Business Continuity & Corporate Security New York March 21-22, 2006 Where IT, Continuity & Security are Headed in ‘06 Presented by Larry Tabb Alex Tabb

Business Continuity & Corporate Security New York

March 21-22, 2006

Where IT, Continuity & Security are Headed in ‘06

Presented by

Larry Tabb

Alex Tabb

Agenda

The Industry Outlook & Continuity

The Business Challenges

A Case Study on Avian Flu

The Conclusion

Earnings Release Dates

Industry performance has been strong and getting stronger

Recent Earnings Earnings Net Income Growth YoY

Q4 ‘05 Q3 ‘05 H1 ‘05

-19%-13%

15%57%

41%70%

46%59%

40%49%

35%42%

22%37%

49%71%

18%75%78%

45%9%

14%10%

35%5%

$0.1$0.4$0.4$0.6

$0.8$1.0

$1.2$1.2$1.4$1.4$1.4$1.5$1.6$1.6$1.8

$2.1$2.3

$2.5$2.5

$2.8$3.5

$3.8$4.1

$7.1$8.0

State StreetPutnam

Bear StearnsNomura

Lehman BrothersAllianz Group

Deutsche BankCredit Agricole

Societe GeneraleMerrill Lynch

ABN AmroCredit SuisseBNP Paribas

Goldman SachsMorgan Stanley

UBSING Group

Mitsubishi UFJJPMorgan ChaseMizuho Financial

Barclays BankRB of Scotland

Bank of AmericaCitigroup

HSBC

Indian, Korean, & Japanese markets had the greatest yearly performance

India

Korea

Japan

DAXCAC

FTSEHK

S&P 500

China

Asia

Europe

Hong Kong

US

China

Derivatives business are all at record levelsOver-the-Counter Interest Rate Derivatives

Outstanding Notional Principal Amounts

57.31

82.74

101.32

123.90

183.58

201.41

220.00

164.49

142.31

69.21

0

25

50

75

100

125

150

175

200

225

250

1H 2H 1H 2H 1H 2H 1H 2H 1H 2H(f)

$ trillions

2001 2002 2003 2004 2005

Source: ISDA Mid-Year 2005 Market Survey, SIA forecastNote: Interest rate derivatives, for the purpose of this Survey, include interest rate sw aps and options and cross-

Over-the-Counter Credit DerivativesOutstanding Notional Amounts

2.19

18.00

5.44

8.42

12.43

1.56

0.63

2.69

3.78

0.92

0

2

4

6

8

10

12

14

16

18

20

1H 2H 1H 2H 1H 2H 1H 2H 1H 2H(f)

$ trillions

2001 2002 2003 2004 2005

Source: ISDA Mid-Year 2005 Market Survey, SIA forecastNote: Credit derivatives, for the purpose of the Survey, include credit default sw aps, baskets and portfolio transactions indexed to single names, indexes, baskets, and portfolios.Over-the-Counter Equity Derivatives

Outstanding Notional Amounts

2.32.5

3.4

4.2

5.4

3.8

2.8

4.8

0

1

2

3

4

5

6

1H 2H 1H 2H 1H 2H 1H 2H(f)

$ trillions

2002 2003 2004

Source: ISDA Mid-Year 2005 Market Survey, SIA forecastNote: Equity derivatives, for the purpose of this Survey, include equity sw aps, options and forw ards.

Metals, Commodities, & Energy have also preformed well in ‘05

Gold & Sliver

Commodities

S&P 500

Gas

Oil

Hedge fund performance improves over ’04 as emerging markets lead performance

-2.6%

-0.1%

0.6%

3.1%

6.1%

7.2%

7.5%

7.6%

9.0%

9.3%

9.7%

11.7%

17.0%

17.4%

Convertible Arbitrage

Managed Futures

Fixed Income Arbitrage

Risk Arbitrage

Equity Market Neutral

Event Driven Multi-Strategy

Multi-Strategy

Credit Suisse/Tremont Hedge Fund Index

Event Driven

Global Macro

Long/Short Equity

Distressed

Dedicated Short Bias

Emerging Markets

Hedge Fund Performance By Strategy YE 2005

Source: CS Tremont

Prime brokerage earnings can reach almost 30% of firm earnings

$3.3$3.6

$1.1

$1.3 $0.9

$0.3

Goldman Sachs Morgan Stanley Bear Stearns

Other Revenues Prime Brokerage Revenues

29% 20%

21%

Prime Broker Earnings vs. Total Firm Earnings 2004 (in US$ billions)

Source: TABB Group’s “Hedge Funds 2005: An Inside Look at Funding, Servicing, Trading & Technology “

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 => Agency

Terrorism Patriot Act / AML

Future and current Basle II Reg. NMS

Trade-through Access rule Sub-pennies Market data

MiFID PS05/9 (research unbundling)

Market Oversight Research settlement Sarbanes Oxley Mutual fund

Break points Late trading

Hedge Fund Investigations

Regulatory scrutiny is increasing dramatically

2.0

4.6

11.4

16.8

29.0

73.5

94.3

AMEX

CBOE

Other

StateRegulators

NYSE

NASD

SEC

Average Number of Investigations by Agency2005

772

248

98

Average Number of Investigations by Firm Size

Source: SIA

Order Flow Allocation ’04 – ’07(projected)

US Equities market is moving very quickly to a low-touch model

34%

16%

6%

-25%

CAGR (’04 – ’07)

Source: TABB Group Institutional Equity Trading 2005

17%

25%

37%

20%

11%

20%

38%

31%

7%

16%

31%

48%

Algorithms

ECN/DMA/CrossingNetworks

Brokers via Fix

Brokers via Phone

2007 (proj) 2005 2004

2005

Data volumes are going through the roof and milliseconds matter

120,000

80,000

4,799 7,063 9,650 12,906

25,869

55,105

2000 2001 2002 2003 2004 Feb-05 Jun-05 Dec2005Proj

Aggregated One Minute Peak MPS Rates CTS, CQS, OPRA, NQDS

Source: SIAC, OPRA, and NASDAQ

While the industry is strong, global threats are also at record highs

The threat of Avian Flu has firms extremely concerned as 173 persons have been stricken

Epicenter

Natural disasters have become increasingly common

Israel/PalestineIraq

Political instability is spreading globally and could impact international operations

Afghanistan

India / Pakistan

Iran

North Korea

France

NYC / RCN Convention

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, E*Trade, MorganStanley & Schwab launch new higher security accounts and guarantees


March 21-22, 2006

IT, Continuity & SecurityMaximizing your Investment

Case Study

Avian Flu

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?

Pandemic – What is it?(or more importantly What isn’t 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/influenza/WHO_CDS_CSR_GIP_2005_5/en/

2003200420052006

Pandemic Flu – When is it coming?

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


Economic Impact Impact proportional to

severity FSI’s in more modern

economies more sensitive to disruptions (but better prepared)

FSI’s in lesser developed economies face significant operational risks (limited enabling technology)

FSI’s that have experienced SAR’s should build on ‘lessons learned’


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 VPN’s & Citrix solutions

Strained technology provisioning (logistics)

Primary Hubs

Secondary Hubs

Nodes

Homes


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

Pandemic –Mitigating the risks. . .

Managed Transition FSI’s 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 Don’t be afraid to rely upon proven ‘old world’ solutions for

‘new world’ issues

‘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.

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.


March 21-22, 2006

Where IT, Continuity & Security are Headed in ‘06

Larry TabbFounder & CEO

T: 646 747-3210

M: 508 579-8551

F: 508 519-0519

UK: +44 (0) 207 870 5319

[email protected]

Alexander TabbPartner

T: 646 747-3204M: 646 338-5357

[email protected]

Documents

Business Continuity & Corporate Security New York March 21-22, 2006 Where IT, Continuity & Security are Headed in ‘06 Presented by Larry Tabb Alex Tabb