OTC Derivatives Markets Face up to Government Regulation

Q4 2009

Sponsored by In this issue:

Page 2 and 3 Tradeweb’s CEO and President give their take on the latest news.

Page 5 Looking for liquidity? Electronic trading offers an effective way to increase market transparency.

Page 6 As the Asia market sees a higher demand for offerings, Tradeweb consistently expands.

Page 11 Tradeweb’s Deposits market goes global with its electronic trading.

Page 14 Tradeweb establishes Smart IOIs™ for the Equities market.

Page 18 Q&A with Stephen Engdahl of Charles River Development.

Treasury Market Shows Resilience

he U.S. Treasury market rebounded in the first half of T the year, after liquidity had OTC Derivatives Markets Face Up dried up at the end of 2008. Clients traded 13% more in Q4 2009 than to Government Regulation in the prior quarter, a signal that some stability had returned. With he most recent Bills proposed in the U.S. pave the way for centralized clear- an extensive government funding and electronic trading on either exchanges or alternative swap execution ing program in place, dealers are facilities (such as Tradeweb) for derivatives that can be cleared. There are looking anxiously for any signs of T many details to be negotiated during the remaining legislative timetable and the inflation or drying-up of demand by foreign central banks for U.S. ensuing regulatory phase, but the proposed legislation from the Administration, debt. Despite the difficult environ- House, and Senate as they stand would result in significant changes in the way ment, Tradeweb’s average trade size that swaps are traded. European legislation seems headed in the same direction, a grew to $6.1 million in Q4 2009, necessary condition if jurisdictional arbitrage is to be avoided. and more than 35% of business The language in the various Bills in relation to trading requirements is still in flux, executed on Tradeweb during this but the consistent policy message relating to trading is troubling to many mar- period was represented by trades of $100 million or greater. At the ket participants. Most concerning to the buy-side would be a shift to traditional same time, the customer hit rate exchange trading of OTC derivatives, which would likely suck the liquidity out of the improved to 72% and the percent- swaps market and limit the scope of available derivatives contracts. This could be age of trades executed at or better problematic. For example, insurance companies and pension funds with long-term than Tradeweb’s composite price assets and liabilities may not be able to accurately hedge their positions. This increased by 7% to 75%, all signals would likely result in increased costs for the end-users. of an improving market. Continued on page 2 For more information on Tradeweb contact (800) 541-2268 or [email protected] emarkets • Q4 2009 • 1 Lee Olesky Talks About The Regulatory Environment View From he decisions taken over the next few months in Wash- with clients over the telephone and through regulated ington DC and Brussels will have a profound effect on electronic platforms, such as Tradeweb. It has been well doc- T the long-term health of the OTC derivatives market. umented what happens when these primary institutions do At stake is a multi-trillion dollar industry which provides not—or are not able to—provide liquidity. important hedging tools to a wide array of end-users. While By contrast, exchange trading models have been effective regulation is an important step towards rebuilding confidence for a relatively small number of highly-liquid instruments. The in the banking sector, it is important that in the rush success rate for newer, less liquid products has been to address systemic risk, legislators don’t inadver- disappointing. There is a long list of unsuccessful tently restrict competition or limit access to the exchange trading initiatives over the years, in- OTC markets. cluding the failed launches of CDS on Tradeweb supports the broad goals of Con- Eurex, and Liffe (which has not yet cleared a gress, in particular the adoption of central single CDS trade). Evidence of effective counterparties and the benefits of electronic ongoing competition between exchanges in trading. Electronic markets provide an similar products has not been encouraging. increased level of transparency, help improve Indeed, the monopolistic characteristic of efficiency, and provide the ability to monitor exchanges was one of the key factors leading to markets and prevent trading abuses. MiFID reform in Europe to create more competi- While central counterparty clearing and enhanced tion for exchanges. transparency are eminently sensible goals, there is under- Captive clearing mechanisms linked to exchange trad- standable widespread concern about any move towards ing further exacerbate this problem, and have led to exten- exchange trading, as it would overlook the many benefits of sive regulatory examination and investigation of these ar- the current market structure. Furthermore, there is no logical rangements over the past decade. The benefits of exchange reason to tie clearing or central counterparty functions to trading—transparency and centralized digitized recording of an exchange. trades—are also readily available in a range of non-exchange The proper solution for the OTC derivatives market lies in regulated electronic OTC trading platforms. By keeping creating central counterparty clearing mechanisms that of- derivatives on a centrally-cleared OTC market, and open to fer equal access to multiple regulated trading platforms. This multiple regulated trading platforms, much-needed reform would strike the right balance between addressing systemic can be brought about, without sacrificing the innovation problems and encouraging market innovation. and competitive drive for efficiency that delivers continuing The OTC model supports a wide range of instruments, real benefits to end-users, investors, and debt issuers. many of which trade relatively infrequently. Issuing new and refinancing existing debt requires a market structure predi- cated on the willingness and desire of institutions to support Lee Olesky the underwriting, distribution, and the provision of secondary Chief Executive Officer, market liquidity for each new issue. This is done both directly Tradeweb

OTC Derivatives… Continued from page 1

There are signs that industry lobbyists are having an im- as early as Easter 2010. The devil is then in the details, and pact. In recent weeks, a number of end-users have appeared it is expected that the CFTC and SEC will be in hearings on on Capitol Hill on behalf of the derivatives industry, and this the proposed regulation for 12 months or more following is apparently making an impression. President Obama’s signing of the final Bill. During this time, Final regulation from the SEC and CFTC is some way off— there will be intense pressure to craft rules that preserve the perhaps 18 months or more—but in the meantime there will core benefits of OTC derivatives trading—flexibility, access to be plenty of work for governmental affairs personnel. In the dealer liquidity, and a fully-disclosed marketplace—while pro- next few months, the House and Senate will be negotiating viding transparency, efficiency, and the prevention of market a common Bill for presidential sign-off, which could come abuse that Tradeweb currently provides.

2 • Q4 2009 • emarkets Billy Hult Speaks The Top On Interest Rate Swaps he OTC markets have a history of innovation, which has Electronic trading of swaps is likely to further accelerate enabled governments, agencies, and corporations to when some of the “manual” aspects of the swaps T better manage their assets and liabilities. The current market, such as signing ISDA agreements with new clients debate on the regulation of derivatives has, to date, failed and the process for enabling clients with dealers, become to focus on the benefits of OTC markets in general, and on more streamlined. Standard ISDA agreements can still take electronic trading in particular. No more striking example can six to 12 months to complete and while some dealers enable be seen than in the growth of the interest rate swap clients in a couple of days, there are others who can market, which has provided an invaluable hedging take months to enable new clients as swap coun- tool to many major global institutional clients terparties. While both of these processes can be over the last 20+ years. completed electronically, the market will only While the swaps market is relatively young, reach its full potential for streamlined elec- many other over-the-counter markets have tronic trading when dealers and their custom- developed over decades. What they all have ers take advantage of these efficiencies. in common is that when electronic trading There is little doubt that the OTC markets has been introduced, volumes have invariably are here to stay. The opportunity now is to increased—usually sharply. In tandem, trans- increase the efficiency of these markets, parency has grown dramatically, with the visibility which will benefit both customers and dealers, of real-time pricing now taken for granted in the OTC while satisfying the demands of the regulators. markets. The benefits of electronic swap trading are numerous, and mirror those for other e-markets, including: Billy Hult Access to Deep Pools of Liquidity E-trading provides President, Tradeweb the buy-side with direct contact with sell-side trading desks simultaneously, even in volatile markets; Real-time Auctions In fast-moving markets, e-trading allows clients to place dealers in real-time competition, impossible to do effectively on the telephone; The Value in Electronic Swaps Trading: Most Customers go to Straight-through Processing Some of the biggest risks 3 Dealers revolve around fat fingers and failed trades. E-trading solves Percentage of 1,720 Total Inquiries this with seamless electronic trade capture, trade allocation, on Tradeweb in 2Q09

confirmation, and processing; Sent to 1 Dealer 4% Compliance E-trading not only provides the ability to Sent to 2 Dealers 32% extract the best price from a market by placing dealers Sent to 3 Dealers 64% in competition, but it lets you prove it with a permanent electronic audit trail.

Evolution of Tradeweb Swaps Sept. ’08 3Q08 Volumes (Excluding OIS) Up 39% vs 3Q07 March ’07 GBP Swaps Go Live Aug. ’08 Dollar Swaps Adds Spread Switch Trades

May ’05 Euro IRS Adds Broken Dated/Off Benchmark Feb. ’08 Dollar Swaps Adds IMM Rate Trades July ’09 Dollar Swaps Adds $OIS Trades

July ’07 Yen Swaps Go Live Feb. ’05 Euro IRS Go Live April ’08 Euro IRS Adds Request-For-Stream/Expansion Feb. ’08 Dollar Swaps Adds 6 New Dealers to Three Dealers Dec. ’06 Dollar Swaps Adds Rate Switch Trades May ’07 Total Global Volume Exceeds $1 Trillion

Sept. ’05 Dollar Swaps Go Live Jan. ’07 Euro IRS Adds EONIA ECB Dates Oct. ’08 Dollar Swaps Adds Butterfly Trades

20020055 2006 2007 2008 20020099

For more information on Tradeweb contact (800) 541-2268 or [email protected] emarkets • Q4 2009 • 3 Tradeweb PLUS Provides Live, price if the situation requires it,” said Enrico Bruni, Tradeweb’s Director of European Rates. Attributed, Executable Prices For even greater insight, dealers with an ac- n September 17th, Tradeweb PLUS func- ceptance rate of 95% or better are indicated on tionality was rolled out to over 800 Eu- Tradeweb PLUS screens by light blue shading. ropean Government Bond clients around Because the dealers choose which clients are able O to see their prices, they are comfortable show- the world to bring even greater efficiency to their workflow, information flow, and trade execution. ing aggressive levels. This amount of transparency Extensive consultation with institutional investors shows where liquidity is really achievable without and dealers led Tradeweb to build Tradeweb PLUS market noise. to fit seamlessly with its proven RFQ protocol. Key Tradeweb PLUS takes onboard the fact that the features include direct access to streaming, live, competitive advantages of RFQ are sometimes attributed, and executable prices. This helps to equalled by the need to trade quickly or to restrict INSTITUTIONAL FIXED INCOME eliminate the need to search for information over information flow—for instance when trading around the phone or through other portals. The user has the less liquid parts of the yield curve or in large the choice of looking at multiple dealers for a single size. So, armed with insight from price discovery, security, or tracking all the bonds being offered by a client can now decide whether to click and trade a single dealer on a single screen. Crucially, as they directly, or to move seamlessly to launch a RFQ investigate, client information flow is protected, auction. since dealers are not made aware of their interest. For complete efficiency, transactions using “The improved information flow offered by Tradeweb PLUS are automatically fed into clients’ Tradeweb PLUS means clients can target trades existing integration with Tradeweb—from order more effectively. It helps them to identify the best management to post-trade environment—helping to dealers to include in an RFQ but also offers the support and monitor best execution practices. flexibility to click and trade on a single dealer’s live

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4 • Q4 2009 • emarkets Online Trading Answers Client Calls for Greater Liquidity

hen the Treasury market trades in a seven-point The changes that Tradeweb has made over the past few range over two days as it did in late March, it’s months include an array of new trading protocols, market W obvious that being a trader is not for the faint- opportunities, advanced analytics, and monitoring tools. hearted. Locating liquidity has become a primary concern Among the recent changes on Tradeweb are: for the buy-side, which has seen bid/offer spreads widen sharply over the past year. Online trading offers an effective way to increase market New Trading Protocols New Trading Opportunities transparency, an important factor in getting a realistic price • Request-for-Market. A new • TLGP Trading Introduced. in today’s markets. Composite pricing pages, such as those protocol introduced in U.S. and • UK Gilts. Clients can now on Tradeweb, monitor the health of the market throughout Europe for CDS indices. request a quote from up to four

the trading day, while a real-time auction process can only • Cross-Market Trading. Allows dealers for UK Gilts. INSTITUTIONAL FIXED INCOME effectively be conducted online. clients to trade different government bonds against New Analytics Electronic markets—especially Tradeweb—have played a each other. • Roll Analysis. Built-in roll role in implementing some of the recent Federal government • Limit Orders. European calculator provides programs. Across the Rates markets, billions of dollars of government bond clients now all-in-one trading capabilities government-related Treasury, Mortgage-Backed, and Agency have access to trade limit for TBA-MBS. orders. trades have been executed. • Expanded Settlement. Close New Monitoring Tools “Tradeweb is looking to provide clients and regulators for same-day settlement to be • CP Rates Page. Built-in roll with the tools they need to adapt to the ever-changing expanded to 3pm. calculator provides financial and regulatory environment,” said Billy Hult, Presi- all-in-one trading capabilities dent of Tradeweb. for TBA-MBS. • Maturity Monitor.

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emarkets • Q4 2009 • 5 TLGP Online Debt Trading Takes Off rading of TLGP debt has accelerated following the first issuance in November 2008. With more than T 40 issues now traded on Tradeweb, the market has matured at breakneck speed. By the end of Q3 2009, clients had traded more than $23 billion in the secondary market of FDIC-backed debt. INSTITUTIONAL FIXED INCOME

Did You Know? Asia Expansion • Every day more money is printed for the board game everaging its Tokyo data hub, fixed income, derivatives, and money Monopoly than for the U.S. L opened in March 2007, Tradeweb markets are available to Asian clients Treasury. has been consistently expanding its during U.S. and European hours. • The first paper money issued offering to clients in Asia based on Tradeweb is the only multi-dealer by the Treasury was in 1861 extensive discussions with buy-side trading platform to offer trading in in the form of non-interest and sell-side market participants. Yen Swaps and JGBs in Japan. Initial bearing Treasury Notes called In October 2008 Yen Swaps was client demand has been positive, in Demand Notes. Congress authorized the issuance to launched, followed closely by Japa- direct response to the deep liquidity finance the Civil War. nese Government Bonds—offering being provided by the strong dealer • After the financial panics of Japanese products to clients in and group. In addition, built-in straight- 1893 and 1907, the Federal out of the region for the first time. through processing automates the Reserve Act of 1913 was With the addition of Yen Swaps, trade confirmation process for both passed. It created the Federal Tradeweb now offers trading across products, saving time and virtually Reserve System as the na- all four major swaps markets, in- eliminating errors. Asset managers in tion’s central bank to regu- cluding U.S. Dollar, Euro, Yen, and the U.S. appreciate having the late the flow of money and credit for economic stability Sterling. JGBs are a logical comple- additional insight on these markets, and growth. The system was ment to these markets. A total of as well as the ability to trade using authorized to issue Federal 13 other Tradeweb products across the familiar Tradeweb interface when Reserve Notes, now the only it is necessary to balance portfolios. U.S. currency produced.

For more information on Tradeweb contact 6 • Q4 2009 • emarkets (800) 541-2268 or [email protected] Federal Reserve Mortgage Purchases Support Market

he massive purchasing program by the Fed and the Treasury is cer- 6.2.08 tainly one of the reasons that rates have tumbled to historic lows. 3.31.09 T To put this in perspective, in the whole of 2008, $501 billion of MBS was issued. In 2009 through October, the government purchased $1.39 trillion. During this time, the Federal Reserve and the U.S. Treasury helped add much-needed liquidity across the curve, enabling clients to successfully trade more than $14.6 trillion on Tradeweb during this period. INSTITUTIONAL FIXED INCOME

Tradeweb 100 MBS 1.00 Non-roll Volume in Percent

75 0.75

Dealer Quote Rate Customer Hit Rate

50 0.50 April 2009 May 2009 June 2009 July 2009 Aug. 2009 Sept. 2009

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emarkets • Q4 2009 • 7 Spreadsheet Trading: Quick and Easy FASB Rules Under the Spotlight he modern day portfolio manager he relaxation of the FASB rules on fair value accounting appeared to offer banks and T uses a variety of desktop tools to others a break, but it doesn’t do away with the need for accurate fixed income and de- identify trading opportunities, T rivatives market data. In fact, it’s quite the opposite. The concept of an “orderly market” efficiently execute the trades, and remains, and the need for responsible valuation is no less. The increased discretion being made track the resulting performance. available to banks is primarily in the less liquid securities, but many analysts believe that this Frequently, an Excel spreadsheet sits is unlikely to be taken advantage of. The current regulatory environment and market conditions squarely in middle of the workflow, strongly encourage prudent mark-to-market accounting. with the Tradeweb viewer being the The persistent lack of market liquidity in many sectors continues to lead some to question preferred trading application. whether trades that are occurring today are the type of “orderly transactions” discussed in the In an effort to improve the in- standard. The American Bankers Association has commented that strict application of these

INSTITUTIONAL FIXED INCOME tegration of the Tradeweb viewer rules is forcing financial firms to value securities at fire-sale prices. Proponents of mark-to-mar- with other Microsoft desktop ap- ket accounting rules counter that the standard is succeeding in delivering the desired transpar- plications, Tradeweb has developed ency to the actual value of a firm’s assets and liabilities. the Tradeweb Command Language As a way to help our clients deal with these difficult issues, Tradeweb provides a number of (TWCL). Using this toolkit, clients tools to monitor trading conditions in particular markets, including the “last buy price” and “last can communicate directly with the sell price” for each security included in the Tradeweb Marks service. Tradeweb viewer’s command line, triggering the display of specific price monitors, calculators and, especially, trading tickets in the Tradeweb The Tradeweb Dealer Network viewer. All of the key trade param- eters, such as security ID, direction of the trade, quantity, settlement date, and even the dealer selections can be prepopulated on the ticket, based

upon the contents of the spreadsheet. TreasuriesU.S. U.S. Agencies TBA-MBS Commercial Paper Agency Discount Notes Tri-partyU.S. Repo U.S. Dollar Interest Rate Swaps U.S. Credit Default Swaps European Commercial Paper European Govenment Bonds Pfandbriefe/Covered Bonds Supranationals Euro Interest Rate Swaps Euro Credit Deposits Euro Credit Default Swaps InterestYen Rate Swaps Japanese Govenment Bonds Canadian Debt Securities Canadian Money Market ALLIED IRISH BANKS TWCL affords clients with a great ANGLO IRISH BANK BANK OF AMERICA deal of flexibility to automate com- BANK OF IRELAND BARCLAYS CAPITAL plex workflows and accurately initiate BMO NESBITT BURNS BNP PARIBAS trades on Tradeweb. CALYON The actual trading process con- CASGRAIN COMPANY CIBC WORLD MARKETS tinues through the familiar sequence CITI COMMERZBANK within the viewer, recognizing all of CREDIT SUISSE DANSKE BANK the user’s preferences and enforcing DESJARDINS SECURITIES DEUTSCHE BANK all administrative trading limits. DEXIA DUTCH STATE TREASURY AGENCY The Tradeweb Command DZ BANK FIDELITY CAPITAL MARKETS Language is easily accessed through FIRST TENNESSEE Excel. Your Tradeweb account FORTIS BANK GOLDMAN SACHS representative can set you up with HSBC ING complete documentation to help you INTESA SAN PAOLO IRISH LIFE & PERMANENT customize your workflow. Visual J.P. MORGAN JEFFERIES & CO. Basic/VBA code samples, as well as KBC LAURENTIAN BANK SECURITIES sample spreadsheets, are available to LBBW MERRILL LYNCH guide you through the process. MITSUBISHI UFJ SECURITIES INTERNATIONAL MORGAN STANLEY NATIONAL BANK FINANCIAL To learn more, contact: NATIXIS NOMURA NORDEA Tradeweb Customer Relations POHJOLA BANK phone (800) 541-2268 RABOBANK RBC CAPITAL MARKETS e-mail [email protected] RBS SCOTIA CAPITAL SOCIETE GENERALE TD SECURITIES UBS UNICREDIT MARKETS & INVESTMENT BANKING

For more information on Tradeweb contact 8 • Q4 2009 • emarkets (800) 541-2268 or [email protected] Save Time With List Trading

rading lists on Tradeweb offers time-saving • Share, save, copy, or delete your created lists. efficiencies to trade electronically. It provides • Use navigation tools to sort, filter, group, and T a quick, convenient method for creating, organize your lists. organizing, and trading a large list of securities. Now • Negotiate a large number of trades from multiple available for Agencies, Specified Pools, European dealers simultaneously. Government Bonds, and European Credit—execut- • Execute as many trades as you need—all at ing multiple trades has never been easier. one time.

Example of Agency Lists INSTITUTIONAL FIXED INCOME

Select multiple dealers

Populate list by typing, copy/pasting, launching a quick ticket, or selecting from composite pages

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J.P. Morgan has a long history of doing what is right for its clients. Fund managers, corporations, central banks and tr easuries depend on the bank in their hedging, trading and investment decisions in rate markets. The ﬁrm’s commitment to delivering quality in ﬁxed income electronic trading and consistent access to liquidity, product expertise and award-winning research gives its clients an edge.

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hile there has been much discussion on the potential emergence of a central Choose your counterparty for clearing CDS trades, notional W size Tradeweb has focused on building a compelling Request a execution venue. As well as Request-for-Quote, two-sided Tradeweb has introduced Request-for-Market market (RFM), a first for the industry. With its roots in the Request-for-Stream model used in Tradeweb’s Click Send

INSTITUTIONAL FIXED INCOME Euro interest rate swap market, RFM is a tool for a client to negotiate one-on-one with a dealer, preserving confidentiality, and avoiding the need to Counter/Negotiation disclose trading intent to more than one dealer at a time. With RFM, the client requests a market from the

dealer, who responds with a two-way price. The Click Bid client and dealer can then negotiate on Tradeweb. or Offer Unlike the automated RFS protocol, RFM enables dealers to deliver a custom price for the client. Click to default to original With the RFM model, clients can: quantity • Execute trades instantly; • Hit, lift, or counter the dealer’s market; • Benefit from online trade processing.

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Treasury Fails Charges Provide Incentives to Sellers

he introduction of a recommended charge for failed The proposal—implemented by the Treasury Market Treasury trades has provided a sharp incentive for Practices Group on May 1, 2009—incorporates charges T sellers to meet their settlement obligations. It is also that can run into the thousands of dollars. focusing the attention of trading and operations managers on Example: A transaction involves total proceeds of the advantages of electronic trading and trade processing. P=$10,100,900.00. The buyer fails to receive the Fails typically occur for three reasons: erroneous trade securities on a Friday as originally scheduled. If the TMPG execution details, incorrect settlement instructions, and reference rate at the close of business on the previ- short-selling. ous business day was 1 percent (so R = 1 percent) and Electronic trading offers solutions which directly address if Monday is a good business day (so n = 3 days), the the fails due to incorrect execution details and settlement buyer’s claim on the seller is: instructions, and significantly reduce the exposure to failed C = 3/360 * .01 * max(3 1, 0) * 10,100,900.00 = 3/360 trade charges. This is important, especially given that *.01 * 2 * 10,100,900.00 = $1,683.48 dealer fail rates for electronic Treasury trades typically run at 0–1/2%. Voice-executed trades typically incur a 1%–3% fail rate.

For more information on Tradeweb contact 10 • Q4 2009 • emarkets (800) 541-2268 or [email protected] Following the launch in Europe, Tradeweb introduced Deposits Market Deposits to the U.S. The Tradeweb marketplace currently includes trading Goes Electronic, Global overnight to one-year deposits in 12 major currencies includ- with U.S. Launch ing: Euro, Sterling, U.S. Dollar, Swiss Franc, and Yen. Inves- tors can view indicative Deposit levels (both aggregated and n 2007, several of Tradeweb’s buy-side clients in Europe from specific banks), launch an inquiry with up to five banks approached Tradeweb to assess the feasibility of adding at once, or send a list of up to 15 deposits to one or more I Cash Deposits to our existing money market offering. The banks, and then break down their trade into sub-accounts Deposit market is very large, with estimated European daily as necessary. volume of over €1.1 trillion across major currencies. Tradeweb also enables the management of up to 500 Tradeweb looked at the workflow of both institutional new and maturing deposits at any one time. This list can be investors and the Deposit-taking banks, receiving excel- populated from an OMS or Excel spreadsheet or Tradeweb’s INSTITUTIONAL FIXED INCOME lent feedback from market professionals. It became evident proprietary “Maturity Monitor.” These lists can be seen by that placement is largely a manual, labor intensive process, and shared with colleagues across an organization. particularly for those investors allocating Investors are positive about the to sub-accounts. The market appeared The market appeared functionality on the platform. Activity has ready to trade electronically, so we set ready to trade elec- been particularly robust in the current out to design a product that replicates the tronically, so we set market environment, and Deposits on placing of Deposits over the telephone, Tradeweb already reflect the overall mar- while adding significant pre-trade and out to design a prod- ket in terms of breakdown of duration. post-trade benefits through the Tradeweb uct that replicates the network. placing of Deposits over the telephone…

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emarkets • Q4 2009 • 11 A View From Tradeweb’s Market Managers

Jon Williams JB Wakefield Woody Garavente

TBA-MBS U.S. Treasuries Agencies Interest Rate Swaps

• Tradeweb MBS volume • Dealer response rates • Over 39,000 Agency • Over 100 different com- totaled $13 trillion in the have improved dramati- trades were executed by panies have executed a first three quarters of cally this year to 86% in 365 buy-side companies Dollar Swap trade so far 2009, a new record. 3Q09 from a low of in 3Q09. in 2009. 60% in 4Q08. • March 2009 volume sur- • More than 4,400 • Over 12,000 trades passed $1.7 trillion, the • Customer hit rates im- TLGP trades totaling have been done in 2009 second highest monthly proved to 86% in 3Q09 $8.9 billion were ex- globally in interest rate level for Tradeweb. compared to 77% in the ecuted on the Agency derivatives. same quarter last year. • Over 300 buy-side com- platform in 3Q09. “Washington is taking center panies executed MBS • Over 228,000 Treasury “The spread volatility resulting stage in the derivatives market, trades in 2009. trades were executed in from Fannie and Freddie’s prob- as legislation fast approaches. 3Q09. “The markets faced the twin lems has presented the agency Like everyone, we’re not entirely challenges of historic levels “We took a hard look at market with a host of problems. sure what the final impact will of volatility and a significant Tradeweb’s Treasury market to With these market dislocations, be, but it’s clear that the intent decrease in overall market liquid- find ways to improve the client it’s not surprising that liquidity is to streamline the trading and ity at the end of 2008. We are experience during these difficult conditions have been difficult. clearing of OTC derivatives. pleased that Tradeweb’s MBS We’re pleased that Tradeweb Tradeweb is well-positioned marketplace continued to pro- has managed to provide clients to provide a more attractive vide deep liquidity to clients dur- with the best opportunity to ac- e-trading solution to the industry ing this period, and beyond, at a cess dealer pricing during these than exchanges. While the online time when they most needed it. extreme conditions. There’s also swap markets have reached a I’d also like to take this op- been a solid response to list point at which supply and de- portunity to thank our clients trading, which we introduced in mand are nicely balanced, there for their support of Tradeweb’s order to streamline clients’ work- is still plenty of room for growth. flow. It’s just one of the ways Client activity is robust in both markets. A new approach to in which we are looking to help the U.S. and Europe, and we are calculating composite prices, the clients through these unprec- seeing signs of growing interest ability to have negative yields edented trading conditions.” in online swaps trading as on bills, and the introduction of the political rhetoric heats up.” intraday cash management bills are three of the enhancements we implemented in response to the current market turmoil. mortgage marketplace, and to Our overall mission has encourage any firm who has always been to provide clients not yet integrated their order fast access to low-cost liquidity, management or trading system which is especially important into Tradeweb to do so as the in times like this. So far, our STP productivity gains can be dealers have done a great job in considerable.” stepping up to the plate, which is evidenced by our robust trading volumes.”

12 • Q4 2009 • emarkets Erica Barrett Bill McDonough Jon Williams Enrico Bruni

CP/ADNs Tri-party Repo CDS European Government Bonds

• CP volume totaled • Repo volume exceeded • Enhanced CDS platform • Platform wide European $4.4 trillion in the first $28 trillion in the first launched in November Government Bond three quarters of 2009. three quarters of 2009. 2008. volume increased in 3Q09 to 358 billion. • 59% of CP volume came “The bankruptcy of Lehman • Eight leading dealers from trades of Brothers represents the first real commited CDS liquidity. • U.S. customers executed $100MM or larger in over 22,000 trades in test of the tri-party structure. Request-for-Market 3Q09. • the first three quarters of It appears to have passed the protocol introduced. During 3Q09 2009. • test. That being said, the credit “The credit market has been in ADN volume reached crisis presents an opportunity for • 22 different dealers did $652 billion. the path of the hurricane sweep- trades with U.S. money market funds to reassess ing through the financial mar- customers in 1Q09. “When rates started ballooning their approach to counterparty kets. It is especially important at a year ago, online commercial “Throughout 2009 we have and collateral risk. Collateral risk this time that cool heads prevail paper trading volumes remained continued to provide access for increased in the low interest rate and that the community comes robust. We took this as affirma- clients to outstanding liquidity, environment in the early 2000s together to form a transparent, despite unprecedented market when buyers of RP agreements online CDS marketplace. This will instability. Highlights include became increasingly comfort- enable a faster, more efficient our European Government Bond able with accepting ‘alternative,’ way to trade and process CDS marketplace where the number or non-traditional, collateral in a indices, and send a signal to the of trades has increased by more chase for yield. This has changed industry that an over-the-counter than 24% compared with 2008. almost overnight. Participants CDS marketplace offers the A growing percentage of this should expect the market to greatest access to liquidity by volume is generated through the decrease in line with the consoli- institutional investors.” dation and de-levering currently new ‘List trading’ functionality. tion of the trust that clients have taking place. How much smaller We are particularly pleased in e-trading. It’s a confidence we get is up for debate.” to have launched Tradeweb that we are doing everything we PLUS for European Government can to build on since then, as we Bonds. Tradeweb PLUS allows provide more information to clients to see live, attributed, support the trading workflow. A executable prices from the ma- few examples are our CP Rates page enhanced to break down rates by sector, the Maturity Monitor now available in a graph- ical format, and the MMRates page offering the ability to look at CP Rates by sector. We are also allowing clients to organize sectors by money market yield or discount rate, as well as adding jority of our leading dealers. This the LIBOR curve. At the end of click-to-trade functionality works this year, a spread to LIBOR col- alongside, and is fully integrated umn will be available on our ADN with, our proven RFQ protocol and CP offering pages.” and trade processing capability.”

For more information on Tradeweb contact (800) 541-2268 or [email protected] emarkets • Q4 2009 • 13 A Smarter Way to Trade Equities

The Smart IOI™ algorithm tracks trading activity onCurrent a IOIsymbol-by-symbol Addressing Scenario basis to automate TRN = TradeWeb Routing Network TRN Buyer Same-side * Same-side blocking is optional TRN Seller the IOI targeting process. While the automation component is a valuableinformation workflow Dealer Target leakage Non TRN solution, its more valuable feature is its reduction of errant IOIs and missed opportunities.List Dealer Natural IOI AutEx Natural IOI Tradeweb will continue to monitor the effectiveness ofSell Smart IOIs™Sell as they are further 50,000 50,000 Missed Contra-side integrated into the Tradeweb Routing Network. SGP SGP Targets (TRN Buyers)

AutEx Smart IOIs: Adding Intelligence to the Targeting Process

TM TRN = TradeWeb Routing Network TRN Buyer

INSTITUTIONAL EQUITIES Current IOI Addressing Scenario Smart IOI Addressing Scenario * Same-side blocking is optional TRN Seller TRN = TradeWeb Routing Network TRN Buyer Non TRN Same-side * Same-side blockingDealer isTa optionalrget TRN Seller information Dealer Target List Non TRN leakage List Smart IOITM

Dealer Natural IOI AutEx Natural IOI Natural IOI Same-side Dealer Targets Sell Blocked Sell Sell 50,000 50,000 50,000 Missed by Smart Contra-side Dealer Smart IOITM AutEx SGP SGP SGP Targets (TRN Buyers) Sell 50,000 Smart SGP TM Supplemented Natural Smart IOI AutEx Smart IOIs:Contra-side Adding Intelligence to the Targeting Process Natural IOI AutEx Natural IOI Sell Targets IOI Smart IOITM Addressing Scenario 50,000 TRN = TradeWeb Routing Network TRN Buyer Sell 50,000 SGP * Same-side blocking is optional TRN Seller SGP Non TRN Dealer Target TRN = Tradeweb Routing Network List Smart IOITM TRN Buyer TRN Seller Natural IOI Same-side Non TRN Dealer Targets Sell Blocked 50,000 by Smart Dealer Smart IOITM AutEx SGP Sell 50,000 Smart SGP TM Supplemented Natural Smart IOI Contra-side A Tale of Missed OpportunitiesTargets IOI Natural IOI AutEx Natural IOI Sell 50,000 Sell 50,000 SGP SGP AutEx

ATRN recent = Tradeweb studyRouting Network of IOIs for S&P mid-cap and small-cap stocks revealed that: TRN Buyer TRN Seller Sell-side Non TRN scenario Buy-side scenario Smart IOI™ Algorithm our Smart IOI™ broker-dealer Beta Performance: community have been equally Traditional IOI targeting A large buy-side with over well received with an over • Misses 32% of $40 billion assets under Currently, over 125 buy- 100% increase in instances contra-side management perceives side institutions with assets where natural liquidity is dis- buy-side institutions to “see” all available IOI under management ranging played to a relevant, contra- liquidity. from $100M to over $50B side buy-side institution. Addresses 22% of same-side AutEx • Per Smart IOI™ analysis anonymously contribute their In addition, Smart IOI™ institutions risking informa- for a given trade date, the Tradeweb Routing Network broker-dealers have been tion leakage buy-side was not targeted (TRN) order volume in real able to clamp down on same- Bulge bracket broker sending 36% of the time for the sym- time to the Smart IOI™ side information leakage so ~5000 natural IOIs a day bols it was actively trading. algorithm. The Smart IOI™ inherent in the traditional IOI targeting ~100 buy-side in- algorithm currently mines methodology. The Smart IOI™ stitutions missed close to 70 500M shares of buy-side TRN algorithm also has anti-gam- buy-side institutions overall volume daily to provide high ing checks within the system during the course of the quality, natural liquidity rel- to safeguard our community. trading day for select securi- evant to buy-side order books Smart IOIs™ are changing the ties analyzed. from our Smart IOI™ broker- playing field by intelligently Same broker targeted over dealer community that is matching trading partners to 30 same-side institutions now sending over 20% of its promote block execution risking unfavorable market Natural IOIs as Smart IOIs™. with minimal market impact. movement. As buy-sides benefit from this new technology, results for

For more information on Tradeweb contact 14 • Q4 2009 • emarkets (800) 541-2268 or [email protected] Interest Rate Swap Dealers on Tradeweb: BofA Merrill Lynch • Barclays • BNP Paribas • Citi • Commerzbank • Credit Suisse • Deutsche Bank • Goldman Sachs • HSBC • JPMorgan • Mitsubishi • Morgan Stanley • Natixis • Société Générale • The Royal Bank of Scotland • UBS

emarkets • Q4 2009 • 15 While building up the firm’s e-com- Profile: Pershing from the Ground Up merce capabilities, he doubled the fixed income sales force to further help Persh- hen Guy Gregoire arrived at needs of more than 1,150 institutional ing’s introducing broker-dealer and RIA W George Bush Intercontinental and retail financial organizations and customers, essential in the fixed income Airport in Houston, Texas, he knew he independent registered investment business where bonds are still “sold.” was cutting it close. Hurricane Ike was advisors who collectively represent over Along with the ramp-up in human bearing down on Texas and there was a five million active investors. capital, he established electronic links chance he might not be able to make it “The retail fixed income markets from BondCentral, the fixed income site back to his Jersey City, NJ headquarters are following the evolution of the equity within Pershing’s NetExchange Pro and before the brunt of the storm. Gregoire, markets,” said Bragg. “We envision it NetExchange Advisor online brokerage who heads up trading for structured like NASDAQ for $5 million and under platforms, to an array of bond market products at Pershing LLC, didn’t give trades.” commentary and information sites.

RETAIL FIXED INCOME RETAIL it a second thought. Educating their As a former head of fixed income correspondent clearing customers about at National Financial, a Fidelity In- We envision it like Pershing’s structured product capabilities vestments company, and with nearly NASDAQ for $5 million is a high priority for the firm, a Bank of 15 years as an institutional trader at New York Mellon affiliate. Barclays Capital and Lehman Brothers, and under trades. Ted Bragg, who runs all of Pershing’s Bragg’s been around the block. When Pershing moved into structured fixed income sales and trading, is equally he joined Pershing a little over two years products about three years ago, just committed to placing their introducing ago, he saw what needed to be done and before Bragg arrived. Under the careful broker-dealer and independent registered he moved fast to modernize the trading stewardship of Bragg and Gregoire, the investment advisor customers on an floor. He quickly upgraded the front-end business has developed a strong founda- equal footing with the wirehouses. Rais- trading system and made a commitment tion, but work remains. Approximately ing awareness is a key part of this. It’s no to using multiple distribution channels 5% of Pershing’s clients buy structured 9-26 E Bondsmall ad order :E bondwhen you9/26/08 are servicing 12:09 thePM Page (one1 of which is Tradeweb Retail). products, which translates to nearly 50 financial organizations. Pershing

Some think trading. We think market reach and penetration.

Building on our legacy of unparalleled global reach and deep market penetration, Credit Suisse uses the latest electronic trading platforms, best-in-class talent and technology to provide creative client solutions. We operate a unified sales, trading, research, structuring and underwriting platform in a full range of cash and derivative instruments. The result? Market liquidity, price transparency and superior execution for our issuer clients and investing customers. www.credit-suisse.com

Thinking New Perspectives.

Investment banking services in the United States are provided by Credit Suisse Securities (USA) LLC, an afﬁliate of Credit Suisse Group. ©2009 CREDIT SUISSE GROUP and/or its afﬁliates. All rights reserved.

16 • Q4 2009 • emarkets Guy Gregoire Head of Trading, Structured Products Did You Know? Pershing, LLC • Tradeweb’s European government bonds marketplace reached a record year for annual volume in 2008, also reaching a record number of companies and users trad- acts as an intermediary, ing. Given the market conditions, traders have taken the approaching dealers on opportunity to trade outside of U.S. dollars. behalf of its introducing • Restriction on trading has been lifted. You can now broker-dealer and RIA custom- formally trade the bearer bonds in countries—Greece, ers to price structures for their end Austria, and Portugal. clients. This type of “reverse inquiry” is • You can now trade new European countries—Poland, becoming increasingly common. Czech Republic, Slovakia, Lithuania, and Hungary—in Education is at least as important both Euro and local currency. in the structured product arena as it is for vanilla products. Pershing offers a tutorial section on BondCentral, which allows clients to educate themselves about various structured products and take tests which they can submit to their Connect With Reuters Messaging internal legal and compliance officials. It’s a never-ending task for Bragg’s team, radeweb enables you to connect and communicate in real-time as they cross the country to spread with other members of the Tradeweb community via a special the word. At least they’re not usually T version of Reuters Messaging, which is directly integrated into evading hurricanes. the Tradeweb platform. Reuters Messaging is a powerful communication and collaboration tool specifically designed to enhance the workflow of trading professionals. This enterprise-grade system allows you to connect with a trusted network of business contacts, instantly and securely:

• Maximize time and efficiency by managing multiple conversations within a single window. • Enjoy transparent Thomson Reuters compliance and archiving services that help you adhere to industry regulations and corporate policies. • Gather insight into activity with Tradeweb trading partners. 2 1

4 1 Connect with Tradeweb trading counterparties via the pre-configured contact list. 2 Search and view trading activity on Tradeweb over chosen time period. 3 View trend of trading activity.

4 Communicate with Tradeweb contacts directly via Reuters Messaging and keep a record of all conversations.

For more information on Tradeweb contact (800) 541-2268 or [email protected] emarkets • Q4 2009 • 17 Profile: TW: What keeps you awake at night? CRD: It’s difficult watching the operational challenges our Charles River customers face in this market environment, including the need for many of them to let good people go. Now more than Development ever, investment managers need to leverage technology and Stephen Engdahl services to ‘do more with less.’ To help them through this, we Director, are putting more focus on our hosting and application man- Product Management agement services. But we are also continuing to invest in new and enhanced functionality for managing and trading complex instruments, handling increased trade volumes, and complying TW: What differentiates with new global and local regulatory requirements. Our clients CRD from its competitors? will need these as the markets recover and we want to be there, CRD: As a privately-held company with strong commitment to at the ready, with the feature set they require. ORDER MANAGEMENT SYSTEMS research and development, we have continually made long-term TW: Where are the biggest opportunities investments in products and services that add value for our clients. Unlike many of our competitors, the Charles River Invest- for CRD to further integrate vendors? ment Management System (Charles River IMS) is a cross-asset, CRD: Charles River is always looking for more avenues to en- broker-independent solution offering depth of functionality, able our clients to access liquidity. Additionally, with our new and the flexibility to support the unique workflows of multiple technology framework, we have an interesting opportunity to desks across regions and asset classes. Our implementation and provide more and tighter desktop integration to bring addition- service experts have proven their ability to meet client needs, al value-added decision support and trading-related tools into with over 310 firms using Charles River IMS in more than the portfolio management and order management workflow. We 30 countries. have done extensive out-of-the-box integration with third-party technology vendors, brokers, primes, fund administrators, and TW: How important is Tradeweb to your clients? alternative trading systems. We’re continually evaluating op- CRD: One advantage of Tradeweb is that it offers trade process- portunities to meet client demand for increased information, as ing for both electronic and voice trades. Since not all markets are well as new trading tools and strategies to access liquidity ready to go electronic, this capability is important as clients look and enhance execution. for single, multi-asset class solutions. The value and power of Charles River IMS integration with Tradeweb is clear given the TW: Is a central clearing house good number of customers making use of it across our markets. for the derivatives market? CRD: Investment firms are sensitive to counterparty risk, TW: The large asset manager is your and a central clearing house has the dual benefits of eliminat- typical customer. Are you making any ing that risk plus eliminating the work that went along with in-roads into hedge funds? constantly monitoring your counterparty’s health. Additionally, CRD: Hedge funds represent almost 20% of the Charles River central counterparties (CCP) or clearinghouses are in place for client base. We apply a market-driven, customer-focused release many other asset classes; following suit for derivatives increases strategy, consistently adding thousands of functional enhance- standardization and will improve procedures such as post-trade ments to Charles River IMS’ capabilities each year. Over the processing. Finally, a CCP model will go a long way to restoring past several years we have introduced new trading, P&L, and trust and confidence in the market—something sorely STP features specific to the hedge fund market. Our offering lacking in the current non-CCP model—and put it back on also includes express implementation, FIX administration, the road to greater liquidity and more participants. application management, and hosting services of interest to TW: How important is phone trade hedge funds but also applicable to firms of all sizes. processing to your clients? TW: What are at the top of the CRD: Phone trades and unsolicited trades fall into the same asset managers’ wish list today? camp. While they are both very important to our clients, the CRD: We have identified three key areas of concern for 2009 ideal is a solicited trade (generated from the OMS), as it has that we are helping clients address: already been processed through the compliance engine. But we 1) Market volatility and changing trading landscape have certified both solicited and unsolicited trading workflows, 2) Cost consciousness including drive to outsource IT/ including phone trades, via the Tradeweb platform. software administration 3) Changing regulations and business processes with respect to OTC derivatives

For more information on Tradeweb contact 18 • Q4 2009 • emarkets (800) 541-2268 or [email protected] Money Markets Contract in Face of Crisis

he U.S. money market sustained from a peak level of $6.314 trillion end Despite today’s market conditions, significant impact from the ongo- of 2007, a reduction of 37.7%. Balances Tradeweb maintains its leadership position T ing credit crisis. At the height of have since rebounded marginally to and is continually enhancing its platform the crisis, commercial paper issuers were $19 trillion for the first half of 2009. Out- to maximize the client experience. Some having difficulty rolling maturing issuance standing commercial paper deteriorated. functionalities that Tradeweb has recently and dealers experienced a drought of re- U.S. commercial paper peaked 2Q07 at developed for money markets are changes purchase counterparties willing to bear pre- $2.11 trillion and was at $1.18 trillion at to the maturity monitor, the CP charts, crisis collateral risk; repo investors reverted September 23rd, a 44% drop. and the money markets rates page. to accepting U.S. Treasury, GSE deben- tures, and GSE MBS. The Federal Reserve responded aggressively with a variety of US Money 8000

liquidity programs designed to support Market; ORDER MANAGEMENT SYSTEMS 7000 the money market by providing alternative CP and RP; liquidity: Securities Lending Program, Term Outstanding 6000 Securities Lending Program, Commercial Issuance 5000 Paper Funding Facility, Money Market Inves- Q2 2009 tor Funding Facility, Term Asset-backed 4000 In millions Securities Loan Facility, and Primary Dealer Credit Facility. While the Federal Reserve’s 3000 programs thawed the money market signifi- 2000 cantly, outstanding security balances are, ■ Commercial Paper not surprisingly, lower. SIFMA data indicates ■ Repurchase 1000 ■ Reverse Repurchase gross U.S. repo market balances deterio- ■ Gross Repurchase 0 rated to $3.930 trillion at the end of 2008 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’09 Q1 Q2

ACCESS CANADA ON TRADEWEB TRADE WHERE 95% OF ONLINE CAD$ DEBT TRADING OCCURS.

Trade with Canada’s deepest liquidity pool Bank of America Merrill Lynch Desjardins Securities RBC Capital Markets BMO Capital Markets HSBC Canada Scotia Capital Casgrain & Company Ltd. Laurentian Bank Securities TD Securities CIBC World Markets National Bank Financial

plug For more information contact your Tradeweb representative into

emarkets • Q4 2009 • 19 What’s• Tradeweb introduced Reuters Messaging, enabling you New Money Markets to communicate in real-time with other members of the Tradeweb community directly on the viewer. • Tradeweb launched the Deposits marketplace in the U.S. • Pop-up Manager is now available for sell-side users, which • CP’s charting and maturity monitor have been enhanced. displays a list of pop-ups notifying what needs to be done. • The Rates pages for Commercial Paper and Agency Discount • View your aggregated trades for up to three months of Notes have a new look with features including sector filters, activity with the Historical Blotter. a historical view, a download to Excel, and a view of the LIBOR curve. • Tradeweb now offers clients and dealer sales coverage the convenience to share CP issuer lists.

STP • There is now an automated way to send Phone Trade Enabling Requests to dealers.

Market Data • Thomson Reuters customers are now able to subscribe to Tradeweb market data via the Thomson Reuters Datascope Real-Time feed, used for activities including programmatic and automated trading applications, risk management systems, Historical blotter portfolio pricing and valuation tools, and pricing engines. • Tradeweb Marks now offers bid, ask, and last trade Rates information from an orderly market to help meet FAS 157 requirements. • Clients can now take advantage of the Mortgage roll • Tradeweb has enhanced its charts, now in Flash, to provide composite page and the Mortgage roll calculator. for more interaction with the ability to create “studies.” • Execute multi-security trades across currencies—EUGV, Market Data Link clients are also able to download pricing TRSY, JGB, and CAN. history via Flash charts. • Trading in TLGP securities is now available on Tradeweb’s • Launching a ticket from Excel is made easy with Tradeweb’s U.S. Agency platform. Spreadsheet Command Language. • JGBs are now available on Tradeweb. • Trading $OIS, butterflies, and spread-spread switches are now available for U.S. Dollar Swaps. Equities • Tradeweb’s Asia market expands with the launch of Yen • Tradeweb has introduced Smart IOIs™ to the Equities market Swaps and Japanese Government Bonds. through AutEx, giving greater exposure to Naturals. • Tradeweb offers the ease of list trading for the Agency, Specified Pools, and European Government Bond markets. • Tradeweb now provides Mortgage clients hedge adjusted pricing and users can view how the client wants to view Did You Know? the price change on the MBS main page. • Tradeweb is the leading STP platform for Fixed Income transactions with over 5.5 million allocation tickets pro- Credit cessed electronically over the past 3 years. • Tradeweb has launched an enhanced U.S. marketplace for • Tradeweb has a direct link into the leading electronic con- Credit Default Swaps, including a new way to trade—the firmation provider, MarkitSERV, for same-day processing Request-for-Market model. It has also implemented the ISDA of OTC derivatives trade confirmations. CDS Standard Model™ as Open Source, available for CDS • Our integration services, API messaging service, and trades executed on Tradeweb. STP flat file, are used by over 600 buy-side institutions for • European Credit and supranational bonds including Agency, “zero-touch” processing of trade confirmations. Sovereign, and government guaranteed bonds are now available to U.S. clients.

For more information on Tradeweb contact: 20 • Q4 2009 • emarkets U.S. (800)541-2268 • Europe +44(0)20 7776 3200 • Asia +81(0)3 6441 1061 • or [email protected]