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THE FIA IT DIVISION THE FIA IT DIVISION PRESENTSPRESENTS

THE FIA IT DIVISION THE FIA IT DIVISION PRESENTSPRESENTS

REDUCING TRADING COSTSREDUCING TRADING COSTS

A PANEL DISCUSSIONA PANEL DISCUSSION

Moderated By:Moderated By:

2003 FIA Expo2003 FIA Expo Tellefsen Consulting Group, Inc. Tellefsen Consulting Group, Inc.

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AGENDAAGENDA

I.I. Purpose and Scope of the Purpose and Scope of the DiscussionDiscussion

II.II. About Our PanelistsAbout Our Panelists

III.III. FIA IT STP Committee InitiativesFIA IT STP Committee Initiatives

IV.IV. What Our Panelists Think…What Our Panelists Think…

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I. I. PURPOSE AND SCOPE OF THE PURPOSE AND SCOPE OF THE DISCUSSIONDISCUSSION

1.1. PurposePurpose

To discuss areas within the Futures industry To discuss areas within the Futures industry where Straight-Through Processing (STP) where Straight-Through Processing (STP) improvements can be realized, as a result of improvements can be realized, as a result of recent and forthcoming initiatives by the Chicago recent and forthcoming initiatives by the Chicago and New York exchanges and clearing housesand New York exchanges and clearing houses..

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Purpose And ScopePurpose And Scope … …

2.2. ScopeScope

Our panelists will discuss the new system Our panelists will discuss the new system initiatives, post-trade processing standards, the initiatives, post-trade processing standards, the availability of more real time clearance and availability of more real time clearance and settlement information and the overall impact on settlement information and the overall impact on reducing trading costs.reducing trading costs.

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II. II. ABOUT OUR PANELISTSABOUT OUR PANELISTS

Dick BakerDick BakerDirector of Business Development and IT Liaison, Director of Business Development and IT Liaison, The Clearing Corp.The Clearing Corp.

Sam GaerSam GaerChief Information Officer, Chief Information Officer, New York Mercantile ExchangeNew York Mercantile Exchange

Inna GelinInna GelinSenior Vice President, Senior Vice President, Wachovia SecuritiesWachovia Securities

Ed GogolEd GogolVice President Clearing Systems Development, Vice President Clearing Systems Development, Chicago Mercantile ExchangeChicago Mercantile Exchange

George F. Haase, Jr.George F. Haase, Jr.President, President, New York Clearing Corp.New York Clearing Corp.

Angela KrugAngela KrugU.S. Regional Manager, Futures & Options Technology, U.S. Regional Manager, Futures & Options Technology, Deutsche Bank SecuritiesDeutsche Bank Securities

John MunroJohn MunroSenior Vice President, Product Design, Senior Vice President, Product Design, Rolfe & NolanRolfe & Nolan

Thomas MacLeayThomas MacLeaySenior Vice President, Strategic Development, Senior Vice President, Strategic Development, Sungard FuturesSungard Futures

John RapaJohn RapaPresident/Chief Executive Officer, President/Chief Executive Officer, Tellefsen Consulting Group, Inc.Tellefsen Consulting Group, Inc.

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III. III. FIA IT STP COMMITTEE FIA IT STP COMMITTEE INITIATIVESINITIATIVES

The IT Division STP Committee was constituted The IT Division STP Committee was constituted earlier this year to identify the state of STP earlier this year to identify the state of STP initiatives in the Futures industry.initiatives in the Futures industry.

The Committee was chaired by Inna Gelin and The Committee was chaired by Inna Gelin and Rob Schroeder, both from Prudential Securities.Rob Schroeder, both from Prudential Securities.

The Committee analyzed the state of automation The Committee analyzed the state of automation and recommended areas of changes to processes and recommended areas of changes to processes that impede STP.that impede STP.

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FIA IT STP COMMITTEE INITIATIVES …FIA IT STP COMMITTEE INITIATIVES …

The Committee assessed six major processes involved in domestic The Committee assessed six major processes involved in domestic Futures trading:Futures trading:– Trade EntryTrade Entry– Product Set UpProduct Set Up– Trade CorrectionTrade Correction– Give-Up ProcessingGive-Up Processing– Deliveries, Options Exercise and AssignmentDeliveries, Options Exercise and Assignment– Post-Execution ProcessingPost-Execution Processing

They identified and discussed detailed functions for each of the above They identified and discussed detailed functions for each of the above 6 areas.6 areas.

Processes were analyzed and STP status was assessed, based on Processes were analyzed and STP status was assessed, based on manual, semi-automated or fully automated processing criteria.manual, semi-automated or fully automated processing criteria.

Charts were created that reflect the state of automation by process Charts were created that reflect the state of automation by process (June 2003). (June 2003).

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FIA IT STP COMMITTEE INITIATIVES …FIA IT STP COMMITTEE INITIATIVES …

Charts of STP capabilities were developed for:Charts of STP capabilities were developed for:– CBOTCBOT– CMECME– NYBOTNYBOT– NYMEX/COMEXNYMEX/COMEX

Three main areas for improvement were prioritized:Three main areas for improvement were prioritized:– More real time information from the New York exchangesMore real time information from the New York exchanges– Increase the frequency of intra-day SPAN filesIncrease the frequency of intra-day SPAN files– Automate new product set-upsAutomate new product set-ups

The Committee was to address these and define a plan to The Committee was to address these and define a plan to pursue changes with the respective exchanges and pursue changes with the respective exchanges and clearing houses.clearing houses.

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Exchange: CBOT

Firm: Consolidated

Date: 30 July 2003

TradeCorrections :

ProcessOutTrades

UsingBookkeeping

System(CF/O)Status:

Automatic

Bad AccountCorrections:

Via CF/OStatus:

Automatic/Manual forSungard

Give-Up Claimsand Allocations :Status: Manual forEFP/APS Trades

Status: Automaticfor other trades

Give-UP Fees:via GAINS

Status:Automatic

SPAN andSettlementPrice Data

FeedsAutomatic toMainframe.

Status:Automatic

PositionCorrection

Sheets (PCS)Position

adjustments viaOTIS feed

Status:Automatic

Trade RegisterProcessing: (ETB

Process)Automatic using

Bookkeeping feed.Status: Automatic

TradeCorrection

Give-Ups Post-Execution Processing

Position FileProcessing

(PositionReconciliation,

Variation MarginJournal

Processing)Status:

Automatic

Clearing Sheets Received andPrinted Automatically

Status: Automatic

Client IssuesManual From theClient to the FA tothe Back Officestaff to input theIssue Request

Status: Manual

Exchange Stops:via exchange

noticeStatus: Semi-

Automatic(DB)Pru(Manual),Sungard(S

emi-Auto)

Deliveries/ OptionExercise

(Assignments)

WarehouseReceipt

Management:Warehouse

manual process,Electronic

approach inprogress. Invoicing

is Automatic

Client StopsStatus: Manual

Option ExerciseAssignment

Status: Semi-Automatic

Set-up

New ProductSetup:

Adding newproducts

Status: Manual

Pay/CollectReport

Received andPrinted

AutomaticallyStatus:

Automatic

Large Trader:Automatic.

Status: Automatic.Assigning new

numbers is manual

ExchangeReporting:Automatic.

Status: Automatic

Trade Entry

Client TradeEntry:

Open Outcry :Call to broker or

floorStatus: Manual

Electronic Trading:via A/C/E: Status:

Automatic

Streetside TradeEntry:

Open Outcry :Clerk allocatestrade in boothterminal. Both

buying and sellingFCMs will enter

trade factsStatus: Manual

Electronic Trading:via A/C/E: Status:

Automatic(Sungard is

Manual)

Bookside TradeEntry:

Open Outcry :FCM receives

trade facts via MQtransmissions

Status: AutomaticElectronic Trading:

Same Status:

Automatic

ModifyingExisting

Products:Adding newstrike pricesor deliverymonths,

updating fees Status:Manual

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Trade Entry

Exchange: CME

Firm: Consolidated

Date: 30 July 2003

TradeCorrections:Process OutTrades UsingBookkeeping

System(Pru: CF/ODB: TES/GUS)

Electronic feed viaMQ to to ClearingStatus: Automatic

Vendor: Semi-Automatic

Bad AccountCorrections: Pru:

Via CF/ODB: Via TES/GUSStatus: Automatic

Give-UpClaims and

Allocations :Status:

Manual forEFP/APS

TradesStatus:

Automatic forother trades

Vendor: Semi-Automatic

Give-UPFees: via

GAINSStatus:

Automatic

SPAN andSettlementPrice Data

FeedsAutomatic to

Mainframe.(DB:AS-400)Status:

Automatic

PositionCorrection

Sheets (PCS)Position

adjustments viaOTIS feed

Status:Automatic

Trade RegisterProcessing: (ETBProcess) Automaticusing Bookkeeping

feed.Status: Automatic

TradeCorrection

Give-Ups Post-Execution Processing

Position FileProcessing

(PositionReconciliation,

Variation MarginJournal

Processing)Status:

Automatic

Clearing Sheets Received andPrinted Automatically

Status: Automatic

Client Issues ManualFrom the Client to the FAto the Back Office staff toinput the Issue Request

Status: Pru: Manual DB:Manual using C21 w/dual

entry

Exchange Stops: viaexchange notice

Status: Pru: ManualDB: Automatic via direct feed

Deliveries/ OptionExercise

(Assignments)

Warehouse ReceiptManagement:

Warehouse manualprocess, Electronic

approach in progress.Invoicing is Automatic N/A

for Currencies Ags: Manual

Client Stops Manual Fromthe Client to the FA to theBack Office staff to input

the Stop RequestStatus: Pru: Manual, DB:Manual using C21 w/dual

entry

Option ExerciseAssignment

Status: Pru: Automatic(web) DB: overnight

process

Set-up

New ProductSetup:

Adding newproducts

Status: Manual

Pay/CollectReport

Received andPrinted

AutomaticallyStatus:

Automatic (DB uses a mid-day Pay/Collect

report)

Large Trader:Automatic.

Status: Automatic.Assigning new

numbers is manual(DB is manual)

ExchangeReporting:Automatic.

Status: AutomaticDB is N/A

Client TradeEntry:

Open Outcry :Call to broker or

floorStatus: Manual

Electronic Trading:via GLOBEX:

Status: Automatic

Streetside TradeEntry:

Open Outcry :Clerk allocatestrade in boothterminal. Both

buying and sellingFCMs will enter

trade factsStatus: Manual

Electronic Trading:via GLOBEX:

Status: Automatic

Bookside TradeEntry:

Open Outcry :FCM receives

trade facts via MQtransmissions

Status:Automatic

Electronic Trading:Same

Status:Automatic

ModifyingExisting

Products:Adding new

strike prices ordeliverymonths,

updating feesStatus: Manual

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Trade Entry

Exchange: NYBOT

Firm: Consolidated

Date: 30 July 2003

Client TradeEntry: Call tobroker or Floor

Status: Pru/DB:Manual

Vendor: Semi-Automatic

StreetsideTrade Entry:

Clerk allocatestrade in boothterminal. Bothbroker's clerk s

enters orig.trade.

Status: Manual

Bookside TradeEntry: Via TIPS

in a semi-automaticprocess

Status: Pru:Semi-Automatic

DB: Semi-Automatic via

C21

TradeCorrections :

ProcessOutTrades

Using TIPS orCF/O

Status:Pru:Semi-AutomaticDB:N/A

Bad AccountCorrections:Via TIPS or

CF/OStatus: Semi-

Automatic

Give-UpClaims and

Allocations :Manual in the

trading PitStatus:

Pru: ManualDB: Automatic

via TIPS forreceives,

allocations areManual viaturning over

ticket

Give-UpFees:

Pru:N/ADB:AutomaticPru: Auto via

in-houseinvoicingsystemVendor:Manual

TradeCorrection

Give-Ups Post-Execution ProcessingDeliveries/ Option

Exercise(Assignments)

Set-up

New ProductSetup:

Adding newproducts

Status: Manual

SPAN andSettlementPrice Data

FeedsAutomatic to

Mainframe viaFTP (DB via R/N

LIne)Status:

Automatic

PositionCorrection

Sheets (PCS)Automatic (DBvia R/N Line) .

Status:Automatic

Trade RegisterProcessing: (ETBProcess) Trade filedownload via FTPStatus: Automatic

DB:Manual

Position FileProcessing (Position

Reconciliation,Variation Margin

Journal Processing)Status: Pru/Vendors:Automatic DB: Manual

recon process

Clearing Sheets Received Automaticallyvia FTP and E-mailStatus: Automatic

Pay/CollectReport

Received andPrinted

AutomaticallyStatus:

Automatic

Large Trader:Automatic.

Status: Automatic

ExchangeReporting:

Automatic viaCOPS .

Status: Automatic

Client Issues Manual Fromthe Client to the FA to the

Back Office staff to input theIssue Request ( FCM uses

screen entry to enterrequests/notices)

Status: Pru: Manual, exceptAutomatic for metals

DB:N/A

Exchange Stops: viadirect Feed

Status: Pru/DB: AutomaticVendors: Manual

Warehouse ReceiptManagement: via COPSStatus: Pru/DB: Automatic

Vendors:Manual

Client Stops Manual Fromthe Client to the FA to the

Back Office staff to input theStop Request

Status: Pru: Manual, exceptAutomatic for metals

DB:N/A

Option Execrise/Assignmnet

Status: Pru/DB: Semi-Automatic (web)Vendors: Manual

ModifyingExisting

Products:Adding new

strike prices ordelivery months,

updating feesStatus: Manual,

Exch hasAutomaticMethod

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Trade Entry

Exchange: NYMEX

Firm: Combined

Date: 30 July 2003

Streetside TradeEntry: Open Outcry: Clerk allocates

trade in boothterminal. The sellingbroker's clerk entersorig. trade. Status:

ManualDB:N/A Electronic

Trading:via ACCESS

Status: AutomaticFor DB: N/A

Bookside TradeEntry: Via C21 in a

semi-automaticprocess

Status: SomeAutomatic

Exceptions: Need todownload C21 feed

onto a PC thenupload to themainframe

Status: Semi-Automatic

TradeCorrections :

ProcessOutTradesUsing C21

Status: ManualPru: Semi-

Automatic (FIleDownloadrequires

intervention)

Bad AccountCorrections:

Via C21Status:Manual

Pru: Semi-Automatic (

Accountcorrections that

only hitbookside areAutomatic)

Give-Up Claimsand Allocations :

Manual in thetrading Pit

Status: ManualDB: N/A

Give-UP Fees:via ATOMStatus:

Pru: AutomaticR&N: Manual

Sungard: Manual

TradeCorrection

Give-UpsPost-Execution Processing

Deliveries/ OptionExercise

(Assignments)Set-up

New ProductSetup:

Adding newproducts

Status: Manual

SPAN andSettlementPrice Data

FeedsAutomatic to

Mainframe viaCOMEX line.

Status:Automatic

PositionCorrection

Sheets (PCS)Automatic viaCOMEX line.

Status:Automatic

Trade RegisterProcessing: (ETBProcess) Automatic

using C21 feed.Status: Automatic

Position FileProcessing

(PositionReconciliation,

Variation MarginJournal

Processing)Status: Automatic

Clearing Sheets Received and PrintedAutomatically

Status: Automatic

Pay/CollectReport Received

and PrintedAutomatically

Status:Automatic

Large Trader:Automatic.

Status: Automatic

ExchangeReporting:Automatic.

Status: Automatic

Client Issues ManualFrom the Client to theFA to the Back Officestaff to input the Issue

RequestStatus: Manual viafax,except Auto for

metals via WIS

Exchange Stops:via direct Feed

Status: AutomaticR&N: Manual

Sungard: Manual

Warehouse ReceiptManagement: via WIS

Status: AutomaticR&N: Manual

Sungard: Manual

Client Stops ManualFrom the Client to theFA to the Back Officestaff to input the Stop

RequestStatus: Manual viafax,except Auto for

metals via WIS

Option Execrise/Assignment

Status: Automatic(web)R&N: ManualSungard: Manual

Client Trade Entry:Open Outcry :

Call to broker or floorStatus: Manual

Electronic Trading:via ACCESS Status:

AutomaticFor DB: N/A

ModifyingExisting

Products:Adding newstrike pricesor deliverymonths,

updating fees Status:Manual

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IV. WHAT OUR PANELISTS IV. WHAT OUR PANELISTS THINKTHINK

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1.1. What are the Top Priority STP What are the Top Priority STP Enhancements Recommended Enhancements Recommended by the Committee?by the Committee?

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2.2. How Will Your Clearing System How Will Your Clearing System Initiatives Address the Above Initiatives Address the Above STP Enhancements?STP Enhancements?

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3.3. How Are the Futures Exchanges How Are the Futures Exchanges and Clearing Houses and Clearing Houses Progressing, Relative to Progressing, Relative to Providing Modern, Industry Providing Modern, Industry Standard Interfaces for Standard Interfaces for Clearance and Settlement Clearance and Settlement Information?Information?

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4.4. Will These New Clearing Will These New Clearing Initiatives and STP Initiatives and STP Capabilities Increase or Capabilities Increase or Decrease Your Firm’s Decrease Your Firm’s Technology Costs?Technology Costs?

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5.5. How Will These Initiatives How Will These Initiatives Benefit FCM’s and Back Benefit FCM’s and Back Office System Vendors’ Office System Vendors’ Processing Environments?Processing Environments?

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6.6. Does Your Firm Anticipate Does Your Firm Anticipate Quantifiable Cost Savings Quantifiable Cost Savings from Common Clearing from Common Clearing Processing? If So, in Processing? If So, in What Areas, How Much, What Areas, How Much, When, etc.?When, etc.?

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7.7. How Will Exchange Cost How Will Exchange Cost Structures Change as a Structures Change as a Result of These New Result of These New Systems and STP Systems and STP Initiatives?Initiatives?

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8.8. How Much More Real How Much More Real Time Information Will Time Information Will These Systems Provide These Systems Provide and What Specific and What Specific Information Will be Real Information Will be Real Time That Has Not Been Time That Has Not Been Up to Now?Up to Now?

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9.9. If There Were to be One If There Were to be One Standard for C&S Standard for C&S Interfaces to Exchanges Interfaces to Exchanges and Clearing Houses, and Clearing Houses, What Should it be and What Should it be and Why ?Why ?

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10.10. What Has Your Involvement What Has Your Involvement Been with the CBOT/CME Been with the CBOT/CME Common Clearing Initiative?Common Clearing Initiative?

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Thanks to Our Panelists !Thanks to Our Panelists !