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Toronto Stock Exchange and TSX Venture Exchange Exchange Alpha r α β TSX strategy addresses all stakeholders in the investment process BUY SIDE SELL SIDE INVESTMENT PROCESS INVESTMENTS ORDERS EXECUTION FILLS PORTFOLIO MANAGERS TRADERS BROKERS MARKETS

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tsx strategy addresses all stakeholders in the investment process
TSX strategy addresses all stakeholders in the investment process

BUY SIDE

SELL SIDE

INVESTMENT PROCESS

INVESTMENTS

ORDERS

EXECUTION

FILLS

PORTFOLIO MANAGERS

TRADERS

BROKERS

MARKETS

TSX Markets Strategy: Pull business by addressing all criteria considered throughout the investing process

  • CRITERIA
  • Investments
  • Listings (Toronto Stock Exchange and TSX Venture Exchange)
  • Liquidity
  • Benchmarking
  • Orders
  • Clearing and Settlement
  • Compliance
  • Market Impact and Leakage of Information
  • Program and Algorithmic Trading
  • Execution
  • Speed
  • Crosses
  • Internalization
  • Trading Fees
  • Fills
  • Centralization
there has been steady growth in new listings and equity financings on tsx
There has been steady growth in new listings and equity financings on TSX

New Listings on TSX

  • Equity Financing on TSX
  • CAGR (4 YR) of 13.5%

204

$38.4B

128

$29.1B

116

$25.8B

107

97

$23.1B

$20.9B

tsx is the leading equity market for the international mining industry
TSX is the leading equity market for the international mining industry

Mining Equity Financings 2004 (US$ Millions)

Mining Strengths

  • Over 50% of the world’s listed mining companies
  • 1,791 global / world-wide financings in 2004
    • 85% by number
    • 47% by value
  • Aggregate market capitalization of $162 billion on TSX and $12.3 billion on TSXV
  • 35% of the 7,895 mineral projects held by TSX and TSXV companies are outside of North America

Note: Excludes approximately combined $600M of financings

on all other global exchanges

Source: Gamah International, December 2004, Preliminary Data

Source: InfoMine, Compiled by TSX, January 2005

tsx has the highest number of listed oil gas companies in the world
TSX has the highest number of listed oil & gas companies in the world

Oil & Gas Strengths

Oil & Gas Listings

  • PetroKazakhstan
  • Talisman Energy
  • Petro-Canada
  • Nexen
  • EnCana
  • Canadian Natural Resources
  • Centurion Energy International

TSX Group listed oil & gas companies have projects located around the world

  • TSX Group had the highest number of listed oil & gas companies in the world at December 31, 2004
  • 413 listed companies including 32 energy trusts (156 listed on TSX)
  • 43 new listings in 2004
  • US$7.0B* in financings in 2004

December 2004

* Includes Energy Trusts

Source: TSX analysis of company reports. TSX Group has endeavored to ensure accuracy of peer data through analysis of company reports and publicly available information.

slide6

Structured products and income trusts represent a significant portion of the TSX issuer base, both by market cap and by equity capital raised

  • Structured Products* and Income Trusts
  • Structured products and income trusts represented 46% of the total equity raised in 2004
  • 175 income trusts listed
  • Income trust total market cap of $118.7B
  • 25 income trust IPOs in 2004
  • 228 structured products & ETFs listed
  • Structured product & ETF market cap of $41.5B
  • 57 structured product IPOs in 2004

2004 Initial Public Offerings – $ Raised by Sector

$15.6B

C$ Billions

$11.3B

$9.26B

$8.65B

$9.12B

*Structured Products sector includes 17 ETFs

December 31, 2004

*Does not include Structured Products

December 31, 2004

income trusts have grown rapidly and performed well
Income trusts have grown rapidly and performed well
  • Business trusts are high growth
  • Top income trusts are well known
  • New income trust applicants must meet the same stringent listing standards as other business structures
  • Disclosure obligations include underlying business Limited liability legislation passes in Ontario, Alberta, Quebec (expected to be passed in BC)
  • Income trusts will be added to the S&P/TSX Composite
  • S&P/TSX Income Trust Index has outperformed the Composite

Business Trusts

QMV

($ Billions)

Energy Trusts

Power & Pipelines

REIT

S&P is a trade mark of The McGraw-Hill Companies Inc., and is used under license

going public activity remained strong on tsx venture especially in capital pool companies cpcs
Going public activity remained strong on TSX Venture, especially in Capital Pool Companies (CPCs)

CPC Process

R

Step 1

seed financing of the company

+

a small prospectus offering to create a corporate vehicle with public distribution

Step 2

the Qualifying Transaction (“QT”)

an operating company is identified, disclosed and acquired

integrated business models are successful for equity markets
Integrated business models are successful for equity markets
  • Jointly owned by Deutsche Borse AG and SWX Exchange; 99-03 CAGR of 29%
  • By volume and value
  • “LSE Sweepstakes: Loser Beware”, The Daily Deal, Jan 17, 2005
  • Source: Literature search; industry interviews; company publications
slide10

TSX continues to operate a highly-liquid market

Fair and Transparent

TSX Value Traded and Number of Transactions

  • Central Limit Order Book
  • Price-time priority
  • Full disclosure
  • Broad access

Value Traded CAGR: 17%

Efficient

No. of Transactions CAGR: 12%

  • Fast & fully electronic
  • Minimal market impact costs
  • Competitive prices
  • Ease of access

Value Traded ($T)

Number of Transactions (M)

Innovative trading practices:

Flexible

Value Traded

Number of Transactions

  • Iceberg order
  • After-hours matching
  • Anonymous trading
  • Specialty crosses
  • $US trading
  • Market on Close

2005 YTD (June 30) Total Daily Average

Value Traded $ 500.1 B $ 3,968.8 MM

Number of Transactions 24.3 MM 193,200

slide11
Market On Close helps investors benchmark by attracting liquidity to improve price discovery at the end of the day

MOC Results: 2005 YTD (June 30)

MOC Imbalance

CCP

CCP

7:00am

3:40pm

4:00pm

4:05pm

4:10pm

5:00pm

MOC Order Entry

Pre

-

open

Open

Post Open

Imbalance Offset

PME

XCXL

XTS

Closing Price Acceptance (CPA) parameter reduced to 10%

September 2: Add S&P TSX Mid Cap

September 9: Add S&P Small Cap

PME session extended to 4:10pm

Price Movement Extension (PME) parameter reduced to 5%

slide12
Multiple Give-Up allows institutional investors to distribute their trading relationships among multiple Participating Organizations

Multiple Give-Up mechanism

  • The executing trader can assign the clearing PO’s number to his/her trader ID. A trader can have more than one trader ID.
  • Anonymous trades will clear under the clearing PO’s number.
  • This is available for both Toronto Stock Exchange and TSX Venture Exchange.
  • There are no additional fees associated with the use of this feature.

Benefits to institutional investors

  • Clearing choices considered independently of the executing PO decision
  • Control of the distribution of their trading relationships among multiple POs
  • Reduced business costs and margin requirements
compliance automated reporting system cars provides pos with a compliance monitoring tool
Compliance Automated Reporting System (CARS) provides POs with a compliance-monitoring tool

INTERNET

Overnight batch report

CARS generates daily batch reports:

  • Restricted lists
  • Client Principal trading (CPT)
  • Front running
  • Trend analysis

CARS benefits

  • Monitor and track trading infractions and alerts (post trade)
  • Develop a compliance strategy
  • Demonstrate the firms proactive stance on investor protection

Database

M

R

D

S

Trading Platform

Broker’s compliance office

Trading Platform

Trading engine

Trading Platform

slide14

Transparency can lead to leakage of information and increased market impact costs

  • Two TSX Market products are designed to reduce market impact costs:
  • Icebergs: partial disclosure of large orders
  • Anonymity: 001 broker number
  • Result: TSX is the most competitive in the world, with a market impact cost of only 5.45 basis points

Trading impact costs are the largest directly quantifiable costs of a trade.

Trading impact costs in Canada are among the lowest in the world.

Total Cost of Trade Execution*

(Basis points)

Commission*

5¢ (17bp)

(2002-6¢ - 12bp)

Impact

10 ¢ (34 bp)

(2002- 9¢ - 20 bp)

Delay

23 ¢ (77 bp)

(2002-24 ¢ (53 bp)

Missed Trades

9 ¢ (29 bp)

(2002-12 ¢ 16 bp)

Note: Includes all explicit costs relating to a trade, including exchange fees, clearing costs and dealer’s commission

Note: Based on averages of each market from 07/03-06/04

* Including average commissions, fees and market impact costs

Source: Elkins/McSherry

Source: Plexus Group 2003 (US Data based on S&P 500)

program and algorithmic trading are creating higher velocity trading patterns
Program and algorithmic trading are creating higher-velocity trading patterns
  • Trading Enterprise Review
  • Single stock performance:
  • Affected by algorithmic trading
  • Influences trading in Canadian Based Interlisteds
  • April 29, 2005 maintenance release
  • 200-300% performance improvement on tests of common trading patterns
  • 500% improvement on tests of algorithmic and program trading patterns
  • 97% of orders on top ten symbols processed within 100 milliseconds in the production environment
  • June 2005 order number expansion
  • Expansion from 99,999 to 999,999 orders per broker per symbol
  • Summer 2005
  • Additional changes to address increasing algorithmic message volumes
  • Fall 2005
  • Performance enhancement to ‘boxcar’ processing

TRADING

Algorithmic

Algorithmic

Hedge

Hedge

Passive

Passive

Active

Active

SHIFT IN TRADING STRATEGIES

By 2008, 40% of US equity trades will be done by algorithms

- Source: Cracking the Street’s New Math, Business Week, April 18, 2005

The hedge fund industry has grown dramatically in Canada. There is an estimated $26.6 billion of net assets in hedge funds, including pension fund money.

- Source: Investor Economics quoted in Bankers Raise Red Flag Over Hedge Funds, The Globe and Mail, January 20, 2005

tsx has continuously upgraded capacity to accommodate order flow growth
TSX has continuously upgraded capacity to accommodate order flow growth

Capacity and Performance

  • Increased throughput capacity with additional hardware
  • Improved single stock performance
  • Improved messaging efficiencies and order processing
  • Planned introduction of FIX capability

Reliability

  • Availability at 100% 2005 YTD (June 30)
  • Business Continuity Planning
    • New office began functioning January 31, 2005
  • Disaster Recovery
    • Regularly scheduled industry tests involving internal and external stakeholders
  • 700% increase in orders, cancels and CFOs from 2001
  • New peak day in March 2005 of 3.7million orders processed
  • Capacity maintained at 2.5x
  • STAMP protocol change to support 10x more orders per broker per day per symbol
slide17

While the Central Limit Order Book remains the price-discovery mechanism, the upstairs market facilitates customers execution of large trades

Cross type 2004 orders entered

REGULAR SESSION

Crosses 240,754

Anonymous cross 2,193

Internal cross 17,993

REGULAR SESSION and EXTENDED SESSION

Basis cross 323

VWAP cross 6,607

EXTENDED SESSION ONLY

STS cross 7,013

Central Limit Order Book

Crosses

37.0%

39.8%

10.0%

tsx designed firm order execution tm fox tm to facilitate clients internal matching activities
TSX designed Firm Order eXecutionTM (FOXTM) to facilitate clients’ internal matching activities

GuaranteesDesk

OptionsLayoff

ProgramDesk

RetailOrders

  • FOX consolidates trading flow across multiple trading order desks
  • FOX allows previously-withheld trading intents (shown below as dashed lines) to interact safely and confidentially within the firm:

ConfidentialIntent

ConfidentialIntent

ConfidentialIntent

ProTraders

LiabilityDesk

RegisteredTraders

FX

Stat

ConfidentialIntent

Situation

ArbitrageDesks

BlockDesk

Hedge

ConfidentialIntent

ConfidentialIntent

FOX System

Central Book

tsx has steadily reduced trading fees over the last five years
TSX has steadily reduced trading fees over the last five years

January 2004

25% and 40% volume-traded discount tiers

80% discount on cross fees over $20,000

Maximum discount raised to $750,000

November 2000

1/55th of 1% of the value traded

$80 maximum per trade

25% and 40% value-traded discount tiers

January 2006

1/60th of 1% of the value traded

January 2003

$500,000 per month maximum value discount

RT-PRO trading fee credit and 30% discount

June 2000

1/55th of 1% of the value traded

$80 maximum per trade

Only active side pays

October 2005

1/55th of 1% of the value traded

June 2002

Introduction of cross printing facility

$10 maximum per cross

February 2005

Maximum discount raised to $1 million

Prior to June 2000

1/80th of 1% of the value traded

$80 maximum per trade

Both active and passive sides pay

January 2001

1/55th of 1% of the value traded

$50 maximum per trade

80% value-traded discount tier added

January 2005

Access fee reduction for trading 1 million shares

$C millions

October 2005

New fee model for

NASDAQ/AMEX interlisteds

Volume-based

Payment for order flow

tsx provides the universal platform central to the price discovery mechanism
TSX provides the universal platform central to the price-discovery mechanism

Trade-throughs

  • Limit orders in disparate books get skipped, or “traded through”
  • New competition in Canada re-introduces the possibility of trade-throughs
    • Access Persons can trade on an ATS regardless of limit orders on other exchanges
  • Canadian Regulators are undertaking an initiative on “trade throughs”
    • CSA Discussion Paper 23-403 published July 22, 2005
    • Official comment period ends September 19, 2005
    • Public forum October 14, 2005 at 10:00 AM
  • UMIR amendment proposed by RS
    • Participants and Access Persons must make reasonable efforts to fill better-priced orders prior to executing an inferior order on another marketplace

Price discovery

  • The process of setting a fair price for a security is fundamental to the operation of the equity market. Key attributes include:
    • Centralization
    • Broad access
    • Confidence of the investment community

Data dissemination

  • TSX Datalinx distributes market information to a network of vendors and market participants
disclaimer
Disclaimer

While the information contained in this presentation is collected and compiled with care, neither TSX Group Inc. nor any of its affiliated companies represents, warrants or guarantees the accuracy or the completeness of the information. You agree not to rely on the information contained herein for any trading, business or financial purpose. This information is provided with the express condition, to which by making use thereof you expressly consent, that no liability shall be incurred by TSX Group Inc. and/or any of its affiliates as a result of any errors or inaccuracies herein or any use or reliance upon this information.