POINT OF VIEW by Vous S.A.

December 2010 - January 2011

point of view M ar k e ts I T r e n d s I A n a ly sis

INTRODUCING Thomson Reuters Eikon

Contentsâ&#x20AC;&#x2030;: Editorial..............................2 Focus...................................3 Eikon Community...............3 Interview.............................4 UCITS IV..............................6 New Era. New Tools........... 7 Events.................................8

This is more than a new product, it's a new beginning.

“ 2010 is the beginning of a new era for Thomson Reuters. ” Pierre Castagne

Senior Site Representative - Luxembourg Head of Solutions - EMEA

editorial Welcome to the first issue of point of view Dear customers, Welcome to the first issue of Point of View, our quarterly Thomson Reuters Luxembourg Newsletter ! Point of View is our channel to provide you, our customers, with an engaging mix of : • the best pictures from Reuters journalists ; • articles on the hottest topics in areas such as technology, regulation, industry trends and innovation with insights from subject-matter experts ; • t he latest updates to our product offering, as well as a selection of key tips and tricks from our Specialists to help you get the most out of your Thomson Reuters products ; • k ey events in the local Luxembourg financial community, helping you find ways to connect with your peers. In addition, each issue will feature interviews with some of our local customers, ensuring you to have a chance to express your Point of View ! 2010 is the beginning of a new era for Thomson Reuters. It has been a year of major innovations across the Thomson Reuters product lines as you will read in this Newsletter with Insider, Elektron and Eikon. We trust these new initiatives will bring you value. This year, we also reached the last milestone of the Thomson and Reuters integration. Our client-facing organisation has been reshaped to provide you with more specialised and responsive... services to better support YOU in YOUR business. So, in a nutshell : many exciting developments... and many good reasons to share and engage with you into a - bilateral - exchange of Point of Views ! With 2011 around the corner, I wish you in advance a fantastic holiday season on behalf of my local team. I sincerely hope you will enjoy this newsletter ! Any comments and suggestions can be sent to me personally or to suggestions.luxembourg@thomsonreuters.com Warmest regards ; Pierre Castagne

Senior Site Representative - Luxembourg Head of Solutions - EMEA

focus What Makes a great picture ? Reuters captures events that shape the world. Our award winning photojournalists distribute up to 1,700 pictures each day covering news, sports, features, entertainment and business. Our up-to-the-minute news photographs show an accurate, timely view of global events. Robin Jensen, former freelance professional photographer and now Sales Specialist will share his picks and explain why he thinks the selected photo is a great one.

What makes a good photo ? By Robin Jensen

“ One of the biggest problems facing the photographer is transforming a three dimensional scene into two. This results in a image that looks flat and uninteresting. The use of a front, middle and background will help create depth. Furthermore defining a path that the eye will travel between these different layers gives fluidity and results in an overall three dimensional feel. In this photograph of Eilean Donan castle on the west coast of Scotland, the eye begins its journey on the rocks in the foreground, travels over the bridge to the castle, on to the boat and mountains behind, which are beautifully lit, then up to the sky. ” Reuters News Pictures Service : Essential source of news imagery from every corner of the globe. Reuters Pictures : Fully searchable website offering 1,700 images per day plus an archive of 3.5 million images. Reuters Online Pictures : A variety of ready-to-publish picture feeds for online and wireless platforms.

Find out more on : www.thomsonreuters.com

MEET YOUR PEERS SHARE YOUR EXPERIENCE We want to give you the power to share expertise and interact seamlessly with peers about Eikon by lauching Eikon Community in Luxembourg. Sonia Duarte, Community’s owner, answers a couple of questions to help you understanding what this is all about. Point of View : Sonia, first and simple question, what is the Eikon Community about ?

bringing tremendous contributions to the products. Having such a community in Luxemburg is a natural step in the life of Eikon.

local events. The best contributors will also be rewarded with nice gifts (Did I say ” IPad ” ?)

Sonia Duarte : User communities have proven to be the best way for our clients to stay up-to-date and to share efficiently. They indeed allow us to :

Point of View : How to get involved and contribute ?

Point of View : Sonia, is there anything else you would like to add ?

• know how best we can help our users and better interact with them ;

Sonia Duarte : Eikon allows users to be connected to the largest network of financial professionals all over the world. Eikon users will benefit from the most innovative tool for communication and collaboration, completely integrated in their desktop. By registering for this community newcomers will be provided for a short term period with an Eikon account (if they don’t have one yet). As part of the community, they will be able to promote their trade ideas and research, share their tips and tricks, assist other users in need in real time as well as comment on market information that will be published to targeted counterparties. As a community owner, I will coordinate the whole experience, stimulate the contributions by organising some community live sessions and

Sonia Duarte : I just would like to thank ahead all community users for their contributions. I am confident that this community will prove to be a tremendous resource for all of us. Registration is already open so if you wish to be part of the Eikon Community, feel free to send me an email (sonia.duarte@thomsonreuters.com).

• listen to users' ideas and share their “tips and tricks" ; • help us understanding our customers’ needs, to explore their motivation, frustrations and challenges and see how Eikon can help them. Interactions and connections between financial profesionals are key requirements, fully complementary and in line with Eikon, our brand new desktop product that was built from the beginning with our customers at the heart of the design. Such Thomson Reuters communities already operate all around the world, involving a large panel of end users and

Interview For our first newsletter, we decided to consult two long-standing experts in the financial community in Luxembourg to hear their views on the financial crisis and its impact on Luxembourg. Theo Meder, Head of Financial Markets at Banque de Luxembourg (BDL), and Aly Kohll, Head of Financial Markets at Banque et Caisse dâ&#x20AC;&#x2122;Epargne de lâ&#x20AC;&#x2122;Etat (BCEE), came to the Thomson Reuters office recently for a joint interview on current affairs in the financial world.

Theo Meder & Aly Kohll Théo Meder : We have been lucky enough to have witnessed some good years. We have entered into a more challenging period but we are always confident about the future, despite an environment which has changed significantly and that’s difficult to apprehend.

We are confident that the recent bilateral negotiations between Switzerland and Germany, or Switzerland and the UK will be, if concluded, very beneficial for Luxembourg, resulting in a gradual transition from banking secrecy to a fiscal secrecy.

Aly Kohll : …and demanding

But there is still a long way to go, and local financial institutions with an important off-shore private banking portfolio need to adapt their strategy.

I have known far more difficult years, albeit less demanding ones, than what we are going through now, or have gone through since 2007. Nevertheless, I think it’s important to point out that the financial industry in Luxembourg did not suffer as much as in the neighboring countries. Obviously some banks have had problems, but these came from their respective Head Offices and it is my belief that Luxembourg is gaining ground on the other financial centers such as Dublin or Malta. This advantage is also being stimulated by some very interesting initiatives that have been taken, which are now moving forwards and the effects of which are starting to be felt. For example, the takeover by Hinduja of KBL Private Bankers will open new horizons for the Luxembourg market, as well as interesting prospects and the potential to open out to the Asian and Middle East financial markets, where the Hinduja group has been active for a long time. TM- I believe quite strongly that the Luxembourgish financial landscape will change. There is without doubt a real need for restructuring of the global financial sector, which we are witnessing already through the reorganizations of Head Offices. These reorganizations will undoubtedly have repercussions on the activities of the Luxembourg market. We see this clearly with the example cited by Aly, Hinduja acquiring KBL Private Bankers. We see it also with the arrival of banks from Andorra and elsewhere; finally with banks that are struggling to make their current business plan profitable, forcing a transfer or regrouping of activities, something that we will see occurring more and more. But I am convinced that after this period the result will be a new “ banking order ” with banks whose business plans are more solid and who will globally have a future in Luxembourg. 1) Do you consider the global financial crisis is now over ? How about Luxembourg ? AK : It’s difficult to offer an informed economist’s perspective on a world which is continually evolving. I think we have seen the first phase, commonly called the “ revaluation ” or “ mark to market ” crisis. There will now be a second crisis more economic in nature which will impact everything related to simple loans. If I see what is happening in Ireland at the moment, the country is not suffering from a mark to market crisis, rather it is suffering from a crisis in the “ real ” economy with a significant downturn. We will see the impact of this on the real economy going forward and this crisis will replace the first mark to market crisis. To quote some figures concerning Luxembourg, the unemployment rate has increased 30 % while new car sales are down 10 %, industrial production is down 20 %, the automotive suppliers sector is down 30 % and the steel sector is down 50 % ! The crisis is therefore not over and it will take a long time before we get back to the level of the golden years, as Theo called them. 2) Recent events have pushed regulatory bodies to improve regulation framework. How does it impact the Luxembourg Financial sector’s competitiveness ? TM : In my perspective the regulatory framework which existed before the crisis was flawed. It allowed excesses to happen and created gaps and opportunities to get around existing rules. This is one of the reasons for the crisis. It is imperative to reform the regulatory framework as it applies to the banks, especially the liquidity management. We will have to deal with new forms of regulation, maybe excessive, which will tend towards over-regulation, but it is important to note that Luxembourg will not loose its advantages in terms of competitiveness. This regulation will result in an accumulation of new costs and necessary investments. For certain organizations in Luxembourg which don’t have the necessary critical mass to make these investments, this will cause additional difficulties which will result in further restructuring and centralization of activities. Another issue is the pressure on Luxembourg and other countries that have banking secrecy such as Austria, and the resulting move towards an exchange of information.

AK : To sum up what Theo said, we as bankers made the mistake of leading the regulators to believe that we controlled all the risks. Unfortunately we were wrong, and as a result we will have to accept some radical changes in terms of regulations. Institutions that do not have critical mass will be obliged to refocus in other areas. In terms of banking secrecy, our bank is less affected. I do agree with Theo that the agreements brokered by Switzerland should benefit Luxembourg. PC : How would they be beneficial ? TM : I believe that the uncertainties underlying business in Luxembourg must be removed. We have to get to a point where clients pay their taxes as appropriate, while still benefitting from banking secrecy. Within the EU, this will give Luxembourg a competitive advantage, especially for those clients wishing to retain anonymity in their financial transactions. This has nothing to do with fiscal secrecy or fiscal advantages. 3) We often refer to the following attributes: linguistic capacities, geographical situation, social and political stability (...) as the main competitive advantages of the Luxembourg market place i.e. the Luxembourg “ know-how ”. Do you think these “ competencies ” are good enough for the future ?

In this segment there will be a merger of the principle players motivated by cost factors. There will also be a merger of smaller funds for similar reasons. However, next to this phenomenon we see the emergence of new funds, one example being the, “ private equity ”, and another being the microfinance. One also sees promoters from other geographic zones who are proposing offers that are for the most part complementary to ours which forces us to be more creative in proposing funds which have other attributes than those we have offered up to now. We have not yet spoken of the hedge funds which must regularize their off shore situation and possess on-shore registration in the very near future. We still do not know if this will result in a relocation of these funds in the E.U. and present an opportunity for the Luxembourgish fund industry, but we must strongly increase our knowledge of this special segment before we can offer such services. 4) The Luxembourg government has always been innovative and proactive in setting up the right framework to create leading advantages for the Luxembourg market. What is your view on the current (in place and to come) government initiatives ? TM : I believe that the territorial advantages of Luxembourg clearly play a less and less decisive role. I think that in the future common regulation must be applied throughout the E.U. However, there will remain certain advantages to Luxembourg such as the ability to react quickly to new regulations and adapting legislation in consequence as well as the transposing of European directives into Luxembourg law in a rapid and favourable manner. The reactivity of our institutions is a major factor as we have the ability to have a reaction and an authorisation from our government which is much more rapid than in the surrounding countries.

TM : Obviously Luxembourg draws strength from its Know How, its private banking expertise, the presence of the fund industry and multilingual capabilities.

5) What about 2011 ?

But most importantly we have been able to benefit from our legal sovereignty.

There are new waves forming, and it is extremely difficult to foresee where the next crisis will emerge from: we must remain vigilant.

Within a unified Europe, however, we will need to build ourselves up more and more on our core competences, instead of profiting from our national niches.

In our banking landscape, we still see some financial institutions, battered by the first wave, produce poor or negative results and continue to restructure. They will be hit by further difficulties in the near future.

If we were to envisage a more creative process for the establishment of new Funds or companies, we could meet the regulatory authorities, the CSSF, the Central Bank or even the Government, to present the case and hope to obtain an answer faster.

On the other hand, those banks that weathered the crisis well have managed to increase market share, and some large groups are beginning to show significantly higher results, due to a changing client base attracted to stronger partners.

On this topic, we are clearly significantly more reactive than our neighbours.

This trend will, in my view, continue.

AK : As we are a local bank, it is obviously more difficult for me to comment on what is happening abroad.

I still believe that there will be volatility in the banking sector because this crisis is not over.

I believe that the Luxembourg government has introduced a number of initiatives that are beginning to bear fruit.

AK : I think 2011 will be a continuation of 2010. in 2010, banks had a good first quarter, but Q2 and Q3 were not as good, and unfortunately Q4 and 2011 risk to be a continuation of Q2 and Q3.

There is a strong focus on microfinance and Islamic finance. The best example is bringing in groups such as Hinduja, and contrary to what Theo stated, I believe that there are other areas in the world where we can sell UCITS funds, such as Asia for example.

TM : The crisis is not over.

The evolution at a European level will be a key driver for banking results. Ireland ? Portugal ? Italy ? Spain ? Their situation will have a fundamental effect on European banking results.

If we consider the increase in wealth generation in Asia, and to a slightly lesser degree, in Latin America, Luxembourg UCITS funds will sell, just as they sell in Europe, and I think this will translate into growth in Luxembourg.

As Theo stated, those banks that have suffered least have managed to attract new clients and remained profitable. By contrast, even though other institutions have recovered financially, they will be hard pressed to recover their 2007 profitability levels.

Because of this, the involvement of the government and the regulatory bodies in these initiatives is very important for the future development of our market.

Pierre Castagne : Many thanks to you both for agreeing to be here today, I really appreciate it.

Luxembourg must create new products, attract new clients and build on the competences which we have discussed. For example and specifically on the subject of innovation, there are certain initiatives which are currently being worked on be they in the domain of micro-finance, Islamic finance, or, “ private equity ”, where Luxembourg is one of the most import European if not Global players.

Both of your organizations and both of you have always been and will continue to be, privileged partners of ours and your participation in our inaugural Newsletter brings me great joy and is an honor for me and for Thomson Reuters !

PC : So what other competencies should be further developed ? TM : We have competencies in certain areas like Investment Funds and we are seeing that this market is changing and evolving. If one looks at the creation of Luxembourgish funds, that is to say, the creation of classic funds such as, “ long only ”, equity funds, fixed-income funds, or wealth management funds then one can see that the market is nearly saturated.

“ The Luxembourg authorities have taken a very proactive approach for the introduction of UCITS IV. ” Michel Dorval is responsible in feeding risk strategy for Thomson Reuters Risk Management. He is specialized in new risk regulations and ensures that their Enterprise-wide Risk solution is in line with the latest requirements.

UCITS IV brings pricing and risk principles more centraL “The Luxembourg authorities have taken a very proactive approach for the introduction of UCITS IV.” This statement comes from Claude Kremer, chairman of the Luxembourg representative body of the investment fund industry ALFI, to their approval of the draft bill during this summer that will possibly lead into national law at the end of this year. The aim of the UCITS directives is to provide fund managers with the ability to promote a single fund in all the countries of the EU while only registering the fund in one country so making cross border products feasible and competitive and additionally reducing administrative costs. It is clear that since the introduction in the eighties of this common regulatory regime, Luxembourg has taken every opportunity it could attract investment funds to the country. The results are here. At the end of June 2010, assets in UCITS funds domiciled in Luxembourg surpassed 1.7 trillion euro. Luxembourg is now also more and more enthusiastic to attract hedge fund industry, as many hedge funds are creating UCITS vehicles to enlarge their commercial reach, benefiting from the regulation flexibility on leverage. It is definitely vital for local players in this industry to maximize this new regulation especially because the fund industry is currently facing numerous challenges in these turbulent economic times that have impacted assets under management and profitability across the industry. On the other hand, Luxembourg buy side players need to take into consideration stronger pricing and risk principles pushed by the regulator. When speaking about more robust pricing principles, the shift towards independent evaluation needs to be stated. Previously fund managers were allowed to rely solely on the manager’s trading desk to provide valuations. UCITS IV is pushing to extend the requirement to have an independent source of evaluation for bonds that embed derivative pay offs like e.g. equity linked bonds beside OTC derivatives. The independent price can come from either a third party valuation firm or the fund manager itself as long as it was not calculated by the manager’s trading desk. The result will be that valuation desks will have to either buy new pricing software or build their own. At the same time consistency is very important between front office and middle office. The methodologies used for pricing securities for net asset value calculations and risk management calculations must be uniform. They must rely on the same pricing models to value their assets.

Concerning risk management the regulator insists on a “holistic” approach that covers all relevant risk categories like market, liquidity and counterparty risk. Market risk is still the principal risk category for most UCITS. UCITS IV will push more and more asset managers to apply the Value at Risk methodology. Value at risk (VAR) represents the maximum potential loss on the value of an asset or a portfolio based on a specific timeframe and a confidence interval. This potential loss is calculated on the basis of historical data or deduced from normal statistical laws. The shift versus this more advanced mathematical methodology will require fund managers not to disclose just an aggregated number in a report but to pay attention to additional safeguards like back testing and stress testing. A risk that has been ignored for quite a long period, in particular for certain asset classes, is liquidity risk. Especially during the credit crisis when money market funds experienced serious liquidity restrictions this lack of knowledge was paid in cash. UCITS IV force now management companies to perform stress tests and scenario analyses to measure the impact of potential liquidity crisis. The focus of the regulator is on market liquidity risk which is the risk of losing a certain amount of money when liquidating the positions held in a portfolio/fund. Most of the asset managers have a limited experience in this area, especially in establishing a quantitative approach to model liquidity risk. New counterparty credit risk rules are not only on the agenda for banks due to the new Basel III framework but also a key component for asset managers in the new UCITS regulation. The risk exposure to a counterparty arising from OTC transactions will be calculated based on a positive mark to market value which means a simplification versus previous rules in asset management and also versus the Basel requirements, where the potential future exposure is a key component for OTC derivatives. With the final deadline of July 2011, the pro-activity of the Luxembourg government and asset managers is definitely important to keep ahead of other centers like Dublin, Frankfurt or London. Beside the deep pool of local expertise and excellent regulatory environment, it is important not to neglect the impact of these pricing and risk rules that will affect the day to day business, including the resources and systems of Luxembourg asset managers. Michel Dorval His contact details : michel.dorval@thomsonreuters.com

NEW ERA NEW TOOLS

Eikon

Elektron

Thomson Reuters Elektron - What is it ? 1. Elektron addresses the keychallenges the financial industry faces in the continuing drive towards trade automation. It will transform the way the financial markets connect and grow. 2. Elektron will allow financial firms of all sizes to trade faster, connect to more markets and interact with each other across a global resilient cloud, whilst significantly reducing operational costs. 3. A its core Elektron is an interactive, ultra high speed resilient globally networked cloud for both Thomson Reuters and our clients. 4. Integral to this service are strategically located proximity hosting sites in all major financial centers and high speed connectivity to execution venues's own co-location sites. Together they provide the fabric to link and interact with all of the world's financial markets and participants. 5. Elektron will help unleash the genius of the financial markets by providing bi-directional connectivity for communities on the secure network - allowing the open creation and exchange of data, transactions and ultimately increased business opportunities.

Today a new era begins: Thomson Reuters Eikon, the ultimate set of financial tools for a new generation of financial professionals is available worldwide. Our revolutionary new financial desktop is more comprehensive, more intuitive and more collaborative than anything you've ever worked with. The launch of Thomson Reuters Eikon is just the beginning of our journey. We will continue to deliver innovation and flexibility in our products and platform, to serve the new realities of the financial world in which you operate. And the excitement isn't just on your desktop.

Insider

To celebrate the launch of Thomson Reuters Eikon, we're offering you the opportunity to join our expedition attempting to break the Guinness World Record for the fastest overland journey to the South Pole. You could be part of this oncein-a-lifetime experience simply by entering the Thomson Reuters Eikon South Pole competition here If you would like to find out more about Thomson Reuters Eikon or would like to arrange a demo, please contact your Account team. “Today's generation of financial professionals demand tools that are intuitive, rich in data and analytics, and highly connected, to give them an edge. Eikon is a fundamental shift for our company and our industry. It will constantly adapt to help customers thrive in this new era. The launch signifies another key milestone in our strategy to build an open and connected global financial community,” said Devin Wenig, CEO, Thomson Reuters Markets.

REUTERS INSIDER

Video newsAND and insight. VIDEO NEWS INSIGHT FOR FINANCIAL PROFESSIONALS TO THE POINT. PERSONALIZED. INTERACTIVE. To the point. Personalized. Interactive. The Reuters Network empowers you financial to deliver Reuters Insider is a powerful new videoInsider experience that gives your video content into the workflow of hundreds of professionals the ability to go beyond the headlines and access in-depth thousands of financial professionals worldwide. By leveraging this dynamic, multimedia of Reuters analysis. Get live and on-demand programming, created platform specifically for Insider you can distribute your research and market institutional businesses, from Reuters and 100+ leading providers the commentary straight to the desktops and mobilein phones of Thomson Reuters customers and key decision makers Reuters Insider Network. Manage it all through a personalized interface in the investment community. giving you control of what you watch.

Inside the markets.

“ The launch signifies another key milestone in our strategy to build an open and connected global financial community ”

Become an Insider today Join the Reuters Insider Network Contact InsiderNetwork@thomsonreuters.com Start watching now Apply at insider.thomsonreuters.com

Reuters Insider programming features commentary and analysis from Be a guest on Reuters Insider our experts such as Reuters BreakingViews, IFR Contact our news desk at and Lipper in addition InsiderGuest@thomsonreuters.com to leading industry newsmakers. Our programming is supported by over 2700 journalists in 190 countries, giving us an unparalleled global reach. The breadth and depth of our coverage provides you with a unique market perspective that financial television does not. © Thomson Reuters 2010. All rights reserved. 47001084 0310

Devin Wenig

CEO, Thomson Reuters Markets

Ten years gone, ten years after... Remember where you were 10 years ago and try to answer this simple question : " What was the most exciting event in the Luxembourg Financial Markets on November 30, 2000 ? " Send your answer to : luxembourg.events@thomsonreuters.com and get the chance to receive a VIP ticket entrance for the new edition of this event *. * subject to legal authorization

Photographs in page 3 / 4 / 5 / 6 : Claude Oesch

point of view

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Upcoming event in 2011 In this section, we will keep you informed about events you might be interested in attending.