February 2010

1. FINANCE INNOVATIONFinancial Services Business and Research ClusterInnovating for a high-performing and sustainablefinancial market placeGlobal vs EU ISSUES February 2010

2. Think Tanks European works International promoting Actions Financial Innovation and Research SME and Innovation Financing through the FUI Education on financial regulation European platform on financial information PARIS EUROPLACE RESEARCH AND FINANCIAL INNOVATION ACTIVITIES ARE GATHERED IN THE WORLD-CLASS COMPETITIVENESS CLUSTER OF FINANCIAL INNOVATION

3. About Finance Innovation Launched in July 2007 Objective: to foster high added value industrial and research projects to increase the market share of the French financial industry in the world by leveraging bribes between universities & the entrepreneurial world. Area of activity: Banks and investment firms, Insurance companies, Asset management firms, Financial services, Universities and research centers, Local authorities. Founders: Over 200 members:

4. Goals, main lines of action Create synergies and the necessary conditions to foster innovative financial projects, Support the development and financing of SME’s and innovation, Develop an ecosystem by organizing exchanges between large firms, SME’s and academics, Reinforce the globally-renowned French research and training hub in finance and economics, Contribute to the emergence of projects in social and environmental finance (carbon trading, climate indices, micro-finance…) Promote international business opportunities.

5. First achievementsStructural projects Institut Louis Bachelier (ILB), a service and exchange center dedicated to researchers and institutions in the fields of Finance and Insurance. 15 research chairs in Finance (global budget of 17 M€ over 3 to 5 years) on topics such as “Finance and social innovation”, “Finance and investment banking” or “Risks”. The European Institute of Financial Regulation (EIFR) A business incubator for financial startups has been approved by the City of Paris. The project is under development. The launch of an inter-cluster team, dedicated to supporting the fund raising of SME’s from all business clusters.

6. Innovation in Finance 600 young* innovative financial businesses identified, covering all financial sectors (*less than 5 years old) More than 50 entrepreneurial projects approved by a selection committee of experts 5 main areas of innovation: SME financing tools Asset and Risk Evaluation IT applied to Finance Financial Analysis and Information Finance and sustainable development Sources of public funds: OSEO, FUI, ANR, Crédit Impôt Recherche (R&D tax credit, European programs 6

7. Services to members Support in the set up of collaborative R&D projects Information on innovative projects and financial research Networkingopportunities and enhanced visibility for the members (Forums, Club meetings, newsletter, extranet, etc.) Help access public fundings for innovation and research (FUI, Oséo, tax credit) Fund-raising support (VCs, business angels) General help and support to SME’s (international development, HR, networking, communication)

8. Working Groups 3 main topics: New Products and Financial Services (including sustainable finance), Information Systems and financial infrastructure, Risk management and security systems. Objectives: Mapping of the players (businesses, research labs, professional associations) in view to improve their networking. Initiation of new industrial and research projects, by facilitating partnerships. To effectively become a networking and strategic monitoring hub for financial players.

9. RESEARCH AND INNOVATION CLUSTER: ILB November 2009

10. Paris Europlace « Research and Financial Innovation » Cluster • Logistic support to the Research chairs • Coordination of collaborative projects • “Career Fair” for financial research • R.U.P. Foundations • Chairs and research programs financing • MESR-authorized « Crédit Impôt Recherche » institutions • Development of Research Chairs and Initiatives (emphasis on the banking sector) • Project and publication financing • Carrying out applied research mission • Organizing events and further services • Executive Director: A. de Bresson • Scientific Director: E. Jouini • Development of Research Chairs and Initiatives (emphasis on the insurance sector) • Setting-up of a new section on “global risks” • Executive board President: J-M. Beacco • Scientific Director: B. Villeneuve

11. INSTITUT LOUIS BACHELIER : PARIS EUROPLACE RESEARCH CLUSTER’S COORDINATOR President : A. Lévy-Lang Scientific Director: N. El Karoui Executive Director: J-M Beacco • « Toolbox » : handle the administration, accounting and fiscal management of the chairs, strengthen the efficiency and the visibility of the financial research and education, promote the institution and mobilize players • « Home of finance » : home and coordinate the research works financed by the Foundations, develop links amongst the Chairs, Finance research and education organisms, researchers, both French and Foreigners, along with professionals • « Career Fair » : organize the Financial Research Job Market and its online version (e-fern.org) • « Master Class » : organize thematic classes and seminars • « e.fern.org » : use new technologies to bolster relationships between researchers and professionals • Voluntary association • Logistic support to the Research Chairs (housing, organizing, accounting etc.) • Coordination of collaborative (industrial and scholarly) projects in association with the Finance Innovation cluster

12. ASSESSMENT of ACTIVITIESChairs and Research initiatives

13. ASSESSMENT of ACTIVITIESFinancing of Research projects (academic publishing) Classification by Topics Classification by Institutions The 69 financed projects Selected and Financed projects Distribution by Topics 141 Selected and Financed projects 113 Submitted projects Miscellaneous Submitted projects Micro / macro- financial economics Corporate Finance Financial Markets Financial Institutions 50 57 38 53 Distribution by Institutions 38 (34%) 46 Overseas universities (27%) 23 20 21 13 (37%) 9 (26%) 7 6 4 Grandes écoles (17%) (31%) 1 French universities (30%) (8%) 0 0 Grandes écoles Overseas universities Miscellaneous Corporate finance French Universities Financial markets Firms Financial institutions Micro / macro Financial economics Over the past five years, 69 projects out of 252 proposals have been financed (i.e. 28%), coming mainly from French research institutions (universities mostly) and focused on financial markets

14. STRATEGIC ORIENTATIONS FOR THE PARIS EUROPLACE RESEARCH AND INNOVATION CLUSTER Make it more « specific » Make it more « useful » Make it more « international » • Refocus research efforts using the new assets of the EIF-FDR-IL framework • Define the research topics of utter importance in accordance with the partners (“rationalize” the research offer) and the Chantier strategique n°9 works of the Europlace “Research and Financial Innovation” • Rely on the strengthened governance of the cluster (Board of Scientific Orientation, Steering committee, Scientific committee, Orientation committee) • Broaden the research and innovation cluster’s field of interventions • Propose a research offer multidimensional (financial math, behavioral finance, econometrics and statistics, etc.) • Strengthen the “toolbox” of research project setting-up (fiscal dimension..) • Offer further services (applied research and development, research initiatives) by creating first-class units within EIF that gather the best researchers and professionals for a production directly usable by the backer. Strengthen scholar links with European and International centers and broaden the international network of researchers Set up and lead a large network of French finance practitioners, including abroad-based ones. Plan a possible fund raising targeting European institutions and International sponsors. ENHANCE THE USEFULNESS OF FINANCIAL RESEARCH FOR THE PLACE BY RELYING UPON AN IMPROVED COORDINATION OF EXISTING RESEARCH ACTIONS AND A BETTER GOVERNANCE

15. MODES OF PARTNERSHIPS WITH SPONSORS Research support schemes Amount k € Amount k € 19,6 VAT 19,6 60 60 100 100 40 40 Contribution Tax recovery Cr é dit Cost left out to the sponsor Tax reduction Cost left out to the sponsor Contribution To the project d ’ Impôt To the project (100 BT) Recherche (100 BT) Two ways are offered to firms willing to finance research projects : The Crédit Impôts Recherche (CIR) Patronage • Terms: • Financing “proprietary research” for the sponsor • Research expenditures submitted to VAT • Real cost for the sponsor Terms: • Financing “public research” • Endowment not submitted to VAT Real cost for the sponsor: Cost for the sponsor: 40 k€ Leverage x3 Cost for the sponsor: 40 k€ Leverage x2,5 THE CURRENT RESEARCH SUPPORT SCHEMES REINFORCE THE APPEAL OF A PARTNERHSIP WITH THE PARIS EUROPLACE RESEARCH AND INNOVATION CLUSTER

16. APPENDIXSome concrete actions to promote research WWW. e-FERN. ORG COMMUNICATION AND PRESS PARTNERSHIPS Online Social Network of finance, insurance and risk management researchers Popularization of research results • Making available syntheses of the research works • Carrying out multi-perspective interviews • Diffusion in the press: AGEFI, RISK, Next Finance • Promotion of Chairs and researchers’ works • Online Job Market : career fair and online advertisement • Schedule of the main scientific events FINANCIAL RESARCH MAPPING INTERNATIONAL NETWORK Identification of fields of expertise in the perspective of cooperative work Global development of relationships with academic institutions • Research Initiative “Sovereign Funds” in partnership with Colombia University • Research Initiative “Industrial Economy of Risk and Liquidity: Toward Post-Crisis Finance» in partnership with Princeton University • Setting up a Research Initiative “Microfinance” with Chennay (Mumbai) • Setting up cooperative research in partnership with Moscow’s financial place • Monitoring of 200 finance researchers’ works • Knowledge of labs’ specializations • Capacity to connect and coordinate a project ACTIONS STREGTHEN THE SETTING UP OF INTERNATIONALLY-FOCUSED COLLABORATIVE PROJECTS

17. GLOBAL vs EU REGULATORY ISSUES

18. EUROPE NEEDS A COHERENT AND ROBUST « ECO-SYSTEM »1. THE GLOBAL & EUROPEAN CONTEXT: A DUAL CHALLENGE 2. REGULATORY ISSUES AND BUSINESS CONSEQUENCES

19. THE GLOBAL & EUROPEAN CONTEXT: A DUAL CHALLENGE Towards a domestic area: the end of cross border intra-European transactions EU ASIA Country 1 Country 2 US Country 3 REST OF THE WORLD Cross border issues and global compatibility

20. EFFECTIVNESS OF CROSS BORDER TRANSACTIONS & FINANCING CAPACITIES INCREASE OF CRITICAL MASS BASED ON EFFICIENT DOMESTIC MARKET ( CONSOLIDATION OF INFRASTRUCTURES & FINANCIAL “FACTORIES”) LEVERAGING INNOVATION IN TECHNOLOGIES TO INCREASE DEMATERIALISATION OF OPERATIONS REGULATION AS A STRATEGIC TOOL (US: HAL SCOTT REPORT) • THE GLOBAL & EUROPEAN CONTEXT:A DUAL CHALLENGE 1- GLOBAL COMPATIBILITY & ATTRACTIVNESS AS FOR EACH COUNTRY IN THE WORLD, TO BECOME A “ BASE CAMP”, THE CHALLENGE IS:

21. Functional architecture for a new regulatory/supervisory European framework : An area of Confidence Robust stability Global anticipated framework (to be defined) ECOFIN • Macro economic and financial development • Financial vulnerability • Structural innovation and regulatory impact • Behavior of the markets: • prudential consolidation of groups • supervisory powers in case of crisis • early warnings • crisis management • deposit guarantee schemes • Stability Funding Process? Lenders of last resort Non €uro NCB EFSF FSF Logistical support ECB/Bkg Supervisory Committee IMF Harmonized regulation Harmonized prudential supervision 3L3 L1 L2 • - Doctrine, binding guidelines • - Coherence & harmonization of GSC functioning • Arbitrage vs local definitions /practices • Delegation to local institutions MACRO Harmonized implementation and practices IOSCO MICRO E.GSC Global G. GSC EU Group Supervisory Colleges Convergent conduct of businesses supervision • Domestic supervisors / regulators with EU mandate • - conduct of business • local supervisors • investors protection • market abuse • market transparency Co Bcaire FSA ACAAM BAFIN AMF

22. 2- ACCELERATING THE CONSTRUCTION OF A PAN-EUROPEAN DOMESTIC AREA : A MARKET OF OVER 500 MILLION PEOPLE • THE GLOBAL & EUROPEAN CONTEXT:A DUAL CHALLENGE ISSUES:

23. THE CRISIS AS A REGULATORY FAILURE:OVER REGULATION VERSUS SMART REGULATION TRANSPARENCY: A CONDITION FOR SMARTER (LESS?) REGULATION? MIFID VERSUS REG NMS CASES: IS THE PANDORA BOX OPEN IN THE EU ? MUTUAL RECOGNITION, STRATEGICAL IMPLICATIONS, THE BROKERAGE CASE ( 15A6) • REGULATORY ISSUES AND BUSINESS CONSEQUENCES

24. Palais Brongniart 28 place de la Bourse 75002 Paris France Tel. : +33 (0)1 49 27 12 31 contact@finance-innovation.org www.finance-innovation.org