Algorithmic Trading Equity Trading vs Futures Trading Morgan

Algorithmic Trading Equity Trading vs. Futures Trading Morgan Stanley Institutional Securities This material has been prepared for information purposes to support the promotion or marketing of the transaction or matters addressed herein. It is not a solicitation of any offer to buy or sell any security, commodity or other financial instrument or to participate in any trading strategy. This is not a research report and was not prepared by the Morgan Stanley research department. It was prepared by Morgan Stanley sales, trading, banking or other non-research personnel. This material was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer under U. S. federal tax laws. Each taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. Past performance is not necessarily a guide to future performance. Please see additional important information and qualifications at the end of this material.

9/9/2020 What is an Algorithm? · A pre-defined step-by-step method to accomplish a task · A computer model that takes an order and structures a sequence of trades that aim to achieve the stated objectives… - Minimize cost compared to a defined benchmark - Maximizing fill rate - Minimizing execution risk This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 2

9/9/2020 Trends Behind Algorithm Trading Regulatory Changes Electronification of Markets Improve Scale & Efficiency Desire for Anonymity Realization that Trading Is a Source of “Incremental Alpha” Desire to Reduce Explicit and Implicit Trading Costs EQUITIES FUTURES – This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 3

9/9/2020 Impact of Algorithms on Traders “Algorithms are productivity tools” “Algorithms are just ONE of the tools available…” This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 4

9/9/2020 Trade Lifecycle TCA Execution Sort p oo Co ntr L ck Crossing vs. Liquidity Pool ba ed ol Fe Limit Order Prog. Trade/Trajectory Planning Benchmark Determination Execution Evaluation This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 5

9/9/2020 Trade Lifecycle EQUITIES FUTURES Execution Evaluation This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 6

9/9/2020 Execution Evaluation Spectrum of Difficulty Significant Event Time of Day Size of Trade Global Economic Events Price Volume Time Volatility This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 7

9/9/2020 Execution Evaluation: Fit the Algorithm to the Strategy Single Algorithms Liquidity Urgency Trade Size Multiple Algorithms Algorithm & DMA Algorithm & Trader Price Limits Application of Constraints Volume Limits Time Limits This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 8

9/9/2020 Trade Lifecycle EQUITIES FUTURES Benchmark Determination Execution Evaluation This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 9

9/9/2020 Benchmark Determination Trade Structure Development Order(s) More Structure Examples Schedule Based · VWAP · TWAP Less Structure Flexible · Volume Participation Dynamic · Arrival Price · Price React This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 10

9/9/2020 Trade Lifecycle EQUITIES FUTURES Trade/Trajectory Planning Benchmark Determination Execution Evaluation This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 11

9/9/2020 Trade/Trajectory Planning TCA Execution ol ba ed ntr Limit Order Prog. Crossing vs. Liquidity Pool Trade/Trajectory Planning ck op Lo Co · The VWAP strategy creates a trade plan that emulates the historic volume distribution (either all day or interval). Fe Sort Benchmark Determination Execution Evaluation Parameters Available for VWAP are: VWAP · Trajectories are static from the beginning of the trade and do not respond to changes in intraday liquidity. · Volume distributions are determined by country and adjusted for seasonal factors such as expiration days, and month/quarter ends. · The BXS VWAP strategy attempts to minimize shortfall versus VWAP as well as minimize the market impact into achieving that price, thus minimizing the total cost of the trade 1. Price Limits 2. Duration Limits 3. Volume % Limits This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 12

9/9/2020 Trade/Trajectory Planning TCA Execution ol ba ed ntr Limit Order Prog. Crossing vs. Liquidity Pool Trade/Trajectory Planning ck op Lo Co Fe Sort Benchmark Determination · The BXS TPOV strategy is designed to participate with either the primary or composite volume at a user specified rate. Target Percent of Volume · Order quantities are determined for individual time sub intervals and scheduled for execution according to continuously updated forecasts of volume Execution Evaluation Parameters Available for TPOV Orders: 1. Price Limits 2. Duration Limits This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 13

9/9/2020 Trade/Trajectory Planning Arrival Price: Low Urgency TCA Execution ol ba ed Fe Sort op Lo Co ck ntr Limit Order Prog. Crossing vs. Liquidity Pool Trade/Trajectory Planning Benchmark Determination Execution Evaluation Parameters Available for Arrival Price Orders: 1. Urgency Level 2. Price Limits 3. Duration Limits · The BXS Arrival Price strategy is designed to minimize execution shortfall to the midpoint of the initial bid/ask. · The trader determines a level of execution “urgency”- get done, high, medium, or low- which corresponds with the expected level of information content (alpha) embedded in the order. · The BXS system determines an initial optimized trading trajectory that controls the pace of execution, balancing market impact with market risk (time) based upon the level of urgency. Arrival Price: High Urgency · Trajectory is based on continuously updated forecasts of volatility, liquidity and spread, and changes dynamically during execution with the changing market conditions. · Order quantities are determined for individual time sub intervals and scheduled for execution. 4. Volume % Limits This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 14

9/9/2020 Trade Lifecycle EQUITIES FUTURES Crossing vs. Liquidity Pool Trade/Trajectory Planning Benchmark Determination Execution Evaluation This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 15

9/9/2020 Crossing vs. Liquidity Pool BUY SELL · Arrival Price Medium · Target 20% of Volume · Buy 150, 000 XYZ · Sell 135, 000 XYZ This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 16

9/9/2020 This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 15: 40 15: 30 15: 20 15: 10 0 15: 00 0 14: 50 10, 000 14: 40 10, 000 15: 50 20, 000 15: 40 20, 000 15: 30 30, 000 15: 20 30, 000 15: 10 40, 000 15: 00 40, 000 14: 50 50, 000 14: 40 50, 000 14: 30 60, 000 14: 20 60, 000 14: 10 70, 000 14: 00 70, 000 14: 30 · Target 20% of Volume · Sell 135, 000 XYZ · “I Would” – Public or Dark 14: 20 · Arrival Price Medium · Buy 150, 000 XYZ · “I Would” – Public or Dark 14: 10 SELL 14: 00 BUY 15: 50 Crossing vs. Liquidity Pool 17

9/9/2020 Trade Lifecycle EQUITIES FUTURES Limit Order Prog. Crossing vs. Liquidity Pool Trade/Trajectory Planning Benchmark Determination Execution Evaluation This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 18

9/9/2020 Limit Order Program TCA From Liquidity Pool Execution ck ol Limit Order Prog. Crossing vs. Liquidity Pool Trade/Trajectory Planning ntr 5, 000 Shares Net Sell ba ed Orders into Marketplace TB – TC op Lo Co Fe Sort XYZ Bid 93. 38 500 Benchmark Determination Execution Evaluation • Residual Orders are sent to the Limit Order Program • Trades are broken down into market size increments • Multiple limit orders are then placed into the market to create a “portfolio” of orders • Limit Orders are dynamically managed based upon executions and changes in market conditions • Limit order sizes, pricing, duration and spacing between orders change continuously to minimize information leakage and “footprint” • Major factors affecting orders are volatility, spread and liquidity Size 500 1000 300 100 700 1500 Limit Order Program Offer 93. 40 300 Last 93. 39 PX 93. 38 93. 37 93. 35 93. 31 93. 27 93. 25 Size 300 400 200 500 1000 700 PX 93. 40 93. 41 93. 44 93. 47 93. 48 93. 52 XYZ Bid 93. 39 100 Size 100 500 1000 300 200 100 5, 000 Shares Sell Offer 93. 42 200 Last 93. 41 PX 93. 39 93. 38 93. 37 93. 35 93. 34 93. 31 Size 100 200 300 600 1000 900 PX 93. 42 93. 44 93. 45 93. 46 93. 48 93. 51 XYZ Executions and Market Data Bid 93. 37 1000 Size 1000 100 300 1000 700 Offer 93. 38 600 Last 93. 38 PX 93. 37 93. 36 93. 35 93. 31 93. 30 93. 27 Size 600 100 500 200 600 300 This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. PX 93. 38 93. 39 93. 41 93. 44 93. 45 93. 47 19

9/9/2020 Trade Lifecycle EQUITIES FUTURES Sort Limit Order Prog. Crossing vs. Liquidity Pool Trade/Trajectory Planning Benchmark Determination Execution Evaluation This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 20

NSX / CINN ISE Stock Exchange CBOE Be. X BATS EDGX / EDGA TRAC / DATA ONTD CHX BTRD PHLX Pipeline AMEX NASDAQ INET POSIT NYSE Arca Liquidnet SMART ORDER ROUTING TECHNOLOGY NYFIX Millennium SORT NYSE LEH LCX BIDS NASDAQ Crossing Network CITI ACE UBS PINS Matchpoint Fidelity Cross Stream ITG Block Alert CS Cross Finder GS Sigma X ISE Midpoint Match MS Trajectory Crossing Morgan Stanley POOL Leve. L Instinet (CBX, etc. ) ITG Now 21

9/9/2020 Smart Order Routing Technology — SORT TCA Execution ck ol Limit Order Prog. Crossing vs. Liquidity Pool Trade/Trajectory Planning ntr Limit Order Program ba ed op Lo Co Fe Sort Benchmark Determination Execution Evaluation • SORT is the vehicle through which BXS executes limit orders in the marketplace. • SORT creates a consolidated order book from all available liquidity pools. • After the Limit Order Program determines the size and price of an individual order, SORT determines which liquidity pool(s) the order should be placed in. • SORT will slice orders to access multiple liquidity pools simultaneously. • Major factors influencing the choice of destination include current and historical price, liquidity and speed. • SORT is utilized for NASDAQ as well as Listed stocks orders. SORT Consolidated Order Book NYSE AMEX XYZ Bid 93. 38 500 Size 500 1000 300 100 700 1500 BTRD Last 93. 39 PX 93. 38 93. 37 93. 35 93. 31 93. 27 93. 25 Offer 93. 40 300 Size 300 500 200 400 1000 700 PX 93. 40 93. 41 93. 44 93. 47 93. 48 93. 52 ITS/ CAES SUPER MONTAGE INCA ISLD BRUT ARCA • Additional Smart Order Routers include SORTETF for Exchange Traded Funds and OSORT for listed equity options. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 22

9/9/2020 Trade Lifecycle EQUITIES FUTURES Execution Sort Limit Order Prog. Crossing vs. Liquidity Pool Trade/Trajectory Planning Benchmark Determination Execution Evaluation This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 23

9/9/2020 Trade Lifecycle EQUITIES FUTURES TCA Execution Sort Co ntr ol p o Lo Crossing vs. Liquidity Pool ck ck Crossing vs. Liquidity Pool Limit Order Prog. ba ed Fe Limit Order Prog. Trade/Trajectory Planning Benchmark Determination Execution Evaluation This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 24

Post Trade (Performance by Desk or Trader) This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 9/9/2020 25

9/9/2020 Development of Algorithms for Futures: The 80/20 Rule Expiration 20 % Accelerate the Development of Predictive Models for Futures Using Existing Models 80 % Economic News/Events Cash Market Events Extension of the Equity Model Foundation This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 26

9/9/2020 What’s Next Cross Asset Correlation Control Behavior · Define your own algorithm BLACK BOX · Act like a sales trader This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Please refer to important information and qualifications at the end of this material. 27

Algorithmic Trading Equity Trading vs. Futures Trading Morgan Stanley Institutional Securities This material has been prepared for information purposes to support the promotion or marketing of the transaction or matters addressed herein. It is not a solicitation of any offer to buy or sell any security, commodity or other financial instrument or to participate in any trading strategy. This is not a research report and was not prepared by the Morgan Stanley research department. It was prepared by Morgan Stanley sales, trading, banking or other non-research personnel. This material was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer under U. S. federal tax laws. Each taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. Past performance is not necessarily a guide to future performance. Please see additional important information and qualifications at the end of this material.