Accessing Liquidity: SIGMA and SIGMA X

Presentation to Bright Trading

September 17, 2008

Denise Fiacco, Jack Mahoney, Justin Lerner

Then and Now: Listed Shares

1. Jan 08. Single-counted share volume, internal matches only, all Tape hours. For some venues the estimates are rough approximations.Shapes not in proportion to actual market share.

NYSENYSE

NSENSE

PHLXPHLX

CHXCHX

BSEBSE

INETINET

84%

3%

LiquidnetLiquidnet

Broker-dealers

PositPosit

4%

7%

2%

2001

Crossing networks

Regional

11%

PipelinePipeline

LiquidnetLiquidnet SIGMA XSIGMA X

Broker-dealers

PositPosit

>25%

<3%

MatchPointMatchPoint

~3%ARCAARCA

NYSE Group

53%

13%

NYSE HybridNYSE Hybrid<40%

Nasdaq Single Book

~5%

2%

Other exchange

s

BATSBATS6%

ECN’s

200812008

Then and Now: Listed Shares

Market Landscape: Fragmentation

33%

19%

18%

2%

1%

0%

0%

1%

0%

15%

11%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%

NASDAQ

NYSE (HYBRID)

ARCA

NSX (CSE)

AMEX (AMEI)

CHX

PHLX

ISE

CBSX

ECN TOTAL

Private Total

** Reflects TABB group reported volumes for June 2008.

Complex US Liquidity Landscape

Simplified ECN Landscape

EDGE X/A30%

LAVA Flow4%

BATS66%

** Reflects TABB group reported volumes for June 2008.

Simplified, Consolidated ECN Landscape

22%

11%

8%

8%

8%

7%

7%

4%

4%

4%

4%

4%

3%

2%

2%

1%

0%

0% 5% 10% 15% 20% 25%

SIGMA X

CrossFinder

KnighLINK

LCX

CitiMatch

LeveL ATS

Liquidnet

POSIT

NYFIX Millennium

UBS PIN

GETCO

MS POOL

Instinet Crossing

Pipeline

BIDS

ConvergEx

BlockCross

Complex, Fractured Dark Pool Landscape

** Reflects Rosenblatt Securities reported volumes for July 2008.

Classification Company Product ADV Traded (Millions) GS Access % of Total Dark Volume

Goldman Sachs SIGMA X 284 Yes 20.44%Knight Capital Group KnighLINK 103 Yes 7.41%Morgan Stanley MS POOL 45 Yes 3.24%UBS UBS PIN ~50 Yes 3.60%ATD Liquidity Ping NA Yes NAFidelity CrossStream NA Yes NAGETCO Execution Services GETCO 47.1 Yes 3.39%Credit Suisse CrossFinder 142 No 10.22%Merrill Lynch Block Alert NA No NACitigroup CitiMatch 101 No 7.27%BNY ConvergEx ConvergEx 14.5 No 1.04%Lehman Brothers LCX 102 No 7.34%

BIDS Trading BIDS 24.7 Yes 1.78%eBX LLC LeveL ATS 88.2 Yes 6.35%

Instinet Instinet Crossing ~43.8 Yes 3.15%NYFIX Millennium NYFIX Millennium 55.3 Yes 3.98%Liquidnet Liquidnet 82.7 Yes 5.95%Pulse Trading BlockCross 0.8 No 0.06%Pipeline Pipeline ~29.2 No 2.10%ITG POSIT ~56 No 4.03%

ISE Stock Exchange Display point + MidPoint Match 29 Yes 2.09%NASDAQ Intraday Cross NA Yes NANASDAQ Continuous Cross NA Yes NADirect EDGE EDGE ELP Network 91.6 Yes 6.59%NYSE NYSE MatchPoint NA No NA

1389.1 68.00% 100%

Broker Stand Alone

Sell Side Consortiums

Independent Liquidity Pools/ATSs

Exchange Owned Dark Pools

Dark Pool CompetitionThe Actual Numbers …

** Reflects Rosenblatt Securities reported volumes for July 2008.

The SIGMA Smart Router

• SIGMA creates a “game plan” for every order it receives• The original parent order is decomposed into child orders according to:

1. NBBO2. Internal ranking table3. Depth of book feed (real time from all major pools of liquidity)

• Orders sent to pure electronic exchanges are routed with an IOC (Immediate or Cancel) time-in-force

• Orders sent to partially electronic exchanges (Hybrid NYSE) are routed with a DAY time-in-force

• Prior to routing to public markets, SIGMA will search for liquidity in SIGMA XThis is an iterative process:• SIGMA creates a new game plan for the balance of the order • Subsequent game plans depends on whether the order receives a fill or an out from a

particular venue (no fill at all from particular destination, they are removed from the game plan at that quote, but if quote moves we may go again irrespective of whether we were filled at prior quote)

• Posting destination(s) fully customizable

Smart Routing: SIGMA

SIGMASIGMA Smart routed orders

SIGMA XSIGMA X

Customer ATS XLPs Public

19

28

3

23

25

2

0 5 10 15 20 25 30

SIGMA X

ARCA

BATS

EDGE X/A

NASDAQ

Other OTC Breakdown

19

23

29

15

11

3

0 5 10 15 20 25 30 35

SIGMA X

ARCA

NYSE

EDGE X/A

NASDAQ

Other Listed Breakdown

SIGMA Listed vs. OTC Executed Volumes

REDIPlus Orders to SIGMA X

REDIPlus Portfolio Trader Waves to SIGMA X

REDIPlus X-Posted Tickets

FIX Orders to SIGMA X

R

SIGMA XAlgo Orders

SIGMA Smart

Routed Orders

SIGMA X Posted Orders

Customers

ATS

Liquidity

Providers

Dark

Pools

Public

Markets

GSET Flow Diagram

R

R

SIGMA X Directed

SIGMA Routed

GSCO

Liquidity

Providers

SIGMA X: Executed Flow Composition

Customer Pool: 90% Liquidity Providers:10%

Algorithmic DMACustomer

ATS

Market Capitalization Sector

SIGMA X: Execution Breakdown by Market Capitalization/Sector

Small 11%

Mid 33%Large 56%

• Volumes in various sectors track the market closely, overweighed in IT, underweighted in Financials.

SIGMA X: Order Types and Parameters

Order Types: Limit, PEGbid, PEGmid, PEGask, Ping (limit IOC)

• All peg orders float with the NBBO on the side specified. For example, a buy order pegged to the bid floats with the national best bid

• All possible spread capture/price improvement goes to the liquidity provider

SIGMA X: Customer ATS Execution Analysis

Large 56%

• Limit and PEGmid most common. PEGbid/ask used much less frequently.

• ~16% of executions are limit buyers interacting with limit sellers.

• PEGmid buyers interacting with limit sellers comprise 31% of executions, while PEGmid sellers interacting with limit buyers comprise an additional 31% of executions.

• An additional 18% is PEGmid buyers interacting with PEGmid sellers.

• ~34% of PEGmid executions occur at a more favorable price (34% (16.8/50)) of PEGmid buyers execute on the bid, and 34% of PEGmid sellers execute on the offer).

* Sample period is from January 2, 2008 – April 4, 2008

SIGMA X: What We Do To Prevent Gaming

• Real-time monitoring and alerts (work in progress): We monitor all orders that are directed to SIGMA X and are alerted to large-sized orders, high participation rates, excessive price moves and abnormal spreads.

• Advanced monitoring tools: graphical interface that allows us to view a particular execution along with all relevant quote/trade data.

• Regular monitoring of historical performance: automated tools and reports to monitor the performance of clients that provide liquidity.

• Internal checks and balances on DMA and algorithmic flow: ability to set default SIGMA X anti-gaming measures (MXQ, opt-out of certain flows, etc.) at both client and order level.

SIGMA X: What You Can Do To Prevent Gaming

• Prevent ‘fishing’: use an MXQ (minimum execution quantity) on orders directed to SIGMA X to avoid small fills. This quantity is the minimum size you are willing to cross and can be set as a default per user or on an order-by-order basis.

• Reduce impact: be sure to specify a bottom/top when using a peg order type to avoid excessive price impact. Keep in mind that dark executions do hit the tape.

• Call us: if you have any questions or concerns about a particular order or execution, call your representative.

SIGMA X: Executed Volume Trend

• Average execution size = 600 shares

• 1B shares ADV intractable flow

• 21% of GSET algorithmic executions occur in SIGMA X

• SIGMA X latency = less than 1 ms

• 4,000 unique symbols executed per day

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