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Overview

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introduction

exchangeconsolidation

majorshareholders

the lost decade

outlook

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A history

1790: Birth of US investment markets Federal government refinances all federal and

state Revolutionary War debt, issuing $80M in

bonds

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WHO IS THIS?

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A history May 17, 1792

24 brokers gathered andsigned the ButtonwoodAgreement

Assembled brokers would

only trade with each otherand have to be mutuallyrecognised

1817: New York Stock &Exchange Board

1863: Renamed to New YorkStock Exchange (NYSE)

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The Stock Market

Definition: The market in which shares areissued and traded either through exchanges or

over-the-counter (OTC) markets.

Primary market is where new issues are firstoffered, with subsequent tradings occurring in

the secondary market

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What is a stock?

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What is a stock

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Global Market

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The Stock Market

Definition: The market in which shares areissued and traded either through exchanges or

over-the-counter (OTC) markets.

Primary market is where new issues are firstoffered, with subsequent tradings occurring in

the secondary market

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Exchange Consolidation Wave

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During the period of 2004 2006, many US exchanges wereseeking mergers overseas and regionally NYSE and Euronext merged and became NYSE Euronext

Chicago Mercantile Exchange and Chicago Board ofTrade

LSE bought over Borsa Italiana Nasdaq partnered with Borse Dubai in Middle East to

gain control of OMX

Other consolidations: SGX bid for ASX, LSE buying over TMXgroup, Deutsche Borse and NYSE-Euronext

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Reasons for consolidation

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1. Economies of scale

Common trading platform

Combination of back end processes

2. Diversification Threat from dark pools and block crossing networks

Move towards multi-asset class, and multi-currency

Diversified business mix

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Reasons for consolidation

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3. Maintaining Market Share Losing market share to other venues with

innovative technology

Relatively strong growth in alternatives

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Reasons for consolidation

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4. Maintaining Market Share Losing market share to other venues with

innovative technology

Relatively strong growth in alternatives

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36%

13%8%

10%

9%

20%

4%

Proportion of US Equities

Households and

Individuals

Foreign

Insurance Co.

Private Pensions

State and Local Muni

Pensions

Mutual Fund

Major Holders of US Equities

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Major Holders of US Equities

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Major Holders of US Equities

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Calendar Period Point-to-Point Growth in Real GDP

(%)

1948 - 1956 38.5

1956 - 1965 39.2

1965 - 1974 39.6

1974 - 1983 20.0

1983 - 1992 38.2

1992 - 2001 38.5

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Major Holders of US Equities

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Enactment of ERISA (Employment RetirementSecurity Act) in 1974

Regulated pension funds that wereestablished by corporations and government

entitles. IRA (Individual Retirement Account) vehicle

was also introduced

Increased demand for broad based equitypurchase.

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Major Holders of US Equities

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1974 Baby boomers matured, wages higher

more were more willing to invest

Now

Boomers are no longer interested inaccumulation of assets but rather how assets

can be monetized to meet spending needsduring retirement

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36%

13%8%

10%

9%

20%

4%

Proportion of US Equities

Households and

Individuals

Foreign

Insurance Co.

Private Pensions

State and Local Muni

Pensions

Mutual Fund

Major Holders of US Equities

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Households and Individuals

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Foreign Ownership

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Foreign ownership of US equities aspercentage of total financial assets has been

steady between 15-20% over last 4 decades

Likely to be an important buyer of US equities Emerging nations who will be interested in

large blue chips US equities

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Institutional Holders

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Ridden the wave of baby boomers assetaccumulation

Will be adversely affected by forward retirement

living expense payouts and distributions in thedecades ahead

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Insurance Companies

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Life companies face the largest amount ofexposure

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Pension Funds

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Major issue: underfunding of plan assets

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Major Holders of US Equities

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Public Pension Funds

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Institutions

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The End