1 The first order driven pan-European MTF Faster, Cheaper, Smarter

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The first order driven pan-European MTFFaster, Cheaper, Smarter

The first order driven pan-European MTF

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Overview

• In response to client demand Chi-X is addressing competitive issues in both the trade execution and post trade space to provide a more efficient and cost effective wholesale solution that will compete with the European Exchanges.

• The Chi-X market model offers an order driven central limit order book with micro second performance and an embedded pan-European market structure. The operating model: 10x faster and 1/10th of the cost

• The Chi-X market model is anonymous both pre and post trade with a guaranteed non exclusive central counterparty framework.


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Overview

• Chi-X is now live with the following key milestones having been achieved:

– 30th June 2006: License application approved by FSA

– 30th March 2007: Commencement of trading with a centrally cleared counterparty service on the Dutch & German markets

– 29th June 2007:Launch first FTSE 100 stocks with full CCP Service

– 28th September 2007:Launch first CAC 40 stocks with full CCP service

• Chi-X will continue to increase the number of traded securities leading up to and beyond MiFID go live on 1st November 2007, based on a process driven approach

• Chi-X provides a MiFID compliant alternative for clients ‘best execution’ policy and can already demonstrate important price improvements relative to the primary markets


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TheCore

SystemRegulatory

ConnectivityMarket Data

Best Execution/

Functionality

Clearing and Settlement

TradingTariffs

MiFID Technology Financial

Chi-X Value Proposition


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Regulatory Framework

"New legislation will transform the landscape for the trading of securities and introduce much needed competition and efficiency” Charlie McCreevy Commissioner in charge of Internal Markets and Services.

Legislation has permitted the creation of new pan-European MTF’s (multi-lateral trading facilities) authorised and regulated in their “Home State”. Once authorised, a firm will use the MiFID passport to provide order matching services to customers in other EU member states. Currently under ISD, a service is regulated by the member state in which the service takes place.

Instinet Chi-X is an FSA authorised securities firm, operating as an Alternative Trading System (ATS) pre MiFID. Post MiFID Chi-X will automatically become an authorised MTF.


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Regulatory Hurdles

• FSA needed to rule on outstanding policy issues – January 2006

• HM Treasury approval for SDRT – February 2006

• ISO - Swift needed to issue us with a MIC – CHIX – March 2006

• Crest needed to establish a TSO designation: Flag ‘N’ – May 2006

• LSE needed to admit Instinet Chi-X to the list of approved ATSs allowing LSE members to deal with us – May 2006

• License application approved by FSA – June 2006


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Best Execution

• Article 21 of MiFID, ‘Best Execution’ is undoubtedly the most heavily debated directive

• Requiring minimum standards of pre trade transparency for shares traded on regulated markets as well as post trade transparency obligations.

• Intermediaries will have to justify and regularly review their execution policy to ensure clients are receiving best execution, based on liquidity, price and speed to market. If alternative trading venues regularly match or improve these criteria there will not only be a commercial but legislative requirement for them to check different sources of liquidity before executing an order.

.


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Stock Exchange Dead Ends

STOCK EXCHANGE Seller @ 5.35

BEST PRICE AHEAD

BEST PRICE AHEAD

Seller on Chi-X @ 5.34

Buyer @ 5.34


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Trading Functionality

• Chi-X is a pan-European Central Limited Order Book

• Chi-X takes into account functionality of the local market with additional functional enhancements

• Non-matched orders may be added to the Chi-X Central Limit Order Book, a database of available limit orders, where they wait to be matched in price-time priority

• All Chi-X orders are anonymous on the order book


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Trading Functionality

• Market monitoring based on dynamic price range checking and percentage of volume checks

• A Clearly Erroneous Trades policy protects participants

• All Chi-X orders are valid for the day by default with unexecuted open orders cancelled at the end of the trading day

• Continuous Trading Hours: 07.35 until 17.35 CET

• A combination of ISIN, Currency and MIC can be used to uniquely identify an instrument as well as SEDOL, Instinet symbol, vendor codes (e.g. Reuters and Bloomberg) and exchange codes


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Tick Size & Order Types

Chi-X facilitates potential price improvements by allowing participants to work within the spread of the equivalent listed exchange.

Order Types / Conditions Allowed

Chi-X LSE

Limit

Market

Iceberg

Execute or Eliminate

Fill or Kill

Hidden No

Mid Peg No

Primary Peg No


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Price Improvement


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Basis Points Savings On Chi-XFor Centrally Cleared Stocks

Month

% of Trade between the

spread Improvement

(BPS)April 2007 58% 1.60May 2007 54% 1.50June 2007 69% 2.67July 2007 60% 2.17Aug 2007 44% 2.04Sep 2007 45% 1.84Average 55% 1.97


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Liquidity: Early Results From Chi-X

• Launching Chi-X is a process, not an event

• Chi-X currently trades UK, German and Dutch index constituents with full EMCF clearing. French equities are scheduled to go live by the end September 2007 and Belgium, Swiss and Scandinavian securities by the end Q4*

• Trading highlights

– Philips Kon 44.07% of combined Chi-X/ Euronext volume

– ING 29.87% of combined Chi-X/ Euronext volume

– Royal Dutch Shell A 27.34% of combined Chi-X/ Euronext volume

– Fortis Ord 23.83% of combined Chi-X/ Euronext volume

*Note:These markets represent 79% of trading activity

on a pan-European basis by turnover


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Daily Trading Trend Analysis


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TheCore

SystemRegulatory


Best Execution/

Functionality


TradingTariffs

MiFIDTechnology

Financial



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The Core System

• A low cost, leading edge, open access technology model

• Re-engineered 4th generation trading system with high speed connectivity into the core system

• Standardised connectivity – FIX 4.2

• High throughput, low latency facilitating the trading of high volumes

• Platform independent, with IP based connections eradicating the need for any Chi-X specific hardware being deployed on client sites

• The Chi-X core matching engine is a proprietary system that resides on the Linux operating system

• The core matching engine runs out of the primary data centre, with real-time fail-over functionality at the secondary data centre


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Speed: Roundtrip Latency By Venue June 2007

Trading VenueAverage Latency

(milliseconds)

Chi-X 2

LSE SETS 20

Deutsche Börse Xetra 37

Euronext 75

OMX 137

Borsa Italiana 174

SWX 284

VIRT-X 291

Source: Instinet Europe Exchange Linkages gateway internal system performance measurement statistics for average DMA order messaging during April 2007. These Instinet internal figures are for round trip latency message acknowledgement based on sending an average number of

messages to the exchange system and obtaining a response back to Instinet's system over the course of a normal trading day. Please note: These figures are provided for illustrative purposes only and are not intended to represent an independent performance measure of latency.


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Trading System Capacity

Chi-X is built on scaleable low cost hardware enabling increases in current capacity quickly and easily at low cost

Trading VenueCore cash equity system order

flow capacity (messages per second)

Instinet Chi-X* 30,000

London Stock Exchange** 3,500

virt-x*** 65

Source:*Independent Test with transact tools proved capacity in excess of 16000 messages per second.** London Stock Exchange*** virt-x


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Connectivity / Market Data

• Standardised FIX4.2 protocol. No other specific applications or architecture required.

• Connection to network via Radianz or similar. We recommend minimum bandwith of 64K for market access and 256K for market data.

• Chi-X is vendor neutral with regards to Smart Routing technology. A test market is available to obtain conformity. A list of 3rd party vendors who already provide a Chi-X compliant solution is also available on the web site.

• Real Time data feeds can be accessed directly via a CHIXMD feed, from the Chi-X web site bookviewer, or via third party data vendors in standardised format.

• There are no connection fees and market data is provided free of charge.


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Future Product Development

• Smart Routing Technology

• Trade Feeds and Consolidated Market Data

• Off Order Book Trade Reporting Service

• MIS Data Analysis


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TheCore

SystemRegulatory


Best Execution/

Functionality


TradingTariffs




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Trading Tariff

• Trading fees on Chi-X for execution are:

– 0.20bps rebate for passive execution

– 0.30bps charge for aggressive execution

• Trade reporting charges are £210 pcm


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Trading Costs: Chi-X ‘vs’ Exchanges

Trading Venue Trading Costs (bps)

Instinet Chi-X 0.05*

London Stock Exchange 0.51*

Deutsche Börse Xetra 0.57*

Euronext Paris 0.50*

* based on a passive/aggressive execution ratio of 50:50.

Source: Instinet Europe internal statistics based on average daily DMA trades, volume and consideration.


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Trade Reporting Costs

Trade reporting off exchange trades to each trading venue:

Trading VenueReporting costs

Monthly feeReporting costsper trade report

Instinet Chi-X £210(£500 if not a participant)

£0

London Stock Exchange N/A £2.75*

virt-x£2,100

min activity charge£0.10**

* Maximum charge

** High Volume Service

Chi-X will allow systematic internalisers to use trade reporting services to meet their MiFID Article 28 post trade disclosure requirements


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Market Data Costs

Chi-X Market Data is non fee liable with no license fees

The following market data costs apply for members of each exchange for domestic data. All charges are in local exchange currency.

Trading Venue License Fee(per annum) Per workstation per annum fee for

level 2 data

Trading VenueLicense Fee(per annum)

Per workstation per annum fee for

level 2 data

Instinet Chi-X £0 £0

Euronext € 36,750 € 696

Deutsche Börse Xetra € 32,400 € 816

London Stock Exchange £66,000 £1,260

Source: Exchange websites


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Industry Cost Savings

• Estimated annual savings of Euros 140 million generated for market participants if Chi-X received 25% of Total UK, German and Dutch Market Volumes

Annual Industry Savings in Euros

$mm Industry Utilisation of CHI-X

Market Vendor 25% 100%

Trading

UK LSE 67 270

Germany Xetra 45 180

Holland Euronext 28 112

Total savings 140 562


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Clearing & Settlement

• An open non exclusive horizontal market model with initial central counterparty services through Fortis EMCF.

• Trading access rights uncoupled from clearing and settlement

• Dedicated solution for wholesale cash equity financial markets

• Focus on an efficient, maximum STP / minimum touch solution

• Use of domestic CSDs

• An interoperable solution respecting the interests and trade flows of the wholesale market participants


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DomesticCSD

DomesticCSD Settlement

Participant

SettlementParticipant

TradingParticipant

TradingParticipant

Market Model

TradingParticipant

ClearingParticipant

TradingParticipant

DomesticCSD

SettlementAgent

SettlementParticipant

TradingParticipant

ClearingParticipant

SettlementAgent

Structure

RelationshipsEvery Trading Participant requires a Clearing Participant (GCM equivalent) to guarantee trades / credit risk

Every Clearing Participant will need to execute a Clearing Service Agreement

Every Clearing Participant will need to have a Settlement Agent at the domestic CSD

Clearing

Settlement

Trading

MTF

ClearingParticipant

MCF

MCF

ClearingParticipant

Multilateral Clearing Facility


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Stocks Settling In The Domestic CSD

MCF

etc ….

Netting / Compression

Position management (S-2 to S-1)

Stock Loan

Risk

DVP

Novation

TradingParticipant

Post TradeParticipant

CSD

TradingParticipant

Post TradeParticipant

CSD CSD


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Clearing fee.• Charged per line (i.e. per execution).• France: 28 euro cents• Germany: 20 euro cents +0.00075% order value, cap at 1.2 euro• Holland: 28 euro cents.• UK: 18 euro cents

Settlement fee.• Only payable where a net delivery results.

Local CSD charge FBGC Cost recovery

• France: €1.43 €1.00 Total= €2.43 • Germany: €0.425 €1.00 Total= €1.425

• Holland: €1.35 €1.00 Total = €2.35UK: €0.52 €1.00 Total= €1.52

EMCF: Clearing Tariffs

NB: FBGC cost recovery includes validation, enrichment, format to meet local CSD message standard,transmission over relevant network, internal cost recovery for staffing, processing etc.


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TheCore

SystemRegulatory


Best Execution/

Functionality


TradingTariffs




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• High speed – Over 10 times faster than major European exchange order driven systems

• Low cost – 90% cheaper than trading on major European markets

• Standardised connectivity – FIX 4.2

• No connection fees. Market Data provided free of charge.

• Wholesale market CCP solution.

• Proven price improvement relative to primary markets

• Continued product development responding to client demand

• Potential equity participation opportunities for the largest providers of flow


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Fast Track: How to get connected to Chi-X

3 Streams:

Legal &Compliance

This process is to ensure that your firm is adequately regulated and authorised to trade on the order book. Chi-X will also carry out a full ‘Know your Client ‘ exercise at this point. Complete application documents can be found on web site www.chi-x .com (Get Connected/Document Library/Application Forms)

Technical ConnectivityThis stage is to ensure your firm can physically connect to Chi-X via FIX 4.2 and conforms with the Chi-X technical specification. A full Chi-X test platform is available.

Clearing & Settlement You will require your General Clearing Member to be connected to EMCF CCP. For detailed information please contact the Chi-X Director of Clearing & Settlement, [email protected] who will assist you in this process.


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Additional Information

To learn more about the Chi-X value proposition, please contact :

Peter Randall Director, Head of Business Development

+44 (0)20 7154 8855

[email protected]

Jonathan Woodward UK, Ireland & Nordic Business Development

+44 (0)20 7154 8856

[email protected]

Graham Dick European Business Development

+33 (1)7303 8661

[email protected]

Hirander Misra Director - Product Development

+44 (0)20 7154 8596

[email protected]

Scott Riley Director - Operations Website

+44 (0)20 7154 8408 www.chi-x.com

[email protected]


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©2007 Instinet, LLC. All rights reserved. INSTINET is a registered mark in the United States. Approved for distribution in Europe by Chi-x Europe Limited which is authorised and regulated by the Financial Services Authority. Instinet, LLC, member NASD/SIPC. Instinet Europe Limited is a subsidiary of Instinet Incorporated.

This information is provided for informational purposes only. It does not take into account the particular investment objectives, financial situation, or needs of any individual or entity. Under no circumstances is it to be used or considered as an offer to purchase or sell any security, or as a solicitation or recommendation of the purchase, sale, or offer to purchase or sell any security. While the information has been obtained from sources deemed reliable, neither Instinet nor its licensors, nor any other party through whom the user obtains any such information: (i) makes any guarantees that it is accurate, complete, timely, or contains correct sequencing of information; (ii) makes any warranties with regard to the results obtained from its use; or (iii) shall have any liability for any claims, losses, or damages arising from or occasioned by any inaccuracy, error, delay, or omission, or from the use of the information or actions taken in reliance on the information. Reproduction or redistribution of this information is prohibited except with written permission from Instinet.

System response times may vary for a number of reasons including market conditions, trading volumes and system performance.

Documents

1 The first order driven pan-European MTF Faster, Cheaper, Smarter