Toomre Capital Markets LLC

As many readers of the Toomre Capital Markets LLC ("TCM") blog may already be aware, the next Hedge Fund Executive Forum Series event entitled Real-Time Decisions & Risk Reduction: Technologies that Reduce Latency and Sharpen Business Intelligence to Drive Results will be held in New York City on Thursday November 29th 2007 and then repeated in Stamford, CT on Tuesday December 4th. Lars Toomre will be one of the speakers at this event. Both Aldon Hynes and Lars Toomre hope that you will be able to join the Incremax and Toomre Capital Markets team at either of these venues.

These Hedge Fund Executive Forum Series events are designed to help key investment decision makers quickly get beyond buzz words and learn which strategic technologies and solutions will help drive the best results from every aspect of their organization -- the front, middle and back-offices as well as client service functions. Designed for investment managers with more than $500 million in assets under management ("AUM"), the focus of this particular event will be on data, input/output ("I/O") and how "push vs. pull" can be implemented.

The key challenge this forum event will address is how to create better real-time decision opportunities that result from first transforming fast-moving data into information and then into knowledge that ultimately adds to economic value. Some of the key solutions and technologies from Advent Software, AMD, Cisco, Microsoft, Reuters and Streambase Systems will be highlighted for further discussion.

Please circle the appropriate date on your calendar and plan on attending. Advanced registration is required and can be completed at this web link. Aldon Hynes and Lars Toomre look forward to speaking with you directly on the 29th or 4th. Hopefully, we will see you then. Please feel free to contact TCM directly if you have any questions or comments.

The Stamford, Connecticut chapter of the Professional Risk Managers' International Association ("PRMIA") held a very informative meeting on Wednesday, November 7th 2007 entitled "The Emperors' New Clothes?: After the Credit Crunch, What's the Future of Structured Credit, Financial Guarantors and Rating Agencies". Toomre Capital Markets LLC ("TCM") thought this was one of the most informative industry events yet and strongly recommends that the reader pay close attention to the incestuous circle of structured credit, financial guarantors and rating agencies. The speakers were:

• James Chanos – Managing Partner, Kynikos Assocaiates
• William Ackman – Managing Member, Pershing Sqaure Capital
• Edward Grebeck – CEO, Tempus Advisors

Some readers no doubt will recognize James Chanos and his fund Kynikos Associates as one of the most prominent short-seller hedge funds. Bill Ackman and his hedge fund Pershing Square Capital are primarily focused on the long side, but does have substantial short interest in the financial institution, rating agency and financial guarantor sectors. Bill is perhaps most well known for his excellent (and very negative) research report on MBIA from several years ago. The FORTUNE magazine article from May 16, 2005 entitled The Mystery of The $890 Billion Insurer has more information.

During the trading hours of November 7th, equities in the financial sector were under considerable pressure. This pressure is primarily tied to the great uncertainty about just what are Collateralized Debt Obligations worth, where the resulting large losses are buried and what are the secondary repercussions of the sub-prime meltdown, such as SIVs, option ARMs, and commercial mortgage credit-worthiness. After the close, American International Group ("AIG") reported 3rd quarter results that fell short of expectations primarily due to their losses from the mortgage markets. Then, Morgan Stanley ("MS") pre-announced that it be taking a $3.7 billion in losses in its proprietary trading businesses tied to principal investments in CDOs and other sub-prime mortgage-backed securities. (This amount may change over the balance of November until the end of Morgan Stanley's year end.)

Against this backdrop, James Chanos and William Ackman suggested that the markets are still in the early innings of this mortgage credit crunch process. Whereas some analysts have been suggesting as many as 1.5 to 2.0 million families may lose their residencies due to foreclosure in this mortgage credit cycle, their collective view is that the base level of foreclosures will be much worse, perhaps approaching 3.5 million or even 4.0 million incidents. They suggested that the collective market does not yet appreciate that things could get that bad nor have financial professionals begun to fully appreciate some of the national political repercussions of so many people losing their homes.

Many readers simply do not understand what Complex Event Processing (“CEP”) is and why it has such potential to change the cost and productivity of implementing and maintaining large enterprise software applications. CEP is an emerging technology and technique that Toomre Capital Markets LLC (“TCM”) has intently focusing on during the past several years ever since we discovered two small CEP companies at the 2005 SIFMA show: iSpheres and Streambase Systems. TCM has subsequently written the special supplement article for its client Advanced Micro Devices ("AMD") on the subject of Complex Event Processing that appears in the October 2007 issue of Wall Street and Technology magazine.

Today, on October 2nd 2007, the National Stock Market Inc. ("NASDAQ") announced a definitive agreement to acquire the Boston Stock Exchange ("BSE"), including the holding company (BSE Group), the Boston Equities Exchange (BEX), the Boston Stock Exchange Clearing Corporation (BSECC), and BOX Regulation (BOXR). Along with these businesses, NASDAQ will acquire an SRO (Self-Regulatory Organization) license for trading both equities and options. NASDAQ's acquisition of the BSE Group is valued at approximately $61 million.

Normally such announcements do not attract the attention of Toomre Capital Markets LLC ("TCM"). After all, the consolidation of the listed exchanges has been going on for a while. They no doubt will also continue, especially if the equity markets ever return to one of their periodic extended low volume periods that typically accompany a United States recessionary period. It is not at all clear to TCM in the post Regulation NMS environment just what the competitive value of a listed exchange truly is. The value of a clearing license, on the other hand, is quite clear and helps explain why NASDAQ acquired the Boston Stock Exchange.

Toomre Capital Markets LLC is currently finishing up another White Paper for one of its clients, Advanced Micro Devices (“AMD”). The last AMD White Paper was on the subject of Compliance Risk Management and this one will be on a new methodology of programming called Complex Event Processing (“CEP”).

As part of preparing to write this White Paper on Complex Event Processing, the global practice leader for Financial Services at AMD, Pat Aughavin, and Lars Toomre met with most of the CEP vendors. One of the specialist CEP firms is named Kaskad Technologies, Inc. Their Chief Technology Officer (“CTO”) is a great technologist named Colin Clark and he has been responsible for one of the largest ever implementations of a CEP application. Their lead customer, The Boston Stock Exchange, runs Kaskad's Korrelera Surveillance System to identify possible market abuse and ensure compliance with all rules and regulations.

During the past few weeks, Lars Toomre has been working from a client site (a top-ten hedge fund by size located in Manhattan) together with some members of the great team from G2 Systems, LLC. As a result of the long hours completing this particular project and the additional hours commuting, there has been little time left for writing and then updating this website on a regular basis.

In the financial markets, the week that includes July 4th normally is relatively quiet with many people away for at least some portion of the time. That hardly was the case this year at Toomre Capital Markets. This past week three incoming contacts reminded Lars why it is so important to somehow create time for sharing his thoughts and observations, despite all else that may be going on.

InformationWeek reports that "Banks worldwide will dramatically increase the portion of their IT budgets devoted to offshore services from low-wage countries in the next three years." According to a study by the consulting firm Deloitte, "Offshore tech spending will rise from 6% of the $44 billion the [banking] industry spends on IT annually to 30% by 2010."

Toomre Capital Markets LLC strongly suspects that this shift will accelerate if the any of the major developed countries experience an economic slow-down or recession. If correct, this study also does NOT portend well for financial services programming positions in the greater New York City and London metropolitan areas.