Where IT, Continuity

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Where IT, Continuity Security are Headed in 06

• Presented by
• Larry Tabb
• Alex Tabb

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Agenda

• The Industry Outlook Continuity
• The Business Challenges
• A Case Study on Avian Flu
• The Conclusion

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Industry performance has been strong and getting
stronger
Recent Earnings
Earnings
Net Income Growth YoY
Earnings Release Dates
Q4 05
Q3 05
H1 05
4
Indian, Korean, Japanese markets had the
greatest yearly performance
India
Asia
Korea
Japan
DAX
CAC
Europe
FTSE
HK
Hong Kong
SP 500
US
China
China
5
Derivatives business are all at record levels
6
Metals, Commodities, Energy have also preformed
well in 05
Gas
Oil
Gold Sliver
Commodities
SP 500
7
Hedge fund performance improves over 04 as
emerging markets lead performance
Hedge Fund Performance By Strategy YE 2005
Emerging Markets
17.4
Dedicated Short Bias
17.0
Distressed
11.7
Long/Short Equity
9.7
Global Macro
9.3
Event Driven
9.0
Credit Suisse/Tremont Hedge Fund Index
7.6
Multi-Strategy
7.5
Event Driven Multi-Strategy
7.2
Equity Market Neutral
6.1
Risk Arbitrage
3.1
Fixed Income Arbitrage
0.6
Managed Futures
-0.1
Convertible Arbitrage
-2.6
Source CS Tremont
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Prime brokerage earnings can reach almost 30 of
firm earnings
Prime Broker Earnings vs. Total Firm Earnings
2004 (in US billions)
29
20
21
Source TABB Groups Hedge Funds 2005 An Inside
Look at Funding, Servicing, Trading Technology
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Regulation has and will have tremendous impact on
markets

• Past Regulation
• Order Handling rules
• Created ECN Infrastructure
• Legislated fragmentation
• Will fragment NYSE within 5 years
• Decimalization
• Reduced spreads
• Market making gt Agency
• Terrorism
• Patriot Act / AML
• Future and current
• Basle II
• Reg. NMS
• Trade-through

• Market Oversight
• Research settlement
• Sarbanes Oxley
• Mutual fund
• Break points
• Late trading
• Hedge Fund Investigations

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Regulatory scrutiny is increasing dramatically
Average Number of Investigations by Agency 2005
Average Number of Investigations by Firm Size
Source SIA
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US Equities market is moving very quickly to a
low-touch model
Order Flow Allocation 04 07(projected)
Source TABB Group Institutional Equity Trading
2005
12
Data volumes are going through the roof and
milliseconds matter
2005
Aggregated One Minute Peak MPS Rates CTS, CQS,
OPRA, NQDS
Source SIAC, OPRA, and NASDAQ
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While the industry is strong, global threats are
also at record highs
14
The threat of Avian Flu has firms extremely
concerned as 173 persons have been stricken
Epicenter
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Natural disasters have become increasingly common
16
Political instability is spreading globally and
could impact international operations
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Data security hitting much closer to home

• CitiGroup blocked UK, Russia Canadian PIN-based
  transactions of Citi-branded MasterCards March
  06
• A single individual compromised 40m MasterCard
  accounts June 05
• Gartner estimates that phising in the USA alone,
  amounted to 2.75 billion dollars in 2005
• Malicious code threats that could reveal
  confidential information rose from 74 of the top
  50 malicious code samples to 80 during 2h 05
  (Symantec)
• BoA, ETrade, MorganStanley Schwab launch new
  higher security accounts and guarantees

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IT, Continuity SecurityMaximizing your
InvestmentCase StudyAvian Flu
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Avian Flu - What will be the impact?

• What is it?
• Where is it now?
• When is it coming?
• What will be the impact?
• What can we do to mitigate the risks?

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Pandemic What is it?(or more importantly What
isnt it?)

• WHO Global Pandemic Preparedness Plan
• 6 Phased Approach
• Phase 1 No new viruses detected
• Phase 2 New virus detected limited to animals
  only
• Phase 3 Animal to animal spread w/limited
  animal to human spread
• Phase 4 Small clusters of human to human spread
• Phase 5 Large clusters of human to human spread
• Phase 6 Pandemic
• Currently status of the disease
• Initially uncovered in 1996 when a highly
  pathogenic strain was isolated in Guangdon
  Province, China (H5N1)
• Over last few years, spreading slowly
• Since Mid 03 spread of disease has increased
  markedly

http//www.who.int/csr/resources/publications/i
nfluenza/WHO_CDS_CSR_GIP_2005_5/en/
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Pandemic Flu When is it coming?
2004
2005
2006
2003
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Pandemic What will be the impact?

• Societal Impact
• Globally devastate developing nations
• Significant disruptions
• Civil society will remain functional though
  stressed (1918 Spanish Flu)
• Operational infrastructure
• Reduced workforce
• Degraded supply chains
• Social distancing
• Best case - telecommute
• Worst case dislocation

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Pandemic What will be the impact?

• Economic Impact
• Impact proportional to severity
• FSIs in more modern economies more sensitive to
  disruptions (but better prepared)
• FSIs in lesser developed economies face
  significant operational risks (limited enabling
  technology)
• FSIs that have experienced SARs should build on
  lessons learned

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Pandemic What will be the impact?

• Technological Impact
• Social distancing creates increased demand for
  enabling technology
• Voice/data networks will respond differently
• Increased demand for bandwidth will strain
  capabilities
• Increased demand for traditional phone services
• Greater reliance on VPNs Citrix solutions
• Strained technology provisioning (logistics)

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Pandemic What will be the impact?

• FSI Impact
• Vulnerable to Avian Flu
• Challenges
• Social distancing
• Maintaining complex methodologies
• Sustaining time sensitive processes (20 40
  absentee rates)
• Smaller institutions are more vulnerable
• International institutions are more vulnerable
• Payments system breakdown cold devastate
  developing markets

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Pandemic Mitigating the risks. . .

• Managed Transition
• FSIs need to use the unique nature of a pandemic
  to key their responses
• Utilize the WHO Avian Flu Plan as a trigger to
  initiate action
• Phase 3 Collect data create plans
• Phase 4 Increase technology provisioning, test
  assumptions and rework your plans
• Phase 5 Begin transition from a normal work
  environment to a socially distanced work
  environment
• Phase 6 Complete transition to a socially
  distanced work environment
• Leverage existing technology to create new
  methods for managing work flow
• Dont be afraid to rely upon proven old world
  solutions for new world issues

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Managed Transition Challenges

• Update your assumptions
• Pandemic flu planning is unique
• A steady state model
• Communicating in a decentralized environment
• Leverage technology
• Utilize redundant capabilities
• Alternative solutions sets
• Managing a distributed workforce in a distributed
  model
• Ensure organizational control
• Resilient command control model
• Operational Authorizations
• Logistics
• Mail, procurement, HR, IT support, etc.

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Conclusions

• The industry is getting more complex BC must
  keep up.
• The pace of crisis appears to be increasing with
  the delta between normal and crisis operations
  becoming more steep.
• If the sector is to keep up continuity must be
  built into the normal business planning cycle.
• Remember - Continuity can not drive technology .
  . . Harness technology change to enhance
  continuity and security.
• Back to basics Strong foundation based on solid
  pragmatic planning will go a long way to ensure
  continuity.
• Flexibility there are no set answers. Only
  diminishing budgets. We must be prepared to do
  more with less.

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Where IT, Continuity Security are Headed in 06
Alexander Tabb Partner T  646 747-3204 M 646
338-5357  atabb_at_tabbgroup.com
Larry Tabb Founder CEO T  646 747-3210 M 508
579-8551  F  508 519-0519 UK 44 (0) 207 870
5319 ltabb_at_tabbgroup.com