐up of Eurex/LIFFE, as this would create the largest derivatives exchange in Europe. NYSE COO Larry Leibowitz denied recent speculation of adeal within the EC to let the merger pass with restrictions on vertical integration from MiFiD/EMIR.

BATS ‐ Chi‐X Europe ‐ The UK Competition Commission is expected to complete its regulatory approval of the BATS' acquisition of Chi‐X Europe by December 2, 2011. The unexpected uncertainty over regulatory approval has prompted several Chi‐X Europe shareholders (incl. 35% owner Instinet) to explore alternatives to the BATS proposal, the Financial Times reported in July 2011. However, Chi‐XEurope's CEO stated it is committed to finalizing the deal with BATS. Chi‐XEurope and BATS share five shareholders: Citigroup, Credit Suisse, BAC, MS and Getco. In August, BATS gained approval from the SEC to create a U.S. listings venue to compete with NYSE and Nasdaq.

TMX Group ‐ Maple Group ‐ Maple Group announced on August 3 that it would extend the deadline for TMX to accept its $3.9B bid from August 5th to September 30th while it pursues regulatory approvals for the deal. It plans to further extend the deadline if the approvals remain incomplete by the end of September.

Tokyo Stock Exchange (TSE) ‐ Osaka Securities Exchange (OSE) ‐ The situation continues to be unclear, with somewhat conflicting anonymously sourced reports from different news media. Reuters reported on September 9 that merger talks between TSE and OSE may be extended beyond TSE’s internal deadline of next month, as TSE prefers a tender offer for some or all of OSE’s stock, while OSE prefers a share swap to combine operations. However, on the same date Kyodo reported that the discussions are in the final stages, with a merger ratio of 1 TSE share for every 2 OSE shares and agreement expected by end‐September.

Insights to Additional Consolidation

Americas ‐ We believe CBOE will remain independent in the intermediate term. We estimate a NDAQ‐LSE combination could be solidly accretive on the right terms due to the LSE's attractive listing franchise and NDAQ's cost cutting ability. However, NDAQ's CEO has indicated a deal is unlikely given the LSE's significantly higher multiple, and hinted that it would likely resume share repurchases. Reuters has reported that the LSE may be interested in a merger, but we believe a 50‐50 merger will be dilutive for NDAQ shareholders. LSE is currently in negotiations with LCH.Clearnet regarding a potential transaction, with NDAQ CEO Bob Greifeld stating that he would still be interested in owning a minority stake in the clearinghouse.

EMEA ‐ On September 2, LSE confirmed that it was in discussions with LCH.Clearnet regarding a potential takeover valued at €1bn. We believe the rationale for such a move would be to (1) increase scale given the competitive threat of NYX/DB1 and (2) leverage LCH's clearing infrastructure to capture far more post‐trade services revenue. However, we see significant obstacles to a deal taking place, which include financing risk, difficulty in gaining LCH shareholder approval, and the risk of counterbids pushing the price higher. Amongst the inter‐dealer brokers, we expect to see additional attempts by Tullett Prebon to combine with competitors –Tradition and GFIG are the most talked about (Reuters sources) –to broaden product offering/deepen liquidity pool/bolster electronic offering in order to better compete with ICAP. As ever, we believe personality clashes/pricing expectations will be key sticking points. We believe those IDBs that have invested in straight‐through‐processing (STP) and electronic trading will feel no rush to acquire market share that they might otherwise poach post implementation of regulatory reform.

Asia‐Pac ‐ Aside from the potential for domestic consolidation –notably in Japan, with some possibilities in India –we continue to be skeptical about the near to medium‐term prospects for exchange consolidation in Asia, particularly of the cross‐border variety. With regard to long‐term prospects, on August 18 HKEx announced a prospective joint venture with the Shanghai and Shenzhen exchanges to develop new index and equity products. While we believe any HKEx‐SSE/SZSE combination is still a long way off (China's closed capital account and mutualized exchanges are two major obstacles), these discussions represent an important step forward.

Please refer to important disclosures and analyst certification information on pages 7 - 9 of this report. 5 September 15, 2011 Global Exchange Notes - September Volume Down Modestly from August Spike Regulatory Landscape

U.S Europe Asia

KEY ISSUE ‐ DERIVATIVES MARKET REFORM MiFID II PROPOSALS WORKING TOWARD G‐20 COMMITMENTS

We believe that uncertainty around regulation, among other factors, could The MiFID II consultation document contains a wide range of reforming proposals As there is no common market in Asia/Pacific, rule development remains a country‐ continue to dampen volume through mid‐2012. which attempt to capture some of the structural reforms that have occurred since by‐country endeavor. Broadly speaking, market sophistication lags that of the the introduction of MiFID in November 2007. The most significant of proposals for US/Europe, and regulators thus have the ability to absorb lessons from Timing of Rule Making the exchanges/IDBs are as follows: 1) Regulate organised trading facilities, intended developments overseas and tailor regulatory responses to the local market The Commissioners are targeting to have all rules completed by the first quarter of to capture: broker crossing systems; dark pools; and inter dealer broker systems 2) context. However, the proliferation of announced CCPs for OTC financial 2012 (though have emphasized that they will not prematurely finalize rules New broad definition of automated trading, with HFT as a sub‐category 3) Pre and derivatives in the region has the potential to fragment liquidity on national lines without thorough consideration), and the CFTC is currently drafting a proposal to post‐trade transparency to be extended to non‐equity instruments (incl. OTC and increase hedging costs in the region, unless regulators and governments extend the December 31 deadline. Once final rules are adopted, we expect derivatives & ETFs) on regulated markets (RM), multi‐lateral trading facility (MTF), manage to coordinate their policy initiatives appropriately. It remains to be seen effective dates to be phased in over nine months. We therefore don't see organised trading facility (OTF) 4) Mandatory requirement for all clearing eligible whether the regulatory timeline in the region will shift in light of the slippage seen meaningful new revenue impact for exchanges or would‐be SEFs until 2013 at the derivative contracts to be traded on a RM, MTF, OTF 5) National regulators to have in the US/Europe. earliest. powers to temporarily ban or restrict trading of product where there is a threat to financial stability. Also to ban trading of OTC derivative products held to be eligible Australia: The Council of Financial Regulators (comprising the RBA, APRA, ASIC and The current five CFTC Commissioners do not agree on many issues, which has for clearing where there is no CCP offering such clearing. the Treasury) issued a discussion paper in June considering the case for requiring slowed rule approval. A new fifth Commissioner, Democrat Mark Wetjen, is due to AUD‐denominated interest rate derivatives to be centrally cleared, and whether be approved by the Senate later this month, which could ease the current The latest news on the legislative process comes from European Market this should take place domestically. The CFR solicited feedback on the Council deadlock. Thus far, Wetjen has been approved by the Senate Agricultural Infrastructure Regulation (EMIR), which is deciding upon the regulation of OTC agencies’ views and propositions prior to making any recommendations to the Committee with no objections, but one could delay approval of his nomination. derivatives. We believe the current proposals look benign, particularly with regards Australian government, and has received over 20 submissions to date from market to margin and capital requirements for clearing houses and the persistence of participants and other interested stakeholders including banks, securities firms, In its most recent meeting on September 8, the CFTC gave a rough outline of when vertical silo models (as per DB1). The obligation to clear will be restricted to OTC industry associations, clearing houses and multilateral agencies. it expects to finalize the remaining rules. It also proposed a timeline for phasing in derivatives. compliance for clearing, documentation and margin requirements based on the Hong Kong: In line with the G‐20 recommendations and deadlines on OTC market participant. The first category, which includes swap dealers, major swap MiFID II Timeline derivatives, the HKMA and HKEx plan to launch a local trade repository and OTC participants, or active funds, will have to be in compliance within 90 days of any ‐ Draft legislative proposal expected on Oct. 21, 2011 clearing facility in 2012, with initial applicability to IRSs and NDFs. Regulator SFC Comission‐issued clearing requirement. For the second category, which includes ‐ First reading of the draft by the European Parliament end of 2011 plans to consult the market on the appropriate regulatory regime for the OTC commodity pools, employee benefit plans, or passive funds, this deadline is 180 ‐ Vote by European Parliament derivatives market by end‐3Q11. The SFC is closely monitoring overseas regulatory days. All others must comply within 270 days. ‐ Will likely go live in 2013 development to ensure that Hong Kong’s regime is in line with those of major markets. Key Proposals for SeptSept. 22 Meeting: Recent Developments ‐ Clearinghouse Core Principles A pre‐draft of MiFID II circulating in Brussels was leaked to the public on September Japan. New rules require key OTC financial derivatives (CDS, IRS) to be centrally ‐ Position Limits 2nd. All proposals in the draft are subject to change before the official draft is cleared by late 2012. This was one of a number of focus areas the FSA proposed released on October 21st. improving in January 2010. Other areas include strengthening clearing/settlement In 4Q11, the CFTC hopes to consider: systems for government bond transactions, improving consolidated regulation and ‐ Final rules on entity and product definitions (both joint rules with the SEC) The language around position limits was stronger in the MiFID II pre‐draft than the supervision, and hedge fund regulation. The Japan Securities Clearing Corporation ‐ Swap data recordkeeping and reporting consulation paper, though is still less prescriptive than U.S. position limit proposals. launched its OTC derivatives clearing service in late July; in its first full month of ‐ Real‐time reporting The consultation paper proposed a position management regime while the MiFID II operation, JSCC cleared a notional JPY25bn of OTC credit default swaps in 23 ‐ Regulations for trading platforms such as Designated Contract Markets (DCMs) pre‐draft proposes hard limits determined by exchanges, MTFs, and OTFs based on transactions. and Foreign Boards of Trade (FBOTs) number of contracts bought over a certain time frame vs. a limit on the size of a ‐ External/internal business conduct rules related to risk management, supervision, participants open interest determined by the CFTC in the U.S. However, we believe Singapore. The Monetary Authority of Singapore (MAS) said that it is reviewing its conflicts of interest, recordkeeping, and chief compliance officers European position limits will ultimately be similar to U.S. limits as regulators on policies and will conduct a consultation by the end of 2011 on all aspects of the both sides of the Atlantic are generally trying to align markets. For a more in‐depth Financial Stability Board’s recommendations, targeting implementation by end‐ In 1Q12, the CFTC hopes to consider: analysis of position limits and its impact on exchanges see our Sept. 6 note entitled 2012 per the G‐20 timetable. For OTC derivatives trading, this will take the form of ‐ Capital and Margin (working closely with international regulators) Position Limits: Key Issues, Timing & Potential Impact 4 key thrusts: 1) encourage standardized derivatives contracts; 2) mandate central ‐ Swap Execution Facilities (SEFs) clearing of all standardized contracts, with implementation details to come; 3) ‐ Straight‐Through Processing (STP) On August 16, German and French PMs Merkel and Sarzoky outlined measures to move trading to trading platforms where appropriate; 4) report trades to a trade ‐ Documentation strengthen European finances and harmonize economic policy in the region, among repository –MAS is assessing the need for a local repository and the appropriate ‐ Client clearing rules, customer segregation rules them a financial transactions tax. We believe the latter proposal could negatively regulatory regime. We note that SGX has been operating an OTC clearing facility for impact revenue at the exchanges with exposure in Europe, particularly, DB1/NYX, energy and freight derivatives since 2006, and expanded into financial derivatives Tentative CFTC Meeting Calendar: LSE, ICE and NDAQ. We believe the likelihood of such a tax being passed is small, in late 2010 ahead of any regulator push. Sept. 22, Oct. 4, Oct. 18, Nov. 1, Nov. 17 especially given opposition by the U.K and U.S.

Please refer to important disclosures and analyst certification information on pages 7 - 9 of this report. 6 September 15, 2011 Global Exchange Notes - September Volume Down Modestly from August Spike

IMPORTANT DISCLOSURES RESEARCH ANALYST CERTIFICATION: We, Niamh Alexander, Justin Bates, Sam Hilton, Karl Morris, Nassime Ruch-Kamgar, CFA, Thomas Mills and Alim Shaikh, hereby certify that the views expressed in this research report accurately reflect our personal views about the subject companies and their securities. We also certify that We have not been, and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation in this report. Analysts’ Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking.

COMPANY SPECIFIC DISCLOSURES For disclosures pertaining to recommendations or estimates made on a security mentioned in this report, please see the most recently published company report or visit our global disclosures page on our website at https://kbw3.bluematrix.com/sellside/Disclosures.action or see the section below titled "Disclosure Information" for further information on how to obtain these disclosures.

AFFILIATE DISCLOSURES: This report has been prepared by Keefe, Bruyette & Woods Inc. (“KBWI”) and/or its affiliates Keefe, Bruyette & Woods Limited and Keefe, Bruyette & Woods Asia Limited all of which are subsidiaries of KBW, Inc. (collectively “KBW”). Keefe, Bruyette & Woods Inc. is regulated by FINRA, NYSE, and the United States Securities and Exchange Commission, and its headquarters is located at 787 7th Avenue, New York, NY 10019. Keefe, Bruyette & Woods Limited is registered in England and Wales, no. 04605071 and its registered office is 7th Floor, One Broadgate, London EC2M 2QS. KBWL is authorised and regulated by the UK Financial Services Authority ("FSA"), entered on the FSA's register, no. 221627 and is a member of the . Keefe, Bruyette & Woods Asia Limited is a licensed corporation regulated by the Securities and Futures Commission of Hong Kong ("SFC") (CE No.: AUI281). Its headquarters is located at 3101, 31/F Central Plaza, 18 Harbour Road, Wanchai, Hong Kong. Disclosures in the Important Disclosures section referencing KBW include one or all affiliated entities unless otherwise specified. Registration of non-US Analysts: Any non-US Research Analyst employed by a non-US affiliate of KBWI contributing to this report is not registered/qualified as research analyst with FINRA and/or the NYSE and may not be an associated person of KBWI and therefore may not be subject to NASD Rule 2711 or NYSE Rule 472 restrictions on communications with a subject company, public appearances, and trading securities held by a research analyst account. Disclosure Information: For current company specific disclosures please write to one of the KBW entities: Keefe, Bruyette & Woods Research Department at the following address: 787 7th Avenue, 4th Floor, New York, NY 10019. The Compliance Officer, Keefe, Bruyette and Woods Limited, 7th Floor, One Broadgate, London EC2M 2QS. The Compliance Officer, Keefe, Bruyette and Woods Asia Limited, 3101, 31/F Central Plaza, 18 Harbour Road, Wanchai, Hong Kong. Or visit our website at http://www.kbw.com/research/disclosures.html. KBW has arrangements in place to manage conflicts of interest including information barriers between the Research Department and certain other business groups. As a result, KBW does not disclose certain client relationships with, or compensation received from, such companies in its research reports.

Distribution of Ratings/IB Services KBW *IB Serv./Past 12 Mos. Rating Count Percent Count Percent Outperform [BUY] 258 36.19 63 24.42 Market Perform [HOLD] 384 53.86 71 18.49 Underperform [SELL] 51 7.15 5 9.80 Restricted [RES] 0 0.00 0 0.00 Suspended [SP] 20 2.81 3 15.00 Covered -Not Rated [CNR] 0 0.00 0 0.00

*KBW maintains separate research departments; however, the above chart, "Distribution of Ratings/IB Services," reflects combined information related to the distribution of research ratings and the receipt of investment banking fees globally.

Explanation of Ratings: KBW Research Department provides three core ratings: Outperform, Market Perform and Underperform, and three ancillary ratings: Suspended, Restricted, and Covered - Not Rated. For purposes of New York Stock Exchange Rule 472 and FINRA Rule 2711, Outperform is classified as a Buy, Market Perform is classified as a Hold, and Underperform is classified as a Sell. Suspended indicates that KBW’s investment rating and/or target price have been temporarily suspended due to applicable regulations and/or KBW policies. Restricted indicates that KBW is precluded from providing an investment rating or price target due to the firm's role in connection with a merger or other strategic financial transaction. Covered - Not Rated indicates that KBW is not providing an investment rating and/or price target due to the lack of publicly available information and/or its inability to adequately quantify the publicly available information to sufficiently produce such metrics. North American Stocks are rated based on an absolute rate of return (percentage price change plus dividend yield).Outperform represents a total rate of return of 15% or greater. Market Perform represents a total rate of return in a range between -5% and +15%.Underperform represents a total rate of return at or below -5%.

Please refer to important disclosures and analyst certification information on pages 7 - 9 of this report. 7 September 15, 2011 Global Exchange Notes - September Volume Down Modestly from August Spike

European and Asian Stocks are rated based on the share price upside to target price relative to the relevant sector index performance on a 12-month horizon. Outperform rated stocks have a greater than 10 percentage point (“pp”) relative performance versus the sector, Market Perform rated stocks between +10pp to -10pp relative performance versus the sector, and Underperform rated stocks a lower than 10pp relative performance versus the sector. The 12-month price target may be determined by the stock’s fundamentally-driven fair value and/or other factors (e.g., takeover premium or illiquidity discount).

KBW Model Portfolio: "Model Portfolio Buy" - Companies placed on this list are expected to generate a total rate of return (percentage price change plus dividend yield) of 10% or more over the next 3 to 6 months. "Model Portfolio Sell" - Companies placed on this list are expected to generate a total rate of return (percentage price change plus dividend yield) at or below -10% over the next 3 to 6 months. The purpose of the Model Portfolio is to inform institutional investors of KBWI’s short-term (as described above) outlook for a particular industry sector. The Portfolio is not available for purchase or sale, cannot be duplicated as shown, is hypothetical and is for illustrative purposes only. For a more detailed description of the selection criteria and other specifics related to the construction of the Model Portfolio, please refer to the January 5, 2010 Model Portfolio Primer and/or contact your KBWI representative for more information. The Model Portfolio should be viewed as a short-term outlook of a particular industry sector, not as individual security recommendations. The Model Portfolio uses a three-to-six-month time horizon and should not be considered when making longer term investments. KBWI Research publishes research with a 12-month outlook on each issuer of securities contained in the Model Portfolio. Investors who are interested in a particular security should request KBWI Research’s coverage of such securities by contacting your KBWI representative. KBW research contains analyses of fundamentals underlying each issuer. KBWI’s long-term recommendations may differ from recommendations made for the Model Portfolio. These differences are the result of different time horizons -- KBWI research has a 12-month outlook and the Model Portfolio has a three-to-six-month outlook. Although the model portfolio is based upon actual performance of actual investments, KBWI did not recommend that investors purchase this combination -- or hypothetical portfolio -- of investments during the time period depicted here. As this hypothetical portfolio was designed with the benefit of hindsight, the choice of investments contained in it reflects a subjective choice by KBWI. Accordingly, this hypothetical portfolio may reflect a choice of investments that performed better than an actual portfolio, which was recommended during the depicted time frame, would have performed during the same time period. Moreover, unlike an actual performance record, these results do not represent actual trading wherein market conditions or other risk factors may have caused the holder of the portfolio to liquidate or retain all or part of the represented holdings.

Other Research Methods: Please be advised that KBW provides to certain customers on request specialized research products or services that focus on covered stocks from a particular perspective. These products or services include, but are not limited to, compilations, reviews and analysis that may use different research methodologies or focus on the prospects for individual stocks as compared to other covered stocks or over differing time horizons or under assumed market events or conditions.

OTHER DISCLOSURES Indices: The following indices: U.S.: KBW Bank Index (BKX), KBW Insurance Index (KIX), KBW Capital Markets Index (KSX), KBW Regional Banking Index (KRX), KBW Mortgage Finance Index (MFX), KBW Property & Casualty Index (KPX), and KBW Premium Yield Equity REIT Index (KYX); KBW Financial Sector Dividend Yield Index (KDX); Europe: KBW Large-Cap Banks Index (KEBI), KBW Mid/Small Cap Banks Index (KMBI), KBW Large-Cap Insurance Index (KEII), KBW Miscellaneous Financials Index (KMFI), KBW Emerging Europe Financials Index (KEEI); and Global: KBW Global ex-U.S. Financial Sector Index (KGX), are the property of KBWI. KBWI does not guarantee the accuracy and/or completeness of the Indices, makes no express or implied warranties with respect to the Indices and shall have no liability for any damages, claims, losses or expenses caused by errors in the index calculation. KBWI makes no representation regarding the advisability of investing in options on the Index. Past performance is not necessarily indicative of future results. ETFs: The shares ("Shares") of KBW ETFs are not sponsored, endorsed, sold or promoted by KBWI. KBWI makes no representation or warranty, express or implied, to the owners of the Shares or any member of the public regarding the advisability of investing in securities generally or in the Shares particularly or the ability of its Indices to track general stock market performance. The only relationship of KBWI to Invesco PowerShares Capital Management LLC , ProShares and State Street Bank and Trust Company is the licensing of certain trademarks and trade names of KBWI and its Indices which are determined, composed and calculated by KBWI without regard to Invesco PowerShares Capital Management LLC, ProShares and State Street Bank and Trust, the fund, or the Shares. KBWI has no obligation to take the needs of Invesco PowerShares Capital Management LLC, ProShares, State Street Bank and Trust Company or the owners of the shares into consideration in determining, composing, or calculating the Indices. KBWI is not responsible for and has not participated in any determination or calculation made with respect to issuance or redemption of the Shares. KBWI has no obligation or liability in connection with the administration, marketing or trading of the Shares. ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Investing in a single sector may be subject to more volatility than funds investing in a diverse group of sectors. Brokerage commissions and ETF expenses will reduce returns. In general, ETFs can be expected to move up or down in value with the value of the applicable index. Although ETFs may be bought and sold on the exchange through any brokerage account, ETFs are not individually redeemable from the Fund. Investors may acquire ETFs and tender them for redemption through the Fund in Creation Unit Aggregations only, please see the prospectus for more details. There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks including those regarding short selling and margin maintenance requirements. Past performance is not necessarily indicative of future results. Most ProShares ETFs seek a return that is a multiple (e.g., -200%, -300%) of the return of an index or other benchmark (target) for a single day. Due to the compounding of daily returns, Ultra and Short ProShares' returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period. Investors should monitor holdings consistent with their strategies, as frequently as daily. For more

Please refer to important disclosures and analyst certification information on pages 7 - 9 of this report. 8 September 15, 2011 Global Exchange Notes - September Volume Down Modestly from August Spike

on correlation, leverage and other risks, please read the prospectus. An investor should consider the Funds’ investment objectives, risks, charges and expenses carefully before investing. This and other information can be found in their prospectuses. For this and more complete information about the Funds, call InvescoPowerShares at 1-800-983-0903 or visit https://invescopowershares.com; call State Street at 1-866-787-2257 or visit https://www.spdrs.com/resources/materials/productLiteratureOverlay.seam; or call ProShares Client Services at 1-866-776-5125 or visit http://www.proshares.com/resources/litcenter/ for a prospectus. The prospectus should be read carefully before investing. Shares of the ETFs funds are not guaranteed or insured by the FDIC or by another governmental agency; they are not obligations of the FDIC nor are they deposits or obligations of or guaranteed by KBWI, Invesco PowerShares Capital Management LLC, ProShares or State Street Bank and Trust Company. ETFs are distributed by Invesco Distributors, Inc. the distributor of the PowerShares Exchange-Traded Fund Trust II. PowerShares® is a registered trademark of Invesco PowerShares Capital Management LLC; by State Street Global Markets, LLC, member FINRA (http://www.finra.org/index.htm), SIPC (http://www.sipc.org/) ; ProShares are distributed by SEI Investments Distribution Co. which is not affiliated with ProFunds Group or its affiliates. General Risk Disclosure: Investments in securities or financial instrument involve numerous risks which may include market risk, counterparty default risk, liquidity risk and exchange rate risk. No security or financial instrument is suitable for all investors and some investors may be prohibited in certain states or other jurisdictions from purchasing securities mentioned in this communication. The securities of some issuers may not be subject to the audit and reporting standards, practices and requirements comparable to those companies located in the investor’s local jurisdiction. Where net dividends to ADR investors are discussed, these are estimated, using withholding tax rate conventions, and deemed accurate, but recipients should always consult their tax advisor for exact dividend computations. COUNTRY SPECIFIC AND JURISDICTIONAL DISCLOSURES: United States: This report is being distributed in the US by Keefe, Bruyette & Woods Inc. Where the report has been prepared by a non-US affiliate, Keefe, Bruyette & Woods Inc., accepts responsibility for its contents. U.K. and European Economic Area (EEA): This report is issued and approved for distribution in the EEA by Keefe Bruyette & Woods Limited, which is regulated in the United Kingdom by the Financial Services Authority. 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Non US customers wishing to effect a transaction should contact a representative of the KBW entity in their regional jurisdiction except where governing law permits otherwise. US customers wishing to effect a transaction should do so by contacting a representative of Keefe, Bruyette & Woods Inc. ONLY DISTRIBUTE UNDER REGULATORY LICENSE: This communication is only intended for and will only be distributed to persons residing in any jurisdictions where such distribution or availability would not be contrary to local law or regulation. This communication must not be acted upon or relied on by persons in any jurisdiction other than in accordance with local law or regulation and where such person is an investment professional with the requisite sophistication and resources to understand an investment in such securities of the type communicated and assume the risks associated therewith. CONFIDENTIAL INFO: This communication is confidential and is intended solely for the addressee. It is not to be forwarded to any other person or copied without the permission of the sender. Please notify the sender in the event you have received this communication in error. NO SOLICITATION OR PERSONAL ADVICE: This communication is provided for information purposes only. It is not a personal recommendation or an offer to sell or a solicitation to buy the securities mentioned. Investors should obtain independent professional advice before making an investment. ASSUMPTIONS, EFFECTIVE DATE AND UPDATES: Certain assumptions may have been made in connection with the analysis presented herein, so changes to assumptions may have a material impact on the conclusions or statements made in this communication. Facts and views presented in this communication have not been reviewed by, and may not reflect information known to, professionals in other business areas of KBW, including investment banking personnel. The information relating to any company herein is derived from publicly available sources and KBW makes no representation as to the accuracy or completeness of such information. Neither KBW nor any of its officers or employees accept any liability whatsoever for any direct, indirect or consequential damages or losses arising from any use of this report or its content. This communication has been prepared as of the date of the report. KBW does not undertake to advise clients of any changes in information, estimates, price targets or ratings, all of which are subject to change without notice. The recipients should assume that KBW will not update any fact, circumstance or opinion contained in this report. COPYRIGHT: This report is produced for the use of KBW customers and may not be reproduced, re-distributed or passed to any other person or published in whole or in part for any purpose without the prior consent of KBW.

Please refer to important disclosures and analyst certification information on pages 7 - 9 of this report. 9