BestX® Best Execution Analytics

Executive Summary

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BestX® is a technology company providing independent trade analytics that enable Clients to Define, Achieve and Demonstrate Best Execution

Our goal is simple; we aim to provide a level playing field which enables clients to assess and compare the quality of the FX execution they receive, agnostic

of counterparty, medium or venue.

We are the only truly independent technology provider in this space, with a simple fee based model removing any conflict of interest that arises from

being affiliated to an execution venue.

Our Clients are Asset Managers, Hedge Funds, Banks and Non-Bank Liquidity Providers

The Case for Independence

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• BestX® is Built by Market Participants – designed ‘by FX people, for FX people’ based on unique quantitative analytics & models created by Pete Eggleston

• BestX® is Independent – unlike other FX TCA providers, BestX is totally independent avoiding any conflicts of interest & risk of abuse

• BestX® is a Level playing field – consistent, holistic view across all execution venue, using standard methodology, source data and benchmarks

• BestX® is a Technology Company – delivering state of the art software, providing real-time interactive analytics

A ‘perfect storm’ of factors is driving demand for analytics to assist with delivering Best Execution

• Regulatory/Legal

• MiFID II / FSB has mandated a duty of care on the Asset Manager to demonstrate Best Execution to the Asset Owners (see Appendix) • Senior Manager Regime (SMR) places new regulatory burden on Buy-Side Clients Mgmt to achieve Best Execution, prescribing a need to measure quality of Execution,

Market Impact and Benchmark selection • Solution for Clients who need to satisfy their MiFID2 & SMR reporting requirements and prevent business migrating away to others who offer this service

• Execution Evolution

• Solution for Clients who are using a mix of TCA reporting tools, depending upon the venue, execution style and counterparty, with no ability to robustly “compare apples with apples”

• Despite increase in the use of algorithmic trading across a diverse set of venues and methods of execution (both principal and agency) there is no robust independent TCA for Algos available.

• Bifurcation of liquidity and the proliferation of non-bank liquidity providers creating further complexity in the market • Clients’ demand to evolve and stop doing today’s job with yesterday’s tools and concepts

• Competitive Pressure

• Muted performance forces relentless focus on efficiency, reducing market footprint & minimizing erosion of returns through poor execution • Surge in demand to help navigate worsening Liquidity regime across FX and Rates, avoid air-pockets & reduce transaction costs

Clients and Product

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BestX will leverage its proprietary technology to:

• Improve the Client’s execution process, resulting in a quantifiable cost savings, through utilization of the most rigorous and granular pre-trade and post-trade software analytics (TCA) available in the market

• Create an industry standard for best execution, acting as an independent arbiter, agnostic of counterparty, provider or platform, that satisfies all internal and external audit and compliance requirements with respect to the entire trade process

• Enable truly independent analysis to implement a flexible, rigorous, justifiable and repeatable execution process in accordance with market and regulatory evolution

• Facilitate all ‘buy-side’ reporting requirements, from MiFID2 specific ‘execution reporting’, counterparty review, bespoke reports by portfolio/trader/currency/venue

• BestX comes with independent opinion from Linklaters LLP verifying functionality meets the legal requirements for Best Execution per requirements stipulated by MiFIDII, MiFIR, ESMA, FCA, RTS 27/28

Product Deployment Timetable:

• Sep 2016 BestX® Enhanced Post-Trade FX TCA launched, over 35 clients in UAT and/or using the analytics under license

• Derived Market Data Series – Fair Value Risk transfer (Q4 ‘16); Max Volume Market Impact (Q1 ‘17); VWAP (Q2 ‘17)

• Q2 2017 Pre-Trade FX Real Time ‘Execution decision’ analytics roll-out

• Q3 2017 MiFID2 Compliance reporting module roll-out

• Q4 2017 FX Trend Analysis and FX Options TCA

BestX® Standard & Enhanced product

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Standard Enhanced

Use Cases • MiFID II and industry best-practice ‘due diligence’ requirements: Analyse and report trade performance against multiple benchmarks

• Use interactive MIS to review performance in more detail by pair, size, provider and other factors. Look down to individual trade level if required

• Generate final reports for distribution to internal and external stakeholders

As Standard, plus:• Trade strategy planning: advanced analytics engine to review

performance of algos and large orders executed manually in multiple fills

• Compliance & Execution Reporting: user defined rules-based identification of exceptional trades requiring manual review

Core Capabilities • Browser-based access from desktop• Export reports in PDF or Excel• Integration into Asset Servicing Platforms

As Standard, plus:• Exclusion workflow: remove outlier trades from analysis.

Record reason for exclusion for audit trail purposes• Define tailored reports• Bespoke integration to customer OMS/EMA

Underlying Market Data • BestX to supply market data • BestX to supply market data

Analytics • Expected Spread versus Actual Spread• Hourly and Daily VWAP• Revaluation before and after trade time

As Standard, plus:• Market Impact• Signaling Risk• Implementation Shortfall• Trend analysis

Filtering and Grouping • Currency, Trade Size, Account, Execution Venue, Counterparty, Trade Types

As Standard, plus:• Bank Algo Name and Execution Venue (for subfills)

BestX® Best Execution Analytics – Detail

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Advanced Analytics accessible via Web UI, Excel, Automated API, Integration with EMS/OMS enabling detailed analysis of execution performance.

• Provide a ‘level playing field’ enabling comparison of algo performance across providers, allowing net performance (inc. fees & market impact) to be fairly evaluated and compared

• Coverage: FX, Forwards, NDF & Onshore EM – all major pairs and liquid EM pairs in scope.

• Benchmark Selection: User will be able to select appropriate benchmarks to be used in analysis depending on the nature of the underlying portfolio, including Clients’ unique or bespoke benchmarks e.g.

• Fair Value Risk Transfer Price

• Arrival Price, 1hr & 24hr TWAP (Time Weighted Average Price proxy)

• Interval TWAP, WMR (WM Reuters Fixings)

• Post Trade Reval (5s, 30s, 5mins, 30mins)

• Analysis of execution quality is possible across all decision points, e.g. counterparty, voice vs electronic, platform, time of day, algo etc.

• Analysis available to granularity of 50 millisecs where client time stamp data allows, and on a per trade basis or aggregate basis per user-specified frequency (e.g. daily, monthly etc)

• Performance metrics include measure of post-trade market impact, signaling risk, slippage to chosen benchmarks and spread analysis

• Full implementation shortfall analysis is available for all submitted time stamps, e.g. from PM decision to final fill if client data permits

• Exception reporting is available, based on client chosen benchmarks and thresholds, providing automated reports of individual trades warranting further attention.

• Bespoke integration with client OMS/EMS and workflow is possible

• User-defined reporting requirements: individual trade reports, exception reporting, aggregated reporting over selected time series for Management/Compliance/Audit purposes.

• Templates: Included in the UI for a menu of standard .PDF reports, with user able to customise further using the BestX UI ‘visualisation’ for viewing and generating reports

• All transaction data and results to be securely stored and available for annual meta-reporting for regulators / asset owners / consultants as required by the client

BestX comes with Linklaters opinion verifying functionality meets the legal requirements for Best Execution per requirements stipulated by MiFIDII, MiFIR, ESMA, FCA, RTS 27/28

BestX® Best Execution Analytics – Screens

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• Simple interface to load trade data, either via dragging and dropping an Excel fi le into the application, or via manual entry

• Any fi le format can be accepted, no requirement to match any specifi c format

• STP integration to OMS also possible, as well as overnight FTP

BestX® Best Execution Analytics – Screens

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• Interactive, dynamic user interface, provides ability to slice and dice results data and generate PDF reports as required

• Visual high level summary provided for the selected portfolio of traders

• Clicking on any chart reveals underlying data

• Additional summary screen provided, displaying costs and other metrics by different factors, e.g:

• Counterparty • Ccy pair • Size • Trade Type • Algo Type • Venue • Account etc

• Allows application to be used to make informed decisions around execution decisions and process

BestX® Best Execution Analytics – Trade Inspector Screen

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• Individual trades can be analysed quickly and visually using the Trade Inspector screen

• Range of unique metrics provided, taking into account key factors in achieving best execution, including:

• Actual vs expected spread cost • Actual vs expected impact cost • Fair value risk transfer price • Signaling Risk

• Individual trade PDF report generation available

BestX® Best Execution Analytics – Smart Filtering & Adhoc Report Generation

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• Reports can be fi ltered and re-run based on any selected criteria, e.g. individual counterparty, or a specifi c set of currency pairs etc

• Allows large data sets of trades to be analysed quickly and visually

• Provides ability for user to generate adhoc reports as required without having to send any new specifi cation or request to BestX

BestX® Best Execution Analytics – Tailor-made Exception Reporting & Workfl ow

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• Exception reporting can be confi gured on any execution metric(s) and for any chosen portfolio of trades

• Workfl ow around exceptions is provided allowing explanatory comments to be added, sign off process managed, with full audit trail and management hierarchy permissioning

• Thus, the application allows a client to tailor the BestX reporting to refl ect any institution’s specifi c best execution policy, and satisfy MiFIDII reporting requirements

Product

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Currency Pairs & Benchmarks in Scope

1,800 currency pairs will be supported, including all G10 crosses and Emerging Markets (NDF and onshore)

Products supported: Spot, Forward, NDFs and Swaps

Benchmarks in Scope

• Arrival Price

• 1hr, 24hr & Interval TWAP (Time Weighted Average Price proxy)

• WMR (WM Reuters Fixings)

• Pre & Post Trade Reval (1-5s, 30s, 5mins, 30mins)

• Fair Value Risk Transfer Price

• Implementation Shortfall

Invocation

Freedom to use a Secure Cloud based install that meets the highest standards of data security or have a local install on your own servers.

You can invoke the BestX Analytics from

• Excel

• Browser based BestX UI

• Programmable APIs

• Order Management Systems

Usage

TCA Reports can be viewed on:• Browser based BestX UI• Email• PDF Reports

Technology is all mobile enabled, allowing access via smart phones and ipads in Q416

Support

Clients can get in touch with us via a chat window embedded within the application itself and seek help directly while using the application. They will be able to even initiate a screen sharing and co-browsing session if needed.

Security

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CloudAt BestX, client data security is of utmost importance to us and it refl ects in every part of our architecture.

BestX Uses Amazon Web Services for its Cloud Infrastructure which has been evaluated to meet the highest standards in data security.

Security Certifi cations – AWS meets ISO27001, SOC, PCI Data Security Standard, Department of Defence Levels 1-5, Federal Risk and Authorization Management Program security standards which are currently the highest standards of data security that can be achieved.

DataCenter Access – Physical access is strictly controlled by security staff and video surveillance and authorized staff must pass authentication at least twice. Visitors and contractors are continually escorted.

Storage Disposal – All decommissioned disks are degaussed and physically destroyed.

ApplicationUser Access – User accounts will be managed through the AWS Identity & Access Management tool and authentication cookies to ensure user credentials cannot be spoofed.

Application Access – All API requests from the application will be signed and forced through an HTTPS endpoint allowing us to verify the identity of the requestor. This will prevent any tampering and also prevent replay attacks as all requests will expire within 15 mins of the embedded timestamp.

Usage Tracking – AWS CloudTrail will be used to track all user requests and archived in Amazon Glacier for audit and compliance requirements. CloudWatch will be used to monitor webserver logs real-time to detect unauthorized access.

Firewall – An inbound fi rewall will be used in a deny-all mode and ports will be explicitly opened to allow access to specifi c services. User Data is fi rmly locked up inside the fi rewall. AWS Trusted Advisor services will be used to evaluate and audit all access controls.

Vulnerability AnalysisDistributed Denial Of Service (DDoS) Attacks – AWS API endpoints are hosted on large, Internet-scale, world-class infrastructure with proprietary DDoS mitigation techniques. AWS’s networks are multi-homed across a number of providers to achieve Internet access diversity.

Man in the Middle (MITM) Attacks – All of the AWS APIs are available via SSL-protected endpoints which provide server authentication. SSH host certifi cates are generated on fi rst boot and secure APIs can be used to access the host certifi cates before logging in.

IP Spoofi ng – Amazon EC2 instances cannot send spoofed network traffi c. The AWS-controlled, host-based fi rewall infrastructure will not permit an instance to send traffi c with a source IP or MAC address other than its own.

Port Scanning – All inbound ports on Amazon EC2 instances are closed and are only opened by us explicitly. Strict management of security groups can further mitigate the threat of port scans.

Packet sniffi ng by other AWS tenants – It is not possible for a virtual instance to sniff traffi c intended for a different instance. Even two virtual instances that are owned by the same customer located on the same physical host cannot listen to each other’s traffi c. Attacks such as ARP cache poisoning will not work either in this environment.

Founders

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Pete Eggleston joined Morgan Stanley in August 2010 to set up the Quantitative Solutions & Innovations (QSI team) within FID, a client-facing quantitative group that sought to add value to client investment processes through the delivery of algorithmic products, analytics and bespoke projects. Prior to joining Morgan Stanley, Pete has held a number of roles within the fi nancial sector, commencing his career at NatWest Markets in 1992, and subsequently ABN AMRO and RBS. Peter holds a BSc in Chemistry from London University, as well as an MSc in biodiversity conservation, also from London University.

Contact: pete@bestx.co.uk

Aman Thind was previously at Morgan Stanley, heading the Electronic Trading and Realtime Analytics Technology Division. He joined Morgan Stanley in 2009 as a Fixed Income Strat and since then held a number of leadership roles in technology managing the Quantitative Solutions and Innovations (QSI) group, Client Architecture for Matrix e-Trading platform, Realtime Analytics across FX & Equities, and the Big Data & UI Strategy. Aman has held roles within both the fi nancial and software sectors, commencing his career at Quark Media in 2002, and subsequently Fidelity Investments, Adobe and Lehman Brothers. Aman holds a BTech in Computer Science from Kurukshetra University.

Contact: aman@bestx.co.uk

Ollie Jerome was most recently European Head of FX at Morgan Stanley in London, responsible for Sales, Trading & Structuring. Oliver joined Morgan Stanley in 2010 as Head of FX & Emerging Markets Sales for EMEA & the US, and subsequently Head of FX & EM in Europe, serving on the Global FID Management Committee. Oliver began his career in FX Sales at Chase Manhattan in 1998, and was promoted to Managing Director in 2007. He remained at Chase through the merger with JPMorgan until 2009, when he left for Standard Chartered. Oliver has a BA in Economics from the University of Manchester.

Contact: ollie@bestx.co.uk

Track record

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• Proven history of providing advanced analytics through Quantitative Solutions & Innovations (QSI), a client facing quant group established in 2010 by the Partners during their tenure at Morgan Stanley, with the objective of adding value to the currency investment process and enabling our Clients to make more informed execution decisions.

• Multi-year track record of creating unique content, re-engineering Clients’ currency investment and transaction processes through implementation of Industry Award Winning quantitative research, bespoke analytics and web based applications. (Morgan Stanley QSI awarded by Risk Magazine, P&L Magazine, FX Week)

• Over 50 years of combined experience across Fixed Income Sales & Trading, Technology, Quantitative Research and eMarkets

Collaborations

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In November 2016 BestX announced a strategic partnership with Thomson Reuters

• BestX will access a unique database of TR market data including data sets that would otherwise only be available to participants in a trading venue (which clearly we will never be). Across their venues, TR transact around $350bio of volume per day, and we will now have access to that price information (as well as a multi-year historical data-set) with which to calibrate our models and inform the analytics.

• BestX is now Thomson Reuters exclusive FX TCA partner, providing Independent TCA to clients trading across Thomson Reuters buy-side execution platforms, optimising client workfl ow through direct STP from FXAll & the Thomson Reuters Transaction Network (TRTN).

• Joint-distribution of BestX FX analytics leveraging the TR global sale force to geographies where demand exists for best of breed TCA.

• Creation of ‘Derived Market Data streams’ through the combination of TR market data and the output of our proprietary models for co-branded distribution via Eikon.

• The independence of BestX is at the heart of everything we do and of every negotiation we have undertaken. TR have no Information Rights beyond standard limited access to the company’s fi nancial books and records, and BestX will continue to operate as a separate entity totally at arms length.

Collaborations

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BestX is pleased to collaborate with the following partners – these relationships allow constant and ferocious innovation, which simply makes the product more useful for our Clients:

• We partner with Intel to deliver high performance fi nancial analytics to our joint customers via machine learning, big data analysis and Python programming using the Intel® Distribution for Python and Intel® Data Analytics Acceleration Library

• BestX is proud to collaborate with Massachusetts Institute of Technology (MIT) & Julia Computing on Machine Learning, Big Data Analysis and Julia Programming Language for Financial Analytics

• BestX is grateful for the access we have been given to Professor Treleaven’s Department of Computer Science PhD & Masters students at University College London (UCL) to collaborate on Machine Learning, Big Data Analysis and Data Science

Appendix – Regulations & Legislation

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1. Compliance – Linklaters

2. Why is Best Execution such a Compliance Priority?

3. MiFID II – Best Execution Obligations as of 3 Jan. 2018

4. How is Best Execution Monitored and Delivered?

BestX® Best Execution Analytics – Compliance

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The BestX® Best Execution Analytics have been designed with reference to the following regulations:

• Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in fi nancial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (recast) (“MiFID II”);

• Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in fi nancial instruments and amending Regulation (EU) No 648/2012 (“MiFIR”);

• Commission adopted Delegated Regulation C(2016) 2398 fi nal (the “MiFID II DR”);

• Commission adopted Delegated Directive C(2016) 2031 fi nal (the “MiFID II DD”);

• CESR Q&A Best Execution Under MiFID Ref: CESR/07-320 (“CESR Q&A”);

• Commission adopted Delegated Regulation (C(2016) 3333 fi nal) (“RTS 27”);

• Commission adopted Delegated Regulation (C(2016) 3337 fi nal) (“RTS 28”);

• FCA Thematic Review TR14/13 on Best Execution and Payment for Order Flow, dated July 2014 (the “FCA Thematic Review”);

• FCA Consultation Paper CP16/19 on the Markets in Financial Instruments Directive II: Implementation, dated July 2016 (the “Second FCA MiFID II CP”);

• The FCA’s Principles for Businesses (the “Principles for Businesses”); and

• ESMA’s Questions and Answers on MiFID II and MiFIR investor protection topics, dated 10 October 2016 (the “ESMA Q&A”).

• https://www.fca.org.uk/publication/fi nal-notices/fi nal-notice-hsbc.pdf

M A K E I N F O R M E D D E C I S I O N S

PRIVILEGED & CONFIDENTIAL – NOT FOR DISTRIBUTION

BestX® FX Best Execution Analytics

MIFID II OPINION

16 November 2016Version 1

BestX comes with independent opinion from Linklaters LLP verifying functionality meets

the legal requirements for Best Execution per requirements stipulated by MiFIDII, MiFIR,

ESMA, FCA, RTS 27/28

Why is Best Execution for FX such a compliance priority?

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‘Best execution’ is the term given to the obligation on fi rms to take all suffi cient steps to obtain the best possible result for their clients taking into account price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to execution when executing orders for a client or where a client is legitimately relying on the Firm (e.g. where the Firm is exercising discretion on behalf of the client).

15. The group recommends that asset managers, including those passively tracking an index, should conduct appropriate due diligence around their foreign exchange execution and be able to demonstrate that to their own clients if requested. Asset managers should also refl ect the importance of selecting a reference rate that is consistent with the relevant use of that rate as they conduct such due diligence.

Source: Foreign Exchange Benchmarks Consultative Document 15 July 2014 – “Summary of draft recommendations”

Regulators, led by the Fed/OCC and FCA, are focused on FX in the aftermath of the FX scandal.

• Banks required to undertake costly FX remediation

• Regulators have made clear that they expect best execution principles to apply to Spot FX

MiFID II applies from January 2018

• Article 27 will require onerous and detailed best execution reporting from January 2018 for FX Forwards, rolling Spot FX, FX options and other FX Derivatives.

• Article 24 and 27(2) will require fi rms to separate out/disclose how much they spend on services such as transaction cost analytics from their fees for executing trades.

“any fi rm routing client orders to a particular trading venue or execution venue shall not receive any remuneration, discount or non-monetary benefi t”.

Senior Managers Regime – as of 7 March 2016 – will ensure that senior managers can be held accountable for any misconduct that falls within their areas of responsibilities and means that the quality of best execution management information must be improved, especially as comes before Global and Regional Best Execution Committees.

• Furthermore, the new Certifi cation Regime and Conduct Rules aim to hold individuals working at all levels in banking to appropriate standards of conduct.

“We are determined to embed a culture of personal responsibility within the banking sector... [Y]ou can delegate tasks but you cannot delegate responsibility.”

MiFID II – Best Execution Obligations as of 3 Jan. 2018

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The best execution obligation under Directive 2014/65/EU requires investment firms to take all sufficient steps to obtain the best possible result for their clients.

The quality of execution, which includes aspects such as the speed and likelihood of execution (such as fill rate) and the availability and incidence of price improvement, is an important factor in the delivery of best execution.

Availability, comparability and consolidation of data related to execution quality provided by the various execution venues is crucial in enabling investment firms and investors to identify those execution venues that deliver the highest quality of execution for their clients.

In order to obtain best execution result for a client, investment firms should compare and analyse relevant data including that made public in accordance with Article 27(3) of Directive 2014/65/EU and respective implementing measures.

Recital 107 of delegated acts published 25 April 2016 – http://ec.europa.eu/finance/securities/docs/isd/mifid/160425-delegated-regulation_en.pdf

1. Establishing best execution arrangements and order execution policy • Monitoring price/spread, costs, market impact, signaling effect. • When aggregating client and house orders, are clients still receiving best execution?

2. Monitoring and verifying best execution arrangements • Firms must detail for their clients in writing how they monitor and verify that the best possible results were obtained for their clients.

3. ANNUAL data publication obligations for each class of financial instrument (on firm websites in machine-readable electronic format, available for downloading by the public). • The top FIVE execution venues in the preceding year and information on the quality of execution obtained, including information about the volume and number of orders

executed on each execution venue (in percentage terms). • A summary of the analysis and conclusions it draws from its detailed monitoring of the quality of execution obtained in the previous year. This information shall include:

• a description of any close links or conflicts of interests with respect to any execution venues;

• an explanation of how the investment firm has used any data or tools relating to the quality of execution

• an explanation of how the investment firm has used, if applicable, output of a consolidated tape provider established under Article 65 of MiFID II, which will allow for the development of enhanced measures of execution quality, or any other algorithms used to optimise and assess execution performances.

How is Best Execution Monitored and Delivered?

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Annually or when a material change occurs to the ability to obtain the best possible results for clients, the Firm must formally review its execution arrangements considering whether the brokers / execution venues selected are providing the best possible result for its clients.

The review should consider whether information on which the order execution policy is based is manifestly accurate, complete and up to date.

• Pre-trade TCA

• Post-trade TCA

• Exception Reports

• Senior review and intelligent management information

• Regular and Rigorous Review of Execution Quality

• Minimum Quarterly Basis – Monthly recommended

• Must Compare Achieved vs Potential

• Material Change review

• Annual review

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