Average Trade Size 1,800 1,600 1,400 1,200 1, U.S. Equities Market

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1 Actionable, strategic advice on IT, business, and regulatory issues in the financial services industry BLOCK TRADING PLATFORMS: BIDS UPS THE ANTE INTRODUCTION With the launch of POSIT in 1987, ITG pioneered the independent electronic crossing market, remaining the only viable option for anonymous, low market impact crossing for nearly 15 years. With the continued adoption of electronic trading, the introduction of penny spreads and the eventual approval of Regulation NMS 1, facilitating block trading had become increasingly difficult for the buy-side. FIGURE 1: SHRINKING AVERAGE TRADE SIZE AND SKYROCKETING TRADE VOLUME Trade Volume 14,000 12,000 10,000 8,000 6,000 4,000 2, Daily Average Share Volume (Mns) Average Trade Size Source: NYSE Group, NASDAQ, Aite Group estimates U.S. Equities Market Average Trade Size 2006 July 2007 YTD 1,800 1,600 1,400 1,200 1, Daily Average Number of Trades (000s) - 1. For more information on Regulation NMS, please see Regulation NMS: Will the Real Winner Please Stand Up? April Sang Lee slee@aitegroup.com IMPACT NOTE 10 High Street Suite 905 Boston, MA Tel: Fax: info@aitegroup.com

2 By end of 2001, the average trade size in public exchanges reached 800 shares; a dramatic drop-off from just six years before, when the average trade size was more than 1,600 shares (see Figure 1 on page 1). Sensing a new market opportunity, a new breed of ATSs emerged in 2001, focusing on the under-served block trading market. The electronic block trading market is certainly not a homogenous market. There are platforms specifically geared towards block trading with mandatory size minimum requirements. Other platforms profiled in this report may lack specific size requirements, but average more than 1,000 shares in average trade size which, compared to the public market, still represents significant size. Platforms, such as Liquidnet, Pipeline, BIDS, and BNY ConvergEx Cross specifically target the true block trading market with an average trade size of more than 10,000 shares. Other leading players, such as POSIT and NYFIX Millennium, exhibit much smaller average trade size, while still playing an important role in supporting the overall block trading market. For the purpose of our analysis, Aite Group has included all of these different types of firms under a single category: block trading platforms. This Impact Note examines the key trends in the electronic block trading market, and profiles some of the leading players in the marketplace. This Impact Note also provides key market share numbers and examines future prospects for the overall electronic block trading market. KEY MARKET TRENDS The electronic block trading market has become increasingly competitive over the last 12 months, as new entrants emerge to challenge the incumbents. Some of the key trends include the following: Going beyond buy-side to buy-side. Even Liquidnet, which had protected its buy-side only access as a core business model, has opened up its platform to sell-side flow through the Liquidnet H 2 0 service. Most of the platforms now have taken an open approach in which both the buy-side and sell-side order flow can interact. Leveraging algorithms. Most of the platforms have also opened themselves up to algorithmic order flow over the last 12 months. One exception has been Pipeline, which blocked access from certain algo providers as a result of a pricing dispute. NYFIX Millennium, on the other hand, has aggressively attracted algorithmic order flow and, as a result, has been piling up trade volume at an impressive rate Aite Group, LLC. All rights reserved. Reproduction of this report by any means is strictly prohibited. Page 2 of 21

3 Not all block trading platforms are created equal. Despite belonging to a single category, not all block trading platforms are made equal. To date, there are only two true block-centric platforms with substantial liquidity: Liquidnet and Pipeline. Both firms average at least 30,000 shares in average trade size, and tend to focus on facilitating executions in small- and mid-cap stocks. On the other end of the spectrum resides NYFIX Millennium, which averages about 1,000 shares in average trade size, and relies heavily on the algorithmically driven small orders passing through its liquidity pool to service its clients. Balancing between block trading and external execution opportunities. Some of the platforms have also reached out of their own liquidity pool to facilitate the overall trading needs of their membership. Liquidnet was the first firm to take this approach, bringing sell-side order flow into the Liquidnet community in order to minimize market impact via its H 2 0 platform. In recent months, both NYFIX (via Millennium PLUS) and Pipeline (via Algorithmic Switching Engine) have launched products aimed at increasing the fillrates of their client orders. Going global. As the competition for market share in the U.S. market heats up, leading platforms are already seeking opportunities in other major financial markets. Both Liquidnet and ITG have a solid presence in Europe as well as in Canada. The Asian market appears to be the next frontier of block trading as Liquidnet moves into major Asian countries, including Japan, Hong Kong, and Australia to continue its global expansion. The latest platform to seek fortunes in foreign territory has been NYFIX, with its recent announcement of Euro-Millennium launching in Q More filters and flexibility. New platforms have gone beyond just simple minimum-size restrictions in terms filtering capability. Users are now able to set preferential trading parameters (i.e., only trading with a certain counterparty that fits various characteristics); move from negotiation to auto-execution with a touch of a button; and evaluate counterparties, determining the members overall scorecard for internal policing. Perhaps the news or trend in 2007 was the official launching of BIDS, a heavily publicized consortium-led block trading utility, which appears custom-built to directly challenge the market clout of Liquidnet and ITG POSIT. With its flexible 2007 Aite Group, LLC. All rights reserved. Reproduction of this report by any means is strictly prohibited. Page 3 of 21

4 platform, extremely aggressive pricing schedule, and more importantly, the liquidity backing of major broker/dealers, BIDS may fundamentally alter the competitive landscape of the electronic block trading market in a short span of time Aite Group, LLC. All rights reserved. Reproduction of this report by any means is strictly prohibited. Page 4 of 21

5 PROFILING BLOCK TRADING PLATFORMS This section provides detailed profiles of the leading electronic block trading platforms. TABLE A: BLOCK TRADING PLATFORMS Platform Launch Date Ownership BIDS 2007 Bank of America, Bear Stearns, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Knight Capital, Lehman Brothers, Merrill Lynch, Morgan Stanley, UBS Average Trade Size N/A Average Trade Volume 17 million BNY ConvergEX Cross 2007 BNY ConvergEX 21,000 N/A ITG POSIT 1987 ITG 6,000* 61 million Liquidnet 2001 Privately owned, with private equity funding from TH Lee Putnam Ventures, Summit Partners, and Technology Crossover Ventures. 48, million Pipeline 2004 Pipeline 39, million NYFIX Millennium 2001 NYFIX 1, million Source: Firms, Aite Group estimates *Aite Group estimates based on interviews with POSIT members. BIDS After much market anticipation, BIDS Trading officially launched in Q backed by a who's who list of the global equities market. Broker/dealer owners include Bank of America, Bear Stearns, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Knight Capital Group, Lehman Brothers, Merrill Lynch, Morgan Stanley, and UBS. BIDS Trading is an open crossing network, open to both the sell-side and the buy-side via broker sponsorship. The BIDS platform was developed by Alberta Market Solutions (a small firm of six people). BIDS' IT group consists of 20 employees, with staff on the business-end numbering about 20 people. With the commitment of its founding broker/dealers, BIDS Trading has the capability to dominate the block trading market in the long-run. BIDS Trading's initial average daily trade volume certainly points to a bright future, averaging 6.6 million shares a day in June 2007, and an impressive 16.9 million shares in July 2007 (see Figure 2 on page 6) Aite Group, LLC. All rights reserved. Reproduction of this report by any means is strictly prohibited. Page 5 of 21

6 FIGURE 2: BIDS GROWING TRADE VOLUME Average Daily Trade Volume Mns of Shares Jun-07 Jul-07 Source: BIDS Figures are double-counted, to include both sides of the transaction. The BIDS platform has a lot of built-in flexibility, enabling users to choose between auto-execution or negotiation. Other key features of the BIDS ATS include the following: Flexible order types: - Firm orders for accessing liquidity within the BIDS ATS order book for immediate execution; and - Conditional orders to search for liquidity in multiple venues. If volume becomes available within the BIDS ATS, the order is automatically invited to trade allowing the trader to cancel orders in other venues to prevent duplication. Multiple ways to trade: - Auto-execution to automatically execute orders within the NBBO (via submission of firm orders); and - Negotiation to interact with orders when an auto-match is not available. Orders can have a minimum volume requirement set by the user; 2007 Aite Group, LLC. All rights reserved. Reproduction of this report by any means is strictly prohibited. Page 6 of 21

7 Use of scorecards that track trading behavior in key areas; Use of customizable filters to filter out counterparties with undesired historical trading behavior. For example, exposing a certain order to only firms with specific profiles (e.g., firms that have consummated 80% of their trades); A firm order can invite a conditional order to convert into a firm order; Price discretion to trigger a negotiation with an order that is close to the parameters set by the user; and Orders to the BIDS ATS can be submitted using third party OMS, EMS, BIDS ATS web interface, and proprietary algorithmic engines. Following the broker-sponsored business model, buy-side clients looking for access to the BIDS ATS would negotiate their commission rate with the broker/dealers. BIDS Trading currently charges less than US$.005 per share with volume-based discounts, offering an extremely competitive pricing model when compared with existing players in the block trading market. BNY CONVERGEX CROSS After the formation of BNY ConvergEx in October 2006, one of the first projects to roll out was a crossing platform to take massive client order flow going through Eze Castle. BNY ConvergEx could also rely on other flow, including transition desk flow, block desk flow, and affiliation with Pershing. BNY ConvergEx Cross launched on March 6th, 2007 with a handful of Eze Castle clients. Positioning itself as a block trading facility, ConvergEx Cross has a minimum size requirement of 10,000 shares. Key features of BNY ConvergEx Cross include the following: Offers both negotiation and automated execution; First 10,000 shares automatically at mid-point; Automated executions at all available prices, VWAP, and closing price; Very customizable clients can define and specify who they want to cross with; 2007 Aite Group, LLC. All rights reserved. Reproduction of this report by any means is strictly prohibited. Page 7 of 21

8 Offers post-trade analytics, enabling clients to assess overall performance and optimize the configuration and parameters for improved execution; Making artificial blocks from Pershing s retail-size flow; and 1,000 names currently at Pershing, expect to have Russell 2000 universe by summer. For access, clients of Eze Castle can have the option of a fully integrated blotter or a companion blotter. For third party OMSs, a companion blotter is the only option at this point. In terms of pricing, ConvergEx charges more like a Liquidnet on small caps, but assesses DMA-range pricing for liquid names. ITG POSIT Launched in 1987, ITG POSIT is the market pioneer in crossing, existing well before the current concept of dark pools even came to be. ITG currently has three flavors of POSIT: POSIT Match. Launched in 1987, POSIT Match is ITG's classic scheduled crossing service that provides anonymous, mid-point matching with zero market impact. POSIT Match is open to both the sell-side and the buy-side; approximately 85% of trading on POSIT is currently represented by the buyside, and the rest by the sell-side. POSIT Match provides 12 scheduled crossings throughout the day, starting at 9:45 a.m. and then closing with two post-market crosses at 4:15 p.m. and 4:45 p.m. POSIT Now. Launched in 2001, POSIT Now is a continuous crossing service. It started out crossing every 30 seconds, but began crossing every 15 seconds in Q POSIT Now is open to both the sell-side and the buy-side. BLOCKalert. Originally launched in Q as POSIT Alert, BLOCKalert is a Liquidnet-type crossing mechanism in which blotters of OMSs are tied together to seek active crossing opportunities. BLOCKalert sits outside of the passive matching POSIT network, and invites users to participate. There is no negotiation process in Block Alert to ensure that all order information is anonymous. POSIT Alert was rebranded in the first quarter of 2006 as BLOCKalert, part of a 2007 Aite Group, LLC. All rights reserved. Reproduction of this report by any means is strictly prohibited. Page 8 of 21

9 joint venture with Merrill Lynch that paired Merrill Lynch's liquidity with ITG's crossing technology. In the first quarter of 2007, POSIT collectively averaged 61 million shares a day. Users can access POSIT liquidity by utilizing ITG Triton, ITG Channel, or directly through a FIX connection. FIGURE 3: AVERAGE DAILY SHARE VOLUME POSIT's Estimated Average Daily Share Volume Q402 Q103 Q203 Q303 Q403 Q104 Mns of Shares Q204 Q304 Q404 Q105 Q205 Q305 Q405 Q106 Q206 Q306 Q406 Q107 Q207 Source: ITG, Aite Group estimates Also, POSIT continues to look for additional market opportunities outside of the U.S. market. Indeed, POSIT has become a global offering with its presence in Europe, Canada, Australia and Japan. LIQUIDNET Launched in 2001, Liquidnet is one of the clear leaders in the global block trading market with presence already in Canada and Europe, and soon to launch in Asia. Headquartered in New York, Liquidnet currently has 291 employees. As of Q2 2007, Liquidnet has 424 members, a majority of whom (80%) are from the U.S. market (see Figure 4 on page 10). Liquidnet's average daily trade volume has skyrocketed, averaging 54.5 million shares per day during Q2 2007, and 95.3 million shares in July 2007 (see Figure 5 on page 10). On August 8, 2007, Liquidnet reached a high of million shares Aite Group, LLC. All rights reserved. Reproduction of this report by any means is strictly prohibited. Page 9 of 21

10 FIGURE 4: LIQUIDNET S MEMBERSHIP BREAKDOWN Canada 3% Total Live Members: Q Europe 17% U.S. 80% Total Number of Live Members: 424 Source: Liquidnet FIGURE 5: AVERAGE DAILY SHARE VOLUME AND LEADING MARKET SHARE 60 Liquidnet's Average Daily Share Volume Q402 Q103 Q203 Q303 Mns of Shares Q403 Q104 Q204 Q304 Q404 Q105 Q205 Q305 Q405 Q106 Q206 Q306 Q406 Q107 Q207 Source: Liquidnet The majority of Liquidnet's business is done with the mid-cap and large-cap stocks, combining for 80% in total execution (see Figure 6 on page 11). Liquidnet has also done quite well on the NYSE-listed stocks with 62% of total execution (see Figure 7 on page 11) Aite Group, LLC. All rights reserved. Reproduction of this report by any means is strictly prohibited. Page 10 of 21

11 FIGURE 6: LIQUIDNET STATISTICS BASED ON MARKET CAP Breakdown of Executions By Market Cap 60% 50% 48.1% 40% 33.5% 30% 20% 18.4% 10% 0% Mid Cap Large Cap Small Cap Source: Liquidnet FIGURE 7: LIQUIDNET STATISTICS BASED ON EXCHANGE 100% Percentage Breakdown of Executions By Exchange 80% 43% 38% 60% 40% 20% 57% 62% OTC Listed 0% Q Q Source: Liquidnet Not content with its initial success in the U.S. equities market, Liquidnet launched its European initiatives from the United Kingdom in November Liquidnet has expanded its European coverage over the last couple of years, and currently includes the United Kingdom, Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Hungary, Iceland, Ireland, Italy, Latvia, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden and Switzerland. Liquidnet Europe enables cross-border block trading using a single broker (i.e., Liquidnet), and uses Bear Stearns for clearing, simplifying cross-border post-trade processing for 2007 Aite Group, LLC. All rights reserved. Reproduction of this report by any means is strictly prohibited. Page 11 of 21

12 clients. Liquidnet currently has 71 members in Europe, with 211 global members trading European stocks. In Q3 2005, Liquidnet introduced H 2 0, which is designed to position the large buyside liquidity of Liquidnet, absorbing smaller retail, as well as algorithmic flow from various ECNs, exchanges and sell-side streaming liquidity providers. TABLE B: LIST OF LIQUIDNET STREAMING LIQUIDITY PROVIDERS Streaming Liquidity Partners Bank of America Bloomberg TradeBook BNY ConvergEx Credit Suisse EdgeTrade Fidelity Capital Markets Goldman Sachs Execution & Clearing, L.P. Instinet Interactive Brokers Jefferies & Company JPMorgan Lehman Brothers Miletus Trading Piper Jaffray RBC Capital Markets Rosenblatt Securities Sanford C. Bernstein UBS UNX Source: Liquidnet During Q2 2006, Liquidnet opened its Hong Kong and Tokyo offices with expectations of opening up another office in Australia before the end of 2006, and launching services in the Asian market during the first half of In October 2006, Liquidnet launched its Canadian trading operation, having received approval from the Ontario Securities Commission (OSC) to trade Canadian equities. Liquidnet Canada has been averaging 505,000 shares daily as of the end of Q FIGURE 8: LIQUIDNET CANADA AVERAGE DAILY TRADE VOLUME Liquidnet Canada Average Daily Trade Volume Shares (000s) Q107 Q207 Source: Liquidnet 2007 Aite Group, LLC. All rights reserved. Reproduction of this report by any means is strictly prohibited. Page 12 of 21

13 NYFIX MILLENNIUM Launched in 2001, NYFIX Millennium has experienced exponential growth over the last 18 months, driven by the increasing order flow from algorithmic trading strategies aimed at tapping into dark pools of liquidity. More specifically, NYFIX Millennium has been experiencing year-to-year volume growth of 180%. Average trade size on Millennium currently stands at 1,000 shares, with approximately 300 clients. As of Q2 2007, NYFIX Millennium has been averaging a bit over 54 million shares a day, more than doubling the average trade volume of 21 million shares at the end of Q (Figure 9 on page 13). FIGURE 9: NYFIX S AVERAGE DAILY SHARE VOLUME AND MARKET SHARE NYFIX's Average Daily Share Volume Q402 Q103 Q203 Q303 Q403 Mns of Shares Q104 Q204 Q304 Q404 Q105 Q205 Q305 Q405 Q106 Q206 Q306 Q406 Q107 Q207 Source: NYFIX, Aite Group estimates NYFIX Millennium, a sell-side-only network (providing buy-side access via sell-side brokers, or directly via NYFIX Transaction Services), attracts various types of orders, including retail flow (more than 150 streaming retail providers), institutional trading desks, directed buy-side flow, conditional orders from agency desks, and hedge fund flow. NYFIX Millennium is a real-time, anonymous, continuously matching platform with the potential for price improvement. NYFIX has integrated Millennium into about 40 OMSs. In late 2005, NYFIX launched Millennium Natural, its buy-side-only service (including large hedge funds) that targets block trading. There are currently 75 buy-side firms involved in Millennium Natural, but adoption has been slow. NYFIX Millennium s recent enhancement to its platform has been a significant one, in terms of trying to assist client navigation through the fragmented pools of liquidity in the U.S. equities market. This new feature, entitled Millennium PLUS, 2007 Aite Group, LLC. All rights reserved. Reproduction of this report by any means is strictly prohibited. Page 13 of 21

14 will enable Millennium clients to trigger liquidity alerts for passive market participants in non-displayed liquidity pools. Liquidity partners include hedge funds, external dark pools, broker crossing platforms, and more. In order to ensure anonymity and minimize information leakage, PLUS orders will only be triggered to computer-based systems. Both resident and pass-through orders are eligible for PLUS orders. Overall, matching rates within Millennium depend on type of order flow. Not surprisingly, resident marketable orders have a much higher rate of matching when compared to streaming. However, NYFIX expects to see matching rates go up significantly as a result of Millennium Plus. In terms of pricing structure, buy-side rates are on par with Liquidnet and Pipeline, while pricing for pass-through flow is more on par with exchange rates. Looking ahead, NYFIX has been looking into opportunities in Europe dubbed Euro- Millennium which should launch in Q4 2007, registered as a MTF under MiFID. PIPELINE TRADING SYSTEMS As the second-largest true block trading platform, Pipeline has experienced both significant growth in volume and slight change in business relationships with algorithmic trading providers over the last few months. Initially open to algorithmic flow, by Q4 2004, algorithmic flow participated in 25% of Pipeline s execution. However, pricing and minimum size disputes between Pipeline and various broker/ dealers providing algorithmic flow resulted in a dramatic decrease in the order flow provided by several algorithms to Pipeline (decreasing from 20% in December 2006 to 7% in February 2007). This led to the decision by Pipeline to deny broker delivered algorithmic flow in Q However, institutions can still access Pipeline directly or through direct access platforms. Despite this significant change, the overall growth of Pipeline continues unabated, now averaging more than 35 million shares a day with an average execution size of 39,000 shares, and block fill rates approaching 20% (see Figure 10 on page 15). Pipeline currently counts more than 500 firms with close to 3,000 traders as clients Aite Group, LLC. All rights reserved. Reproduction of this report by any means is strictly prohibited. Page 14 of 21

15 FIGURE 10: PIPELINE S AVERAGE DAILY SHARE VOLUME Pipeline's Average Daily Share Volume Q304 Q404 Q105 Q205 Q305 Q405 Mns of Shares Q106 Q206 Q306 Q406 Q107 Q207 Source: Pipeline Pipeline also has two following significant projects under way: Continued full integration with leading OMS. Pipeline currently has embedded functionality within Charles River, Macgregor and Linedata. Full integration with OMSs enables buy-side clients to keep all confidential trading information locally and only commit for auto-execution when opportunities arise. Algorithm Switching Engine. Perhaps the most ambitious project yet, Pipeline has partnered with a 3rd party vendor, Adaptive Technologies Inc. to create predictive technology which will continuously forecast which algorithm will deliver the highest execution quality in changing market conditions. The Algorithm Switching Engine will enable Pipeline customers to participate in the block market within Pipeline, while at the same time not losing out on opportunities in external sub-block markets. The logic behind the Algorithm Switching Engine has been developed using patented non-linear regression models to analyze more than 50 different real-time and historical trading parameters. Subsequent bench-marking and in-market testing by ATi and Pipeline were used to fine- tune and confirm effectiveness. For example, by using the Algorithm Switching Engine, 2007 Aite Group, LLC. All rights reserved. Reproduction of this report by any means is strictly prohibited. Page 15 of 21

16 clients will be able to participate in Pipeline to first get their block orders done, and then send any residuals out into external markets using algorithms that seek optimal executions to meet the overall trading goals of the clients. As execution occurs through one algorithm, if the Algorithm Switching Engine determines that a better algorithm exists to fill the rest of the order, then the Engine will automatically route the rest of the order through the better alternative algorithm. Pipeline continues to build up client base and trade volume. While algorithmic flow coming into Pipeline might have been less than ideal for its buy-side clients, the use of the Algorithm Switching Engine to seek out optimal execution outside of its block market certainly places Pipeline in the midst of the fierce competition that exists for institutional order flow. If done correctly and well-received by its clients, the Algorithm Switching Engine would instantly elevate Pipeline to the destination of choice for a lot of buy-side traders looking for continued support and guidance in today's fractured and complex market structure. MARKET EVALUATIONS AND FUTURE PROSPECTS Table C below highlights some of the key characteristics of the leading electronic block platforms. Until recently, pricing did not play a major role in this market, as most leading platforms charge US$.02 per share. While substantially more than than normal execution rates at exchanges or other type of ATSs and dark pools, these players were able to demand a premium for execution of large blocks of midand small-cap stocks. While these platforms still provide a significant portion of large cap block trading at a certain pricing point, block trading platforms could not compete against other execution venues at a fraction of its pricing rate. However, with the entrance of BIDS and its utility-based pricing, we may soon encounter a downward pressure on pricing in the block trading market. TABLE C: KEY COMPARISONS Platforms Pricing Schedule (Per Share) Main Mode of Execution Size of Order Type of Order Flow Auto-ex Negotiation Block Small Inst l Retail Prop BIDS US$.005 BNY ConvergEx Cross N/A ITG POSIT US$.02 Liquidnet US$.02 Pipeline US$.02 Source: Firms 2007 Aite Group, LLC. All rights reserved. Reproduction of this report by any means is strictly prohibited. Page 16 of 21

17 TABLE C: KEY COMPARISONS Platforms NYFIX Millennium Source: Firms Pricing Schedule (Per Share) N/A Main Mode of Execution Size of Order Type of Order Flow Auto-ex Negotiation Block Small Inst l Retail Prop In terms of average trade size, all platforms averaged above the public market trade size of fewer than 400 shares. Liquidnet continues to lead this area with an impressive average trade size of 48,000 shares, well ahead of the second-place Pipeline, which boasts of 39,000 shares. Combined, Liquidnet and Pipeline represent the two largest liquidity pools for true block trading (see Figure 11 on page 17). FIGURE 11: AVERAGE TRADE SIZE Average Trade Size 60,000 Number of Shares 50,000 40,000 30,000 20,000 48,000 39,000 21,000 10,000 - Liquidnet Pipeline BNY ConvergEx 6,000 POSIT* 1,000 NYFIX Millennium Source: Firms *POSIT average trade size based on Aite estimates resulting from interviews with POSIT members. All of the platforms have seen tremendous volume growth over the last three quarters. POSIT and Liquidnet continue to swap leadership position on almost a quarterly basis, reaching close to 60 million shares in average daily trade volume. NYFIX Millennium has seen an almost meteoric rise in its average daily trade volume, which was actually higher than ITG POSIT volume when looking at Q alone (see Figure 12 on page 18). Looking at the overall market share within the independent crossing platform market, POSIT has 30% market share, followed by Liquidnet at 28%. NYFIX jumped into the third position, emphasizing its hybrid model, and Pipeline has moved beyond the 30 million mark in average daily trade volume barrier, possessing 14% of the market share (see Figure 13 on page 18) Aite Group, LLC. All rights reserved. Reproduction of this report by any means is strictly prohibited. Page 17 of 21

18 FIGURE 12: AVERAGE DAILY TRADE VOLUME 75 Average Daily Trade Volume YTD Q Mns of Shares POSIT NYFIX Liquidnet Pipeline 0 Q402 Q203 Q403 Q204 Q404 Q205 Q405 Q206 Q406 Q207 Source: Firms FIGURE 13: BLOCK TRADING ATS MARKET SHARE Q Independent Crossing ATS Market Share YTD Q NYFIX 24% Liquidnet 28% BNY ConvergEx Cross 2% BIDS 2% Pipeline 14% POSIT 30% Source: ITG, Liquidnet, NYFIX, Pipeline, Aite Group estimates Not surprisingly, the growth of individual block trading platforms has had a positive impact on the overall block trading market position within the U.S. equities market. Starting from barely more than 1% at the end of 2003, block trading platforms market share within the overall U.S. equities market has grown substantially since 2006, increasing from 3.6% to 4.5% by the end of Q (see Figure 14 on page 19) Aite Group, LLC. All rights reserved. Reproduction of this report by any means is strictly prohibited. Page 18 of 21

19 FIGURE 14: REALITY CHECK FOR BLOCK TRADING PLATFORMS Mns of Shares Reality Check on Block Trading Platform Growth 1.3% 1.6% 2.5% 3.6% Q % % of Overall Market 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Block Trading ATS U.S. Equities Market % of Overall Market Source: NASDAQ, NYSE, Liquidnet, ITG, Pipeline, NYFIX, Aite Group estimates Over the last 12 months, the electronic block trading market has undergone substantial changes with new products, services, and, perhaps most importantly, a couple of new market entrants. Aite Group expects to see continued efforts by the leading platforms to reach outside their own liquidity pools to facilitate the overall trading needs of their clients. NYFIX has been a pioneer and a leader in this regard. Rather than functioning like a closed-up, isolated liquidity pool, leading firms will have to rely on linkages with other liquidity pools, utilize smart order routing technology, and tightly integrate with algorithmic trading strategies to become the market gateway of choice for both the buy-side and sell-side traders. With the launch of consortium-led BIDS, price compression appears almost inevitable. Already, the market has witnessed a fall-out between Pipeline and some of the algo providers based on a pricing dispute. As BIDS continues to build momentum, a straightforward US$.02 per share pricing schedule for the market will soon become unsustainable. A more acceptable and realistic pricing schedule will revolve around a variable pricing structure in which depending on the level of typical liquidity of a given stock, execution can cost anywhere between US$.02 (i.e., small cap, high illiquid) to an ECN-like US$.003 per share (i.e., large cap, highly liquid). The broker/dealer community appears very much focused on breaking through the Liquidnet/POSIT/Pipeline barrier that has existed within the block trading market since the launch of BIDS. While BIDS has only been in existence for two months with limited number of signed members live, it has already shown signs of 2007 Aite Group, LLC. All rights reserved. Reproduction of this report by any means is strictly prohibited. Page 19 of 21

20 challenging the status quo. BIDS has certainly upped the ante in the block trading market; it will be left to the rest of the market participants to come up with innovative and bold responses, or risk being left behind the competitive curve Aite Group, LLC. All rights reserved. Reproduction of this report by any means is strictly prohibited. Page 20 of 21

21 RELATED AITE GROUP REPORTS Rise of Dark Pools and Rebirth of ECNs: Death to Exchanges?, September Bulge Bracket Firms & Algorithmic Trading: The Big Get Bigger, November Agency Brokers & Algorithmic Trading: Here Today, Gone Tomorrow?, November Algorithmic Trading 2006: More Bells and Whistles, November U.S. Equities Market in Transition: Alternative Execution Venues, September U.S. Equities Market in Transition: Evaluating Leading Exchanges, September U.S. Equities Market in Transition: Looking for Liquidity in All the Wrong Places?, August Soft Dollars & Bundling: Here to Fight Another Day, April Compliance in 2006: Blazing Flashes in an Obvious Market, February Top 10 Securities & Investments Trends in 2006, December Future of Electronic Connectivity: In the Aftermath of Regulation NMS, July Regulation NMS: Will the Real Winner Please Stand Up?, April Algorithmic Trading: Hype or Reality?, March Aite Group, LLC. All rights reserved. Reproduction of this report by any means is strictly prohibited. Page 21 of 21