Fidessa Group plc

Smart Order Routing

Everything You wanted to know

(but were afraid to ask)

28th October 2009

Steve Grob - director of strategy Fidessa

Agenda

- Do you need a smart router at all?

- What are the challenges of SOR

- What's in the SOR Box

- Implementing SOR successfully

- SOR Checklist

Spread of Fragmentation

• European wide regulation enacted in November 2007 to:– Harmonise the investment services regime in 30 European countries– Improve transparency– Improve client categorisation

• Provide “best” execution– Based upon multiple factors not just price

• Led to creation of: – Multilateral Trading Facilities (MTFs)– Systematic Internalisers (SIs)– and dark pools

Unintended Consequences

• Fragmentation has also increased in:– Market Data– Clearing and Settlement

• Transparency Decreases– Different rules for Primaries, MTFs, SI’s and Dark Pools– MiFID Waiver – Cost of execution

• Lack of coordination– Market opening times– Tick sizes

But……………….

Nevertheless trading of European equities has continued to fragment at an alarming pace.

Which venues are most affected:

Source: Fidessa Fragmentation IndexSep 2008 to Sep 2009www.fragmentation.fidessa.com

The London Experience

Fragmentation of FTSE 100 stocks has risen by over 50% in the last year

Source: Fidessa Fragmentation IndexSep 2008 to Sep 2009

The London Experience II

And FTSE 250 stocks are affected too

Source: Fidessa Fragmentation IndexSep 2008 to Sep 2009

France, Germany too

Source: Fidessa Fragmentation IndexJune 2008 to June 2009

Even Switzerland

Source: Fidessa Fragmentation IndexSep 2008 to Sep 2009

And the Nordics?

Source: Fidessa Fragmentation IndexSep 008 to Sep 2009

Q -So do I need a smart router?

• A - Probably

• Chi -X, Burgundy, Turquoise• The Nordics is a microcosm for what is happening in Europe

• Break down of national boundaries• Sector breakdown• Cross listing

http://fragmentation.fidessa.com/stats/index/OMXC20.CO.html

Old Style Order Routing

directed DMA flow

order

Trader

Algo

Client CARE flow

ALGO flow

electronic

(FIX)

CSX

Smart Order Routing

SOR

Smart

Order

RouterSmart

CARE flow

Smart

ALGO flow

smart DMA flow

Clientelectronic

(FIX)

smart order

Trader

Algo

smart instruction

CSX

Chi -X

Burgundy

Turquoise

SOR Challenges

• SOR versus Smart Workflow– Fungibility– Must be completely integrated

• Monitoring– did my SOR make the right decision?– Proving it to customers and regulators

• Venue Connectivity– Highly dynamic– Need plug and play approach

• Build versus buy– The risk of using smart brokers

What's in the SOR Box

• Market Data– Virtual Market– Consolidated tape– Fungibility

• Making a smart decision– Liquidity/Price– Trading fees– Recycling unfilled orders

• Reporting - can I prove the SOR made the right choice to– Myself– My customers– My regulator

http://fragmentation.fidessa.com/

Reporting

Implementing an SOR Strategy

• Build versus Buy – Or……. use a third party Broker

• How does SOR fit with Algo trading– Algos are concerned with when to place an order (VWAP, TWAP, POV)– SOR is focussed on where (CSX, Chi-X, Burgundy, Lit v Dark)– And yes they do ultimately need to talk to each other

• Use suppliers that have proven technology– SOR sounds easy but it gets complicated quickly

SOR Checklist

• It will be impossible to offer “good enough” execution without an SOR that:

– Includes lit and dark capabilities– Provides complete workflow– Tells you what is going on

• It will be difficult to offer execution services without adopting a pan Nordic and, ultimately a pan European, outlook

• The MiFID genie is out of the bottle – there’s no going back!

And you're going to need better information than beforewww.fragmentation.fidessa.com