odex bplan december_2011_v9_orange_short

R Raymond May

rmay@odexgroup.com

704.847.0008

www.odexgroup.com

Big Banks / Dealers centric

WinnersBig Dealers, Dealer Employees,

Very Large End Users

LosersMarket Transparency, Fairness,

Small Dealers…

•Bi-lateral trading governed by ISDA

and CSA – forces deals to Dealers

•Inter-Dealer Market access strictly

monitored by Large Dealers

•Clearing only for Dealer – Dealer

trades at LCH

•Not regulated

Current Market Structure

(Prior to DFA)

95% Mkt Revenue

ODEX OPPORTUNITY

•$4bn of revenue to new SEFs

•Allows for an

innovative, customer-focused

entrant

•Low cost producer to gain

market share

•End Users want –

Fair, Transparent Markets

•Mandated Change

ODEX Expected New Market Structure

(Post to DFA)“Trading Mandate” – Derivatives Must trade on a SEF

20% Revenue 30% Revenue

25% Revenue

25% Revenue

“Dodd-Frank is creating a paradigm

shift in the market structure for

OTC derivatives called Swaps

Execution Facilities (SEFs) and

Central Counter Parties

(CCPs), forcing the use of SEFs for

execution and price discovery”

A >$500 Trillion Market!

ODEX is a SEFcovering Interest Rate, Credit and FX contract types

2008 2010 2012 2013

“Section 723 of the Dodd Frank Act:… that with respect to a swap that is subject to the clearing requirement of section 2(h)(1)(A), counterparties shall execute the transaction on a swap execution facility *SEF+”

ODEX’s mission is to make markets better through innovations in technology, pricing, market structure, and customer service.

Time TableMajor Developments in Derivatives Market Structure

•Sep 2008 – Lehman Fails •Mar 2010 – ODEX Founded – Series A•Jul 2010 – DFA Passes•Jan 2011 – ODEX sponsors TABB conference in NYC

•Q1 – Final CFTC/SEC Rules•Q2 – ODEX System Ready•Q2 – SEF registration begins•Q3 – Mandated Clearing Begins•Q4 – Mandated Trading Begins

•US Market all trading on SEFs•Expansion of Users•Expansion on Classes of products•EMIR in Europe

ODEX – Fair and Transparent SEF

CLOB

3 Patents applied for FIX 5 API, Third party trading, Multi CCP & FCM selection

Product range • Spreads & Curve trades etc.•Rates, Credit, FX• Offset Model

Request For Quote (RFQ)• Transparent / Compliant• Block and Unwinds• Cleared and non-cleared products

Central Limit Order Book (CLOB) – time - price• Transparent / Compliant• Anonymous

Blotter

RFQ

CLOB

$650 Trillion

** Rates

Gross Nt

(Bn USD)

Nov 2011

Basis Swap 23,542

FRA 56,514

OIS 64,494

Swap 314,462

Swaption 34,593

Cap/Floor 12,783

Others 20,040

Total: 526,428

• eTrading increases transaction

numbers and volumes***

• If traded through existing

brokers this is >$4.0bn in fees

Market Size

** Source – www.Trioptima.com

*** ICAP Annual Report

D2D D2C

IDBs:ICAPBGC (Cantor)TraditionGFITulletsCreditex

TradewebBloombergMarketAxess

DealersJPM, GS, MS, DB etc

+New ENTRANTS:ODEXErisJavelinTruesef

Brokerage to both users –

1/16 bp pa or $6 each side

per mm/yr

• Clearing fee - $1 to

$22 per year /mm

• Execution Fee from

SEF

• FCM Costs

Mandate

>$1.5bn >$50bn>$16bn

Existing Market - Opaque Dodd-Frank Mandated: SEFs – Fair and Transparent

Incumbents

Competition

Cleared Not Cleared

Trading Mandate sometime in

2012 or early 2013

Voice / Hybrid Focus

Legacy Brokerage to

protect

Clients all Dealers

Strong Existing Business

Already on Desktops

Big Companies

Focused on “Last Look”

Dealers looking backwards

Value to End UsersBloombergTradeweb IDBs

Co

st

Be

ne

fits

Ea

se

of

use

Free to installMaker/taker modelFocus on Lowest

Cost

Fair & Transparent Anonymous

Spread TradingNot beholden to

dealers, Buy side focus

Web deliveredModern designFIX based API

Dealer payLarge annual feeEnd user costs

$1600/month terminal fee

Transaction costsProtective of

dealer franchise

High brokerage fees, both sides

Must support high overhead

Dealer-centricOwned by dealers

Install baseMaker/taker modelNo biz migration

Install base Dealer relationships

Majority of liquidity

Low cost if terminal already

installedEase of installation

Focused on dealer-dealer

tradingHybrid trading

ODEX offers the most compelling platform, delivering transparency, fairness and ease of use.

User Acquisition

Launch Growth Maturity

Dodd-Frank Compliant, Simple Installation, Fair and Transparent, Cost

• Direct sales to small

dealers & large end

users

• Regional banks

• Broker partners

• Revenue share with

dealers

Conferences, events and online marketing

Partner relationships

•OEM Vendors

(FX, Bonds, etc.)

• Introducing Broker

Direct sales to

smaller end users

Advertising

• Internet

• Trade magazines

• Financial

news networks

Dealers 100-150

Other Financial 3000-5000

Corporates 20,000+

Risks: Countermeasures:

Rule Making: Trading mandate is DELAYED

Keep Low Burn Rate

Fail to attract major liquidity pools

Focus on Smaller DealersProduct Innovation

Change accelerates before ODEX is ready

Outsource some technology development – Identify key new

hires

Technology Failures

Key Personnel RiskDeepen the Bench

and Knowledge Transfer

Focus on QA and Performance Testing

ODEX - Architecture

Matching Engine

Trading GUI

Trading API

CCP Connectivity

Complex Admin

feature set

TCM Manager

FCM Manager

TABB Conference 24 Jan 2012