ORC SOFTWARE IN BRIEF

Transcription

1 ORC SOFTWARE ANNUAL REPORT 2004

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3 1 CONTENTS 2 Orc Software in brief 3 History 4 A word from the CEO 6 Business concept, objectives and strategy 8 Market 10 Competitors 12 Products 18 Alliances 19 Quality 19 Environment 20 Employees 22 Risks 24 Directors report 34 Income statement 35 Balance sheet 36 Shareholders equity 37 Cash flow statement 38 Notes 50 Audit report 51 Economic overview 57 Definitions 58 The Orc share 60 Corporate governance 63 Information for shareholders 64 Glossary 65 Addresses

4 2 Orc Software in brief ORC SOFTWARE IN BRIEF Orc Software provides technology for advanced market making, trading and brokerage. The technology is used for trading on exchanges and other financial markets throughout the world. Today, Orc Software s clients are able to trade on more than 90 markets and the company continues to increase its offering of market connections at a fast pace. Clients include international investment banks, trading firms, brokerage houses, Internet brokers, institutional investors and hedge funds. The software offered by Orc Software contains a wide range of functionality. Some of the most central functions include the sophisticated capabilities to analyze prices for derivatives instruments, automatic trading and risk management in real-time for hedging clients positions. The software makes it possible to trade a wide range of instruments including cash and derivatives on equities, fixed income, currencies and commodities. Orc Software invests considerable resources in product development in order to ensure that its products are always leading edge and meeting the requirements of the most demanding users. In recent years the product portfolio has also been expanded with new products for both the most advanced users and users with more basic requirements. Orc Software is a global company with clients in 21 countries and local offices in Chicago, Frankfurt, Hong Kong, London, Milan, Moscow, New York, Stockholm, St Petersburg, Sydney, Tokyo, Toronto, Vienna and Zurich. Since 2002 Orc Software also has a distribution agreement with Reuters. The company was founded in 1987 and has been listed on Stockholmsbörsen since In 2004 revenue equaled SEK 247 million and the operating income amounted to SEK 29 million. Orc Software is a financially very solid company, a key consideration for clients choosing a technology partner. Orc Software licenses its software to clients. Quarterly license fees are related to the number of users and the number of market connections and include new versions and support. In the last few years Orc Software has complemented this license model with other revenue models.

5 ORC SOFTWARE S HISTORY History Company founded by Board member and previous Chief Executive Officer Nils Nilsson, who today works with business development within the company, and Board member Ulrika Hagdahl. The first version of the Orc System is developed Orc Software s proprietary market making activities on the Swedish derivatives exchange cease and focus shifts towards the development and sale of the Orc System First version of Orc Trader launched Orc Software begins its international expansion outside the Nordic countries and acquires its first clients in Switzerland and the UK First clients in Germany, Hong Kong and Italy Orc Software and OMX form a strategic alliance whereby OMX acquires 53 percent of Orc Software. First clients in Australia and Japan Offices opened in London, Milan and Sydney. First clients in the Netherlands and the US Offices opened in Frankfurt, Moscow and New York. Orc Software is listed on Stockholmsbörsen Offices opened in Hong Kong, St Petersburg and Zurich. The Orc ExNet service is launched. First clients in Canada, France and South Korea Distribution agreement signed with Reuters. Offices opened in Tokyo, Toronto and Vienna. First clients in Austria Orc Liquidator, Orc Broker, Orc Futures and Orc Online are launched. Office opened in Chicago. First clients in Belgium Orc Software appoints a new Chief Executive Officer, Jonas Lindström. Promyzer, a mobile application is launched. First clients in Iceland and Singapore.

6 4 A word from the CEO A WORD FROM THE CEO DEAR SHAREHOLDERS, It is a great pleasure for me to address the shareholders of Orc Software for the first time. On December 1, I took over the position of Chief Executive Officer when Nils Nilsson handed over the reins. It is with great enthusiasm that I look forward to taking Orc Software into the future towards new challenges, but also towards new successes. Orc Software is a unique company in many ways. The culture is characterized by continuous curiosity and creativity in combination with a strong desire to always be at the forefront and to develop the latest technology. Ambition is high and motivation is great. These conditions are necessary in a market that never sleeps. The company is built upon competent employees, who over the years have developed Orc Software into the company that it is today a world-class leading edge company. Orc Software is leading the market in the development of the most advanced technology for securities trading. We also have a market leading position with respect to the number of market connections that we offer. THE FINANCIAL MAP IS BEING REDRAWN Electronic trading is taking over more and more at the expense of traditional floor trading. The development of electronic trading is inescapable and favors Orc Software. Banks, brokerage firms, hedge funds as well as exchanges need to invest in new technology or upgrade older technology. Choosing a supplier has become more of a strategic decision, which has resulted in longer sales cycles, a trend that is expected to continue. Today, Orc Software offers access to more than 90 markets, and the effort to increase the number of market connections and link up even more participants continues at an undiminished rate. In 2004 Singapore and Iceland were added to our list of client countries. We are proud to announce that we now have operations in 12 countries and clients in 21 countries. The map of the financial markets is being redrawn. The boundaries are becoming more flexible and markets are becoming more global. Structural transformations result in the arrival of new participants, while at the same time, others are exiting. We are also seeing new ownership structures for exchanges. In addition, we note that our technology is in demand by new participants, for example hedge funds. Given this new picture, Orc Software must continue focusing on adjusting the technology to meet the new demands and finding ways to broaden the use of our technology. Tougher competition has also been seen on the product side with certain banks and brokerage firms developing their own systems, instead of purchasing complete solutions such as the Orc System. This is a development that we are fully aware of and we continue to customize our system based on clients needs. For many years Orc Software has worked to broaden its product range and the work that has been started to modularize the Orc System is an excellent example of how we are handling this competitive situation. Due to efficiency requirements many clients also aim to reduce the number of suppliers. By broadening its product portfolio in order to deliver more complete trading solutions Orc Software is successfully meeting this competition. FOCUS ON PROFITABILITY During the last two years Orc Software has made significant investments in developing the product offering as well as strengthening the support and sales functions. We have invested in building up our organization around the world in order to get closer to our customers. The cost basis for the company has therefore increased at the expense of margins. These investments have resulted in new products reaching several markets. The more traditional products have also been upgraded and further developed. Towards the year-end we were delighted to see that Orc Liquidator is now selling well. This product meets a demand for a specialized segment requiring very advanced technology. Two Nordic clients signed agreements for Orc Liquidator in the fourth quarter. An additional contract was signed on the European market at the end of December. The investment strategy during the past few years has been successful and has resulted in increased interest in our solutions across all markets. A strengthened sales organization has also contributed to increased new sales, especially during the later part of We are now more efficient and are able to present our offering more clearly. Sales in Asia-Pacific represented the largest percentage increase, followed by Sweden. In addition, the number of clients increased in North America, especially in Chicago. But even though new sales were strong during the end of 2004, it is too early to draw any concrete conclusions for the future. Efforts to make the sales, support and product development units more efficient will therefore continue during The objective is to be even more effective at managing our client relationships and to increase sales with both current and new clients.

7 A word from the CEO 5 Going forward the focus is to increase profitability. The profit development for 2004 was not satisfactory. For the most part this was due to the expansion of the organization, the weakening of the US dollar, cancellations of client agreements and cutbacks by certain clients. Altogether this had a dampening effect on the increased new sales during the year. Our advantageous US dollar hedges matured successively during the year. At the beginning of the year we had a dollar rate equal to SEK 9.99 at the end of the year the rate was SEK 6.77 a drop of 32 percent. ELECTRONIC TRADING IS THE FUTURE I look upon the future with confidence. We see an increased activity on all our markets and derivatives trading volumes are increasing strongly. There is much activity, especially in the US, in conjunction with the expansion of electronic trading. The transition from floor trading to electronic trading entails, among other things, great changes in how securities are traded, which increases the need for advanced technology. In addition, the trend clearly indicates that participants want to be able to automatically trade several asset classes on several markets, which results in an increased demand for the products that Orc Software has extensive experience in developing. There are only a few companies in this dynamic industry that can display the collective experience and competence that we have at Orc Software. For many years we have been leading the way in a market that previously did not exist. Now we will continue our efforts to renew, refine and improve and I look forward to being a part of and creating the Orc Software of the future. Stockholm, February 18, Jonas Lindström Chief Executive Officer Orc Software

8 6 Business concept, objectives and strategy BUSINESS CONCEPT OBJECTIVES Orc Software s business concept is to develop and distribute technology for real-time pricing, trading, risk management and market access in electronic financial and commodities markets. Orc Software s overall objective is to be the leading global supplier of technology for electronic trading in the financial and commodities markets. The Orc Technology shall constitute the core technology in the client s business operations, as well as be the first choice for third party developers, consultants and business partners. Orc Software shall also provide service and support of the highest quality.

9 STRATEGY Business concept, objectives and strategy 7 CONTINUED FOCUS ON LEADING EDGE TECHNOLOGY Since the end of the 1980 s Orc Software has delivered leading edge technology for trading on electronic markets. The company s strategy is to continue to invest a significant part of revenues into the development of the Orc Technology. Product development takes place in close cooperation with Orc Software s clients, which provides Orc Software with an extensive insight and in-depth understanding of the development of the market and the clients needs. Improved and expanded functionality is launched on a regular basis, which continuously increases the value of the clients investment in Orc Software s technology. Orc Software works on a continual basis to improve the performance of applications and market connections so that clients are able to execute orders as fast as possible, even for extremely large order volumes. Orc Software s calculation engine is one of the fastest on the market and can manage over theoretical calculations per second. the Orc Technology, to a greater degree, becomes a central part of the clients total technical infrastructure. FIRST-CLASS SERVICE Orc Software is known for its first-class service and support. The company s technology is a business critical part of the clients operations, which makes support on a local level an important component in Orc Software s offering. Through the global support organization, clients have access to support 24-hours a day as well as to specialist competence for more complex issues. Basic support is an integrated part of Orc Software s offering and is included in the license fees. Orc Software s support and account management personnel has a close working relationship with the clients. An important task, in addition to managing everyday assignments, is to find solutions to clients requirements whilst providing Orc Software s development department with information about the market s demands. GLOBAL SALES Orc Software markets and sells the Orc System globally. Sales take place via the company s global office network, whose local The market s demands for compatibility between different systems are steadily increasing. The Orc System is being developed with open interfaces, which facilitates integration and customization according to the users specific needs. Furthermore, Orc Software is investing significant resources in modularizing the technology in order to give clients increased possibilities to choose different components in the Orc System. INCREASED ADVANTAGES WITH THE ORC TECHNOLOGY Orc Software s strategy is to broaden the applicability of the Orc Technology for newly emerging areas within electronic trading. By adapting the technology for new areas Orc Software is able to offer clients a more complete solution. Knowing that the Orc System is constantly being developed in order to meet clients new requirements also makes the system a more reliable choice. Orc Software is also working to stimulate and actively support clients internal IT departments, third-party developers and IT consulting companies to build solutions and products based on the Orc Technology. Thus, value increases for the clients while competence is complemented by global specialists. A local presence is important since an understanding of market-specific conditions is often a decisive part of the sales process. Orc Software also aims to establish distribution cooperation with strong partners in order to broaden and make the distribution of Orc Software s products more efficient. Orc Software constantly monitors the development on the world s financial markets in order to be prepared to act quickly when new business opportunities arise. Geographical prioritization is mostly determined by technology shifts, the market s potential, character and maturity. COMPETENCE DEVELOPMENT The Orc System s advanced functionality provides good opportunities for developing the competence of Orc Software s employees. The combination of highly educated and extensively experienced employees with individually adapted training opportunities, results in an internal exchange of knowledge and the development of a high level of specialist competence by the employees.

10 8 Market ELECTRONIC TRADING INCREASES Orc Software develops software for electronic trading on financial markets. The software is used for order entry, pricing, analysis and risk management of various types of securities. Clients mainly consist of investment banks, brokerage firms, hedge funds and institutional investors. In the market, commercially offered systems compete with in-house developed, client specific solutions. In addition, many exchanges offer simple exchange specific software for order entry. TRENDS The market demands fast and efficient order execution with direct access to many different market places. In addition, reliability and stability are of major importance. Participants in the financial markets invest in comprehensive solutions of trading technology that provide the ability to use the same technical platform on a broader scale. As clients search for new revenue sources the desire to invest in even more sophisticated functionality increases. In 2004 interest increased in the ability to manage and trade several asset classes as well as to automate trading strategies, and this is expected to continue to increase. Below is a description of a number of basic trends which indicate that market growth will continue in the upcoming years. Increased demand for market access An increasing proportion of trading in financial instruments is taking place cross borders. One contributing factor is that participants, to an ever-increasing extent, tend to focus their analysis on cross border industries instead of national stock markets. Being able to trade on several markets and in various currencies increases the opportunities for so-called arbitrage trades. This development has led to increased demand for market access, which has also opened up the opportunity for new trading strategies and the possibility of offering end-clients new types of products. It also increases the requirements for the ability to manage risk on a global basis. Electronic trading The market for trading with financial instruments is constantly developing and more and more market places around the world are switching exclusively to electronic trading. In the US, the trend is especially strong. At the beginning of 2004, 9 percent of the Eurodollar, one of the world s most traded interest rate contracts, was traded electronically on the Chicago Mercantile Exchange. At the end of the year, 75 percent of the contracts were traded electronically. This creates an enormous pressure

11 Market 9 for exchanges with traditional floor trading, such as the New York Stock Exchange, the Chicago Board of Trade and the Chicago Mercantile Exchange, to offer fully electronic exchanges. An increase in electronic trading also means an increased interest in more advanced functionality as well as the companies offering this functionality. Increased automatization Automatization of transaction management provides clients with the possibility of making business processes more efficient. Solutions with open interfaces that enable integration with other applications are especially in demand. For example, order entry by institutional clients may be integrated with the broker s system and thereby take place automatically. For the institutional client this means availability of direct market access and applications that support more advanced trading. Systems that automatically monitor and execute orders are also in demand. These systems create the opportunity to devote more time to analysis and strategy planning while reducing the risk for mistakes. Automatic trading allows clients to manage significantly more orders in less time compared to floor trading. With the assistance of these automated solutions, smaller participants are also able to compete by acting fast, globally and in a cost efficient manner. For example, with the help of advanced technology, hedge funds are now able to challenge larger traditional participants. New types of market places The exchanges have been greatly affected by the globalization of the financial markets during the past few years. Today, exchanges are competing to an ever-increasing degree with alternative trading networks and trading forms. These trading forms allow for trading directly between different banks and brokerage houses without transactions taking place on a formal exchange. Furthermore, competition is also increasing between the traditional exchanges. This is, among other things, reflected in a number of exchanges offering similar contracts and products, which in turn creates a demand for trading these products on several exchanges simultaneously. OPPORTUNITIES AND THREATS Orc Software works in a constantly evolving market, which brings both opportunities and threats. Opportunities Globalization increases demand for market access and risk management. A greater portion of all trading takes place electronically. More and more business processes are being automated. Alternative market places demand new technical solutions. Threats The competition in the market is increasing and there is a risk that Orc Software may not be able to hold its position. The technology is developing rapidly. There is a risk that Orc Software will not be able to adapt the Orc System at the required pace. An economic downturn and decreased client profitability result in a restraint on the clients IT investments, which affects Orc Software negatively.

12 10 Competition DIFFERENT COMPETITORS IN DIFFERENT SEGMENTS These users trade on their own account and need a fast and flexible software that is easily adaptable to their trading strategies. Orc Software believes that there are only a few companies that can offer a product with the same possibilities for client customization of trading strategies for automated trading as Orc Software. Furthermore, Orc Software can offer high performance direct market connections. One competitor is British Apama, which, however, lacks direct market connections. The greatest competition for Orc Software in this segment comes from in-house systems developed by the financial participants themselves. PROPRIETARY TRADING This client segment includes users who, as in the segment described above, also trade for the firm s own account. They have high demands for functionality, speed and reliability. This group is catered to by many of Orc Software s competitors, such as British Ffastfill, Patsystems and EasyScreen, German RTS, US Trading Technologies and FlexTrade, French Murex and Swiss Actant. In-house developed systems also offer important competition in this segment. Orc Software s competition can be described on the basis of three client segments: automated proprietary trading, proprietary trading and brokerage. Many of Orc Software s competitors only offer products for certain client groups, which contribute to a fragmented competitor situation. When considering the instruments that are traded, and the geographical markets that competitors act in, the picture of the competition is split even further. For example, Orc Software offers trading in cash and derivatives on equities, fixed income, currencies and commodities, while several of Orc Software s competitors primarily focus on derivatives trading, such as the British companies Patsystems and EasyScreen, US Trading Technologies and Swiss Actant. Another important competitive advantage for Orc Software is the number of markets that clients are able to trade on. Only French GL TRADE can measure up to Orc Software s offering of market connections. Furthermore, Orc Software has an exceptional position regarding financial stability that makes Orc Software a reliable and long-term partner. AUTOMATED PROPRIETARY TRADING The client segment for automated proprietary trading includes the most advanced users at investment banks and trading firms. BROKERAGE Brokers manage large order flows from the firms clients and require fast execution for clients accounts as well as good control over the status of each client s portfolio. The largest competitors in this segment are French GL Trade, British Royalblue and Swedish Front Capital Systems. DESCRIPTION OF COMPETITORS Below is a brief description of Orc Software s competitors. ACTANT develops software for market makers. The company was founded in 1998 and is privately owned. The head office is located in Zug (Switzerland) and the company has offices in Amsterdam, Chicago, Frankfurt, London and New York. APAMA supplies software that enables the formation and automatic execution of trading strategies. The company was founded in 1999 and is privately owned. The head office is in Cambridge and the company also has offices in London and New York. EASYSCREEN sells software for trading on derivatives exchanges. The company was founded in 1998 and has offices in Lon-

13 Competition 11 don, Chicago, New York and Sydney. The company is listed on the London Stock Exchange. During the period April to September 2004, the company had sales of GBP 1.2 million with a net income after tax of GBP -1.6 million. FFASTFILL offers software for derivatives trading. The company was founded in 1999 and is listed on the London Stock Exchange. The head office is in London and other offices are located in Chicago and Prague. During the year, Ffastfill acquired the US competitor Future Dynamics in order to broaden its offering for the middle and back office. Sales amounted to GBP 1.9 million during April-September 2004 with a loss after tax of GBP -1.6 million. FLEXTRADE SYSTEMS offers a trading system with predefined trading strategies and risk management. FlexTrade was founded in 1996 and is privately owned. The head office is in New York and the company also has offices in London. FRONT CAPITAL SYSTEMS sells systems for trading and risk management for several asset classes. The company was founded in 1987 and is a subsidiary of SunGard Data Systems which is listed on the New York Stock Exchange. Front Capital Systems head office is in Stockholm and the company has representation in Chicago, Frankfurt, Hong Kong, Johannesburg, London, Los Angeles, New York, Singapore, Sydney, Tokyo and Zurich. GL TRADE sells trading systems and like Orc Software has one of the market s broadest offerings of market connections. The company was formed in 1987 and has offices in Paris, Amsterdam, Brussels, Chicago, Frankfurt, Geneva, Hong Kong, Johannesburg, Lisbon, London, Madrid, Milan, New York, Seoul, Singapore, Stockholm, Sydney, Tokyo, Toronto and Zurich. GL Trade is listed on Euronext. During 2004 the company had sales of EUR 150 million. MUREX sells software and services for equities, derivatives, currencies, fixed income and commodities, especially within valuation and risk management. The company, which is privately owned, has offices in Paris, Beirut, Dublin, New York, Singapore, Sydney and Tokyo. PATSYSTEMS supplies software for derivatives trading. The company was founded in 1994 and has offices in London, Chicago, New York, Singapore, Sydney and Tokyo. Patsystems is listed on the London Stock Exchange. During 2004, the company had sales of GBP 11.8 million with a net income after tax of GBP -2.0 million. ROYALBLUE sells software for global trading. The company was founded in 1997 and is listed on London Stock Exchange. Royalblue has offices in Hong Kong, London, New York, Paris, Surrey (UK) and Tokyo. During 2004, the company had sales of GBP 60 million with a net income after tax of GBP 7.6 million. RTS REALTIME SYSTEMS GROUP develops software for exchange trading within several asset classes. The company was founded in 1992 and has offices in Frankfurt, Amsterdam, Chicago, London, New York, Paris, Stockholm and Sydney. The company is privately owned. TRADING TECHNOLOGIES focuses on software for derivatives trading. The company was founded in 1994 and has offices in Chicago, Frankfurt, London, New York and Sydney. The company is privately owned.

14 12 Products THE ORC SYSTEM The Orc System contains advanced functionality for trading and brokerage, allowing order execution, pricing, automatic trading and risk management on electronic markets covering cash and derivatives on equities, fixed income, currencies and commodities. The Orc System s broad suite of products, easy integration with other systems and direct access to a vast number of markets around the world, present a base that is well suited for building and scaling the business for both buy and sell side participants on the financial markets. EXTENSIVE MARKET ACCESS Today the Orc System offers direct market access globally to more than 90 electronic markets, and Orc Software continues to expand this offering as new electronic markets emerge. The extensive market coverage ensures that Orc Software s customers have access to the markets that they want to trade on both locally and globally. Regardless of where they are based in the world, it is very probable that the Orc System will offer connections to customers local markets as well as cover existing and future needs for market access in other countries. designed specifically for futures trading, enabling execution of complex strategies with minimal input. Automated execution of trading strategies In order to accommodate Orc Software s customers requirements for the ability to program their own trading strategies in pace with changing market conditions, Orc Software has developed Orc Liquidator a product with extreme performance. With Orc Liquidator trading strategies can quickly be created as market conditions change and completely new strategies can be deployed as new opportunities appear. Using Orc Liquidator enables trading houses to define their own strategies as well as the parameters driving them, providing the maneuverability of a larger in-house development team, but without the associated cost and lead times. Market making For market making, Orc Trader offers volatility management and automatic quoting of most major instruments in the global financial market place. Orc Software s customers can trade on these markets either through membership or through non-membership connections via Orc ExNet, which is a trading network service offering trading capabilities via brokerage partners. Customers can use the Orc ExNet service as a complement to their regular market connections in order to take advantage of arbitrage and trading opportunities on several markets without the need for membership on all the markets they access. In addition, the Orc System can also be connected to leading market data vendors for receiving extensive price feeds and contributing data. TRADING AND MARKET MAKING Depending on the requirements and the products traded, the Orc System offers different alternatives for proprietary trading. Orc Trader has been Orc Software s flagship trading product for over ten years and is used by professional traders, market makers and risk managers worldwide. For users looking for even more powerful performance and a way to fully control the programming and execution of their trading strategies, Orc Software offers Orc Liquidator. Additionally there is Orc Futures, which is Automatic hedging functions ensure limited risk exposure for the market maker. This, combined with the automatic quoting functionality, enables trading and risk management of a large number of securities on several markets simultaneously. Having quoting obligations fulfilled automatically also frees time for analysis and other activities. Deploying Orc Liquidator provides Orc Software s customers with the foundation to build its own custom-designed market making system. Risk management The Orc System offers extensive support for risk management. The risk management and position keeping functionality enables Orc Software s customers to constantly keep track of risk and profits/losses in real-time. BROKERAGE Within the brokerage segment Orc Software primarily offers Orc Broker, Orc Online and Orc ExNet.

15 Products 13 The Orc Broker is primarily used by brokers to quickly and efficiently execute their customers orders. This Orc front-end facilitates fast access to customer and market data. It includes support for a vast number of order types, including baskets, VWAP, volume orders and other types of care orders that provide effective tracking and management of orders. Using Orc Broker provides brokers with an aggregated view of their customers transactions and orders, allowing them to quickly provide their customers with status reports. For the broker s institutional and retail clients To meet the sophisticated trading needs of such versatile investors as hedge funds and institutions, brokers are able to offer their clients the use of Orc front-ends which provide these clients with the advanced technology required for pricing and execution of complex products. Additionally, the global market access provided by the Orc System enables brokers to deliver best execution for their clients for cross border trades. Using the Orc System for brokerage also enables brokers to offer their clients the Orc Online application. Orc Online is an to consider - presenting brokers with a very cost efficient way of increasing the number of customers. INTEGRATION Orc Software s open interfaces allow both customers and thirdparty developers to integrate their technology with the Orc System. The open interfaces make it easy for users to connect their existing position keeping or back-office systems with the Orc System, enabling them to automate their business processes as well as manage orders originating from external applications. The Orc System can also serve as a technology platform around which a customer can build complementary systems. TECHNICAL INFRASTRUCTURE The Orc server system provides access to electronic markets and stores information about instruments, positions, orders and transactions. The Orc server processes are designed to automatically identify and take advantage of available machine resources, in order to optimize scalability. They run on the most robust operating systems available, Sun Solaris. Sun Microsystems range of servers advanced electronic information and trading system which connects to the Orc System, via the Internet, for direct market access and position keeping. Orc Online can also be white labeled, allowing brokerage firms to use their own branding and in-house or third party data such as news, analysis, quotes and web links. Using Orc ExNet to expand brokerage business Brokers can reach new customers and markets through Orc ExNet. This trading network service from Orc Software allows brokers to offer their clients direct access to exchanges all over the world without the need for exchange membership as well as additional services such as market data feeds and automatic downloading of data. It also enables order routing of any security supported by the Orc System. Orc ExNet is an out-of-the-box solution with a very short timeto-market. Through standard functionality in the Orc System, a connection to Orc ExNet users can be quickly established. There are no cumbersome network connectivity or integration aspects are used for first-class performance, scalability and availability for the critical central data used by the system. The client applications are supported by Windows and Mac OS X operating systems. The Orc Online application is available for Windows. Trading Proprietary traders trade on their own account. Market making Market makers have the obligation to quote buy and sell prices on an ongoing basis for the financial instruments that they are managing. Brokerage Brokers trade on behalf of their clients: the institutional and private investors.

16 14 Products MARKET CONNECTIONS February 2005 Europe Amsterdam Switch Austria Stock and Options Exchange CATS Copenhagen Stock Exchange EUREX EuroMTS Switch ÖTOB CATS-OS CSE EUREX MTS Euronext North America Euronext.liffe Euwax Iceland Stock Exchange Irish Stock Exchange LIFFE CONNECT Euwax ICEX ISE XETRA AMEX Archipelago Boston Options Exchange Bourse de Montréal BRUT Chicago Board of Trade Chicago Board Options Exchange BOX BdM e-cbot CBOE Italian Derivatives Market Italian Stock Exchange Italian Stock Exchange London Stock Exchange London Stock Exchange London Stock Exchange London Stock Exchange Madrid Stock Exchange IDEM MTA SeDeX SEAQ SETS SETS DTS RSP Chicago Futures Exchange Chicago Mercantile Exchange Eurex US INET (Instinet) International Securities Exchange Nasdaq Nasdaq Liffe Markets New York Stock Exchange OneChicago Philadelphia Stock Exchange Toronto Stock Exchange Toronto Stock Exchange Venture CFE CME ISE NQLX PHLX TSX TSX Vent Mercado Español de Futuros y Opciones Mercato Telematico delle Obligazioni Nordic Growth Market OMX OMX OMX (Stockholmsbörsen) Oslo Stock Exchange Quotrix Riga Stock Exchange Swiss Exchange Tallinn Stock Exchange TLX MEFF NCW NGM SOM HEX OSE RSE SWX TSE TLX virt-x Warsaw Stock Exchange WSE Xetra XETRA Xetra Vienna WBAG

17 Products 15 Asia-Pacific Australian Stock Exchange Hong Kong Exchanges ASX SEHK, HKFE JASDAQ Korea Stock Exchange KSE Korea Stock Exchange ITS KOSDAQ Osaka Securities Exchange Singapore Exchange OSE SGX Other Sydney Futures Exchange Taiwan Futures Exchange Taiwan Stock Exchange SFE TAIFEX TSEC Nord Pool SEB TSI Tokyo International Financial Futures Exchange TIFFE Data vendors Tokyo Stock Exchange TSE BridgeFeed Global HyperFeed North America Reuters Global Key to connections Orc Orc ExNet Orc & Orc ExNet Equity Cash Equity Derivatives Fixed Income Power Foreign Exchange

18 16 Products THE ORC PRODUCT RANGE ORC LIQUIDATOR Orc Liquidator is developed for users who desire full control over the programming and execution of their trading strategies. The product has been developed to ensure extreme performance. Users of Orc Liquidator can define both the strategy as well as the parameters that drive it, providing the flexibility of an inhouse development team, but without the associated costs and lead times. The trading edge comes from being able to quickly adapt trading strategies as market conditions change as well as quicky deploy completely new strategies as new opportunities appear in the market place. ORC TRADER The Orc Trader front-end is developed for professional traders and risk managers. The application meets the high requirements set by international traders to be able to handle extreme trading volumes, fast execution and comprehensive risk management. Orc Trader is highly flexible and can in many respects be customized and automated according to the requirements of the user. ORC FUTURES The Orc Futures application, specially designed for futures traders, enables execution of complex strategies with minimal input. Using fast one-click order entry, a trader can quickly enter and exit a market. The automatic trading function in Orc Futures allows for single contracts as well as combinations to be automatically traded in one or multiple markets, which together with the bait order functionality offers a significant edge for traders active in arbitrage or inter-product spread strategies. ORC EXNET Orc ExNet the trading network service provided by Orc Software offers buy-side users such as advanced trading desks and hedge funds as well as sell-side brokers direct access to exchanges all over the world without the need for exchange membership. For brokers this service is a cost efficient way to attract new buy-side customers. ORC ONLINE Orc Online is designed for institutional and retail clients of banks and brokers. The application is an advanced electronic information and trading system, offering clients direct market access over the Internet. Orc Online offers real-time prices, news, charting functionality and a portfolio module, as well as fully integrated order entry functionality based on the Orc Technology. Orc Online can easily be white labeled, allowing the bank and broker to offer their own application to their clients, including tailor made web links and logotypes. Customers usage of the Orc front-ends Orc Orc Orc Orc Orc Customer group Liquidator Trader Futures Broker Online Traders and market makers Risk managers Brokerage houses Institutional investors Private investors ORC BROKER Orc Broker is specially designed for sales traders, sales and brokers. The application is an excellent tool for handling the brokers customer transactions, and provides, amongst other things, price information, order management, analysis of completed transactions and information on buyers and sellers. Orc Broker includes support for a number of order types such as VWAP, volume orders and has the capacity to handle large order volumes while trading on several markets simultaneously.

19 Products 17 Proprietary trading Orc Liquidator Orc Trader Brokerage Orc Broker Institutional investors Orc Trader Private investors Orc Online Eurex Euronext.liffe Orc Technology Orc ExNet London Stock Exchange Euronext Swiss Exchange virt-x Xetra An example of the Orc System set-up on a client site The Orc System can support the trading needs for both brokerage and proprietary trading. As illustrated, some of the client s proprietary traders use Orc Liquidator to define their own strategies for trading futures and options on for example the indices Euro Stoxx and DAX, and on all components of the index. The client s other proprietary traders use Orc Trader. With Orc Broker the sales broker can offer customers access to trading on the stock markets Euronext, London Stock Exchange, Swiss Exchange, virt-x and Xetra and the derivatives markets Euronext.liffe and Eurex. The broker s institutional customers can for example use Orc Trader and the retail investors Orc Online. The customer site has membership connections to Eurex, Euronext.liffe, Swiss Exchange and Xetra. Alongside the membership connections, Orc ExNet is used to provide additional access to Euronext, London Stock Exchange and virt-x without the need for exchange membership.

20 18 Alliances ALLIANCES Orc Software has formed several strategic alliances with the aim of both widening the distribution of the company s products and providing end-clients with cost-effective trading solutions based on the Orc System s order management and trading capabilities. REUTERS Through the alliance with Reuters, the global information company, Orc Software has access to an additional global distribution and marketing channel. For Reuters the alliance means that they can offer brokers and other sell-side firms the combined strength of their own core offering, which includes market data, news and risk management, together with the robust order management and execution of the Orc System. Reuters markets Orc Software s products under the brand name Reuters Order Management for Exchange Execution (ROMEX). Their offering includes standardized components that facilitate integration with widely used middle-office and settlement systems. The cooperation with AtomPro strengthens Orc Software s position within the Euronext region. With Orc Software s multi-market connectivity, AtomPro clients can access global markets using the expertise of AtomPro. Orc Software and AtomPro together represent an exceptional knowledge base to further expand the know-how in advanced trading, and especially the mathematical skills needed to trade in electronic markets. PROMYZER Promyzer allows access to market data and financial news via a mobile phone. When the Promyzer application is linked to a broker or bank, it can also access the users own portfolio as well as trade in real-time on more than 90 exchanges worldwide via the Orc System. This is a white labeled product that can be integrated with the trading systems of brokers, professional traders, asset managers and banks. Promyzer is a venture between Orc Software and Trustlink, where Orc Software owns 59 percent in Promyzer. E2E INFOTECH E2E infotech provides products and services to customers of Orc Software who want to integrate the Orc System with their existing business processes. E2E offers customized add-ons to the Orc System and has developed a portfolio of standardized components for integration with the Orc System. These are costefficient alternatives to many of the adaptations currently managed by the clients themselves. Orc Software owns 34 percent in E2E infotech. INFRONT Orc Software has global distribution rights for Infront s information and trading system, The Online Trader, and markets the product under the name Orc Online. Infront is a Norwegian software development company that provides streamed information and trading solutions over the Internet. Orc Software owns 10 percent in Infront. ATOMPRO AtomPro creates powerful decision support tools for professional traders by combining mathematical know-how, business knowledge and market experience. The company is a leading provider of advanced mathematical trading engines and software for the Dutch liquidity providers.

21 THE IMPOR- TANCE OF QUALITY Quality and Environment 19 Clients place ever-higher requirements on the quality of a trading system. A shutdown in operations can imply lost revenue of significant amounts for clients. Orc Software invests considerable resources in quality assurance. By maintaining high quality, internal resources can be focused on further development instead of correcting problems. Testing and quality assurance are becoming even more important as the technical complexity of the Orc System increases. Orc Software has a specific department for quality assurance, which has overall responsibility for the quality of the delivered product. Before releasing a new version of the software, a series of internal tests are performed. These include automated regression tests, manual regression tests and verification as well as the testing of new functionality. Once these internal tests are passed, the software is released for external testing at a few pilot client sites. After final approval, the new version is released to other clients. During 2004 a number of quality improving measures were implemented. Among other things, a complete version of all software is now created each night and the scope and frequency of the automated tests have been increased. Previously the complete version was not created until the end of the development phase. By creating complete versions on a regular basis and increasing the scope of the automated tests potential problems are captured earlier in the release cycle. Orc Software has a close working relationship with clients. It is often the client who is the initiator behind new functions and improvements to the system. The company uses a call handling system in order to provide good client service, and easily spread information within support and development. The system provides information about problems that occur, gives support in priority situations, and functions as an information database. SMALL EFFECT ON THE ENVIRON- MENT Orc Software develops and markets standardized software with digital production and distribution, which from an environmental point of view implies no significant negative effects on the environment in terms of emissions from the company into the air, water or land. Orc Software s impact on the environment is primarily related to energy consumption in the company s offices and transportation of personnel, which mostly takes place by air due to Orc Software s global coverage. Orc Software s business operations do not impose any particular environmental risks, apart from those mentioned above, and it is the company s view that there does not subsequently exist any risk of significant future costs related to correcting environmental damage. The Group is not involved in any environmental litigation.

22 20 Employees FREEDOM AND RESPONSIBI- LITY CREATE STIMULATING ENVIRON- MENTS Daniele Moressa, Sales, Milan, 3 years with the company. I m primarily involved in new sales on the Italian market. I also manage the Reuters relationship on the Italian level. I like the challenges in my job to convince customers that we offer what they are really looking for. As an employee at Orc Software, you feel that you contribute to the growth of the company. Part of this, I think, is due to the management. They are very open-minded and you can share your ideas with everyone. For example, I was introduced to the CEO of the company and freely chatted with him on my first visit to the office in Stockholm, something that was not very usual in my previous working experiences! Molly McMahon, Trading Software Specialist, Chicago, 1 year with the company. As a Trading Software Specialist, my job is to handle the incoming support issues our customers have, whether they are functional, technical, or exchange-related. Because our software is specialized, it only follows that our support has to be specialized. We spend a lot of time with each customer, understanding the way they trade and how they can use our software in the most efficient manner. Our customers demand only the best, and they consistently raise the bar at which everyone performs. Erik Heimdahl, Senior Software Developer, Stockholm, 12 years with the company. I work with the core system, which means that I am involved in the specification, design and implementation of central components in the Orc System. I have a lot of freedom in my work, but at the same time this is combined with a great responsibility; there are no free rides. I also appreciate the close contact with clients. Since the Orc System is a very business critical product you get quick feedback. If you were to do something that wasn t quite right you will quickly know about it. Guido Eugen, Business Analyst, Orc ExNet, Hong Kong, 1 year with the company. I am responsible for selling the Orc ExNet offering in the Asia- Pacific region. In this job I speak on a daily basis to people in many different countries, organizations and cultures, which I find very stimulating. As a new employee at Orc Software, you have to take responsibility from day one. This is quite challenging but at the same time very rewarding. The segment of clients that we service includes some of the most demanding traders in the market. They know what they want and ask you very specific questions. Hence the learning curve at Orc is extremely steep. The quality of individuals at Orc is truly unsurpassed. Everyone contributes to making great products and a great place to work. Each of my colleagues carries a tremendous amount of responsibility, and from such responsibility comes a passionate investment in the success of the product. Oksana Cucha, Software Developer, Moscow, 4 years with the company. I develop and maintain the market connections to Euronext, Meff, Warsaw Stock Exchange and Budapest Stock Exchange. Since I also develop the software layer needed by the client to access the servers, I have a lot of contact with support staff and developers from the exchanges. I find it very stimulating to work as a programmer at Orc Software and I appreciate my colleagues. We have a lot of fun and spend time together also after working hours.