EVOLUTION OF

U.S. FINANCIAL MARKETS

2000 2011 April, 2011

How Do You Navigate Todays Markets?

Confused about how the U.S. markets work? If you did not have a solid grasp of the U.S. market structure in 2000 (prior to Reg. NMS), you will probably have a tough time navigating the various players and their value proposition today The markets have evolved:
Exchanges M&A Continued market fragmentation Introduction of new players

Totally lost? See the next page

Evolution of U.S. Financial Markets

Todays Market Landscape

Evolution of U.S. Financial Markets

Trends and Background

Growth of electronic trading / contraction of open outcry: equities, options and futures; spread compression Growth and sophistication of the buy side The Internet has matured, so has trading technology Demutualization and for-profit business models Evolution of exchange revenue models, market makers, payment for order flow (maker-taker, taker-maker) Exchange mergers and acquisitions, continued globalization.

Evolution of U.S. Financial Markets

Trends and Background (Contd)

Maturity of prime brokerage business model De-leveraging and impact of global financial crisis post Lehman Bros. Introduction of new broker-sponsored exchanges, clearing houses Continued market fragmentation equities and options Regulatory evolution: Commodity Futures Modernization Act (2000) S.E.C. Reg. NMS, demise of InterMarket Trading System for equities (2005) Dodd-Frank Act regulations
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Trends and Background (Contd)

Inter-relationship of asset classes, markets; portfolio margining Growth of algorithmic and high-frequency trading Madoff.

Evolution of U.S. Financial Markets

U.S. Equities Markets

2000
EXCHANGES NYSE REGIONALS BSE ECNs Arca ATS Bloomberg Tradebook

2011
EXCHANGES NYSE Euronext Nasdaq OMX CHX NSX BATS ATS / DARK POOLS Instinet Newport SIGMA X
GETCO - GES

Nasdaq

PHLX

Brut

ITG Posit Latice Trading

CSFB Crossfinder UBS - PIN CitiMatch BlockCross Fidelity CrossStream

Level Pipeline Liquidnet BIDS

CHX

Redi

NSX

Instinet

Knight Link Convergex

PSX

Island

Attain

Direct Edge
Nextrade Strike Inter-market Trading System [ITS]

Evolution of U.S. Financial Markets

What Happened ?
Implementation of SEC Reg. NMS, demise of the Intermarket Trading System Exchanges demutualized, went for-profit and public Exchange consolidation, continued globalization Evolution of NYSE, NASDAQ duopoly, internalization of order flow, rise of new, more nimble ATS Growth of algorithmic trading, new order types, high frequency trading and proximity hosting as differentiators.

Evolution of U.S. Financial Markets

U.S. Options Markets

2000
EXCHANGES AMEX CBOE ISE PHLX PSE

2011
EXCHANGES
NYSE- AMEX BATS Options BOX

CBOE ISE
NASDAQ OMX - PHLX NYSE ARCA Options

C2

Options Linkage

Evolution of U.S. Financial Markets

What Happened ?
Growth of electronic trading / consolidation of open outcry trading Decimalization, penny quoting, spread compression Payment for order flow, growth of electronic market makers Continued market fragmentation Exchange acquisitions Algorithmic and high frequency trading New order types Evolution of new players - 5 markets are now 8!
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U.S. Futures Markets

2000
EXCHANGES CME CBOT NYMEX
NYBOT KCBOT

2011
EXCHANGES
KCBOT

BTEX NASDAQ LIFFE OneChicago

CME Group CME CBOT NYMEX

MGEX NYSE LIFFE US

ICE NYBOT ICE OTC WCE

OneChicago CBOE Futures Exchange

MGEX

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What Happened ?
Growth of electronic trading / consolidation of open outcry trading Exchanges demutualized, went for-profit and public Exchange consolidation and globalization Demise of Enron Introduction of new players - some came, some went, some stayed New products that align risk to users needs Convergence of OTC and ETD products - rise of OTC clearing, futures look-alikes.
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U.S. Clearing Houses

2000
EQUITIES OPTIONS Options Clearing Corp FUTURES
New York Clearing Corp

2011
FIXED INCOME
EQUITIES OPTIONS FUTURES CME Clearing FIXED INCOME DTCC / FICC

NSCC

DTCC

DTCC

OCC

NYMEX
Clearing

ICE Clear US

CME Clearing

KCBTCC

BOTCC

New York Portfolio Clearing

OCC
KCBTCC
International Derivatives Clearing Group

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What Happened ?
Exchange consolidation, clearing member consolidation (Bear Stearns, Lehman Bros., Refco) Exchanges demutualized, went for-profit and public Member-controlled versus exchange-owned clearing houses Clearing house silos versus non-profit, industry utilities New products / convergence of OTC and ETD products Futures look-alikes, cleared OTC products as new revenue streams Introduction of new clearing houses.
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Need to Navigate Todays Landscape?

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15

Call Us for the Roadmap

Tellefsen and Company, L.LC.

1-212 809 3800 JJR@Tellefsen.com

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