BECS Pre-Trade Analytics. An Overview

(1)

BECS Pre-Trade Analytics

(2)

Citi’s Pre-Trade Analytical Products and Services

y

Historical presence as a leader in pre-trade analytics

–

StockFacts Pro was a first generation pre-trade analytical tool that was widely used for more than 15

years

–

Many years of continuous effort in market micro-structure research, impact cost modeling, and

execution strategy research and development

y

Next generation pre-trade tool: BECS Online (http://www.becsonline.com)

–

Web-based product designed for institutions

–

Advanced impact cost model with enriched, easy-to-use pre-trade functionality for single stocks and

portfolios

–

Global coverage of over 65,000 equities

y

Customized solutions and services

–

Client-driven analysis and market commentary

–

Analytical data solutions provided on a regular basis, such as cost estimates for portfolio managers for

their in-house portfolio construction processes

Citi has a long history of providing advanced analytical tools to our clients. Significant effort has been

devoted to enhancing and maintaining our offering.

(3)

Best Execution Consulting Services (BECS)

y

Solid market micro-structure research and advanced impact cost model

y

Single-stock and portfolio capability

y

Identification of the potential risk and cost of difficult trades

y

Discovery of the optimal balance between cost and risk: optimal time-to-fill and optimal participation rate

for portfolio/list trading

y

Scenario study to allow for the comparison of alternative execution schedules

y

List classifications and liquidity characterization to gain insight into a portfolio or a position

y

Agency vs. Principal selection for portfolios

y

Bid-sheets for Principal Solicitation

y

Unique hybrid-model provides enhanced ETF cost estimation

y

Optimal hedging to effectively manage risk during the trading process

Designed with fund managers and traders in mind, BECS combines visionary cost modeling, innovative data

visualization, and award-winning technology to ensure that you find accurate answers more efficiently.

(4)

Best Execution Consulting Services (BECS)

About the advanced impact cost model:

y

Results published in Risk, July 2005

y

Empirically calibrated by Citi’s historical

orders and trades

y

No classification errors, as the type of

order (buy/sell) is known

y

Separate estimation of permanent and

temporary costs

y

Model explicitly demonstrates interaction

between trading cost and time, providing

more refined estimates and a more

powerful framework for strategy analysis

y

Intraday volatility is the significant

determining factor to measure price

sensitivity to liquidity demand

Fully transparent and independently verified, BECS provides a practical framework for evaluating potential

cost and risk.

Time (min) Sh ar e Pr ic e

Price Process: Sell Transaction

Execution Price Initial Price Equilibrium Price T T+30 Permanent Cost Temporary Cost

(5)

Single-Stock Impact Analysis

Single-stock analysis features:

y

Provides insight into liquidity and

volatility

y

Translate trading time into

participation rate to help specify

algorithm parameters

y

Liquidity distribution will provide

insight into where liquidity can

usually be found

y

Flexible settings to allow for

scenario study

y

Hybrid model for ETFs –

comparison of trading ETF vs.

trading underlying

y

Information on auction volume help

trade in a volatile market

y

Liquidity/volatility trend can be

exported for customized reports

(6)

Portfolio Impact Analysis

Portfolio analysis features:

y

Summary information on liquidity

and volatility of the list.

y

Ability to determine if a two-sided

portfolio is well-hedged

y

Identify difficult names by liquidity,

volatility, and other factors

y

Identify recent corporate actions

y

What-if analysis to facilitate agency

versus principal trading

decision-making

y

Guidance on how to specify

algorithm parameters to effectively

control impact cost and opportunity

cost

y

Exposures and performance

relative to indexes/benchmarks

Intuitive impact analysis and list characterizations visualizations help you identify potential portfolio pitfalls

more efficiently.

(7)

Portfolio Impact Analysis: Scenarios

Scenario analysis features:

y

Demonstrates the trade-off

between impact cost and

opportunity cost

y

Constant time assumes all

individual names in the portfolio

are executed within the same

trading period

y

Constant participation assumes all

individual names in the portfolio

are executed following the same

participation rate

y

Provides color into how changes in

the trade time horizon or in the

participation rate affect the

trade-off between impact cost and

opportunity cost

A detailed overview of impact costs over possible trading horizons and participation rates facilitates

execution-strategy decision-making.

(8)

Portfolio Impact Analysis: List Characterization

List Characterization:

y

View summarized and detailed

categorizations by:

–

Liquidity (%ADV, %AIV, %AAV)

–

Bid/Ask Spread

–

Market Capitalization

–

Exchange

–

Region

–

Country

–

Sector

–

Industry Group

y

Drill-down into categories to view

individual positions to facilitate

trading strategy decision-making

y

Sector tab is enhanced to include

the dollar value of underlying ETF

constituents to better analyze

Identify the potentially difficult trades by drilling deeper into the characteristics of your portfolio. View

positions by sector, market capitalization, size, or geographic factors to pinpoint costs before they occur.

(9)

Portfolio Impact Analysis: Benchmarking

Benchmarking:

y

View historical performance of the

portfolio against a benchmark or the

long side against the short side

y

Historical performance time series

can be exported for further

customization

y

Examine the relative exposures of

the portfolio against a benchmark

and the long against the short to:

–

Market

–

Sector

–

Industry

View historical performance and relative exposure of the portfolio against a benchmark or between long side

and short side of the portfolio to identify potential source of risk.

(10)

Portfolio Impact Analysis: Risk Bid Sheets

Bid Sheet features:

y

Configurable so that only desired

information will be included

y

Inclusion of both the Stockfacts Pro

VAR and the BECS EIC.

y

Optional side randomization

y

Preview of PDF file available for

further validation prior to sending

y

Email directly to brokers or export

for further customization

(11)

Optimal Hedging

Optimal Hedging:

y

User selected hedging instruments,

Futures, ETFs, or single stocks

y

Populate the Beta, Tracking Error,

RSqrd of the portfolio against a list

of popular Futures and ETFs to help

select the right hedging assets

y

Option to specify the sample period

of time for return based covariance

matrix construction to better fit the

trading or holding horizon

y

Option impose dollar-neutrality and

other relevant constraints

Construct of an optimal hedging strategy using futures, ETFs, and any user selected hedging instruments to

minimize the risk of a stock or a portfolio.

(12)

BECS Contacts

For more information, please contact:

The Americas

+1 212 723 7771

Europe

Martin Breathwick

+44 20 7986 0203

Global Portfolio Trading Strategies, Europe

Tokyo

+813 6270 3538

Australia

Ben Valentine

+612 8225 4466

Asia/Pacific Rim

Grace Lin

+852 2501 2220

Robert S Simon

+852 2501 2853

@ 2008 Citigroup Global Markets Inc. Member SIPC. All rights reserved. Citi and Citi nd Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world.

IRS Circular 230 Disclosure: Citigroup Inc. and its affiliates do not provide tax or legal advice. Any discussion of tax matters in these materials (i) is not intended or written to be used, and cannot be used or relied upon, by you for the purpose of avoiding any tax penalties and (ii) may have been written in connection with the "promotion or marketing" of any transaction contemplated hereby ("Transaction"). Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor.

Any terms set forth herein are intended for discussion purposes only and are subject to the final terms as set forth in separate definitive written agreements. This presentation is not a commitment to lend, syndicate a financing, underwrite or purchase securities, or commit capital nor does it obligate us to enter into such a commitment. Nor are we acting in any other capacity as a fiduciary to you. By accepting this presentation, subject to applicable law or regulation, you agree to keep confidential the existence of and proposed terms for any Transaction.

Prior to entering into any Transaction, you should determine, without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume these risks) as well as the legal, tax and accounting characterizations and consequences of any such Transaction. In this regard, by accepting this presentation, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax or accounting advice, (b) there may be legal, tax or accounting risks associated with any Transaction, (c) you should receive (and rely on) separate and qualified legal, tax and accounting advice and (d) you should apprise senior management in your organization as to such legal, tax and accounting advice (and any risks associated with any Transaction) and our disclaimer as to these matters. By acceptance of these materials, you and we hereby agree that from the commencement of discussions with respect to any Transaction, and notwithstanding any other provision in this presentation, we hereby confirm that no participant in any Transaction shall be limited from disclosing the U.S. tax treatment or U.S. tax structure of such Transaction.

We are required to obtain, verify and record certain information that identifies each entity that enters into a formal business relationship with us. We will ask for your complete name, street address, and taxpayer ID number. We may also request corporate formation documents, or other forms of identification, to verify information provided.

Any prices or levels contained herein are preliminary and indicative only and do not represent bids or offers. These indications are provided solely for your information and consideration, are subject to change at any time without notice and are not intended as a solicitation with respect to the purchase or sale of any instrument. The information contained in this presentation may include results of analyses from a quantitative model which represent potential future events that may or may not be realized, and is not a complete analysis of every material fact representing any product. Any estimates included herein constitute our judgment as of the date hereof and are subject to change without any notice. We and/or our affiliates may make a market in these instruments for our customers and for our own account. Accordingly, we may have a position in any such instrument at any time.

Although this material may contain publicly available information about Citi corporate bond research, fixed income strategy or economic and market analysis, Citi policy (i) prohibits employees from offering, directly or indirectly, a favorable or negative research opinion or offering to change an opinion as consideration or inducement for the receipt of business or for compensation and (ii) prohibits analysts from being compensated for specific recommendations or views contained in research reports. So as to reduce the potential for conflicts of interest, as well as to reduce any appearance of conflicts of interest, Citi has enacted policies and procedures designed to limit communications between its investment banking and research personnel to specifically prescribed circumstances.

In January 2007, Citi released a Climate Change Position Statement, the first US financial institution to do so. As a sustainability leader in the financial sector, Citi has taken concrete steps to address this important issue of climate change by: (a) targeting $50 billion over 10 years to address global climate change: includes significant increases in investment and financing of alternative energy, clean technology, and other