SEC Rule 204

FAILURE TO DELIVER

To address abusive “naked” short selling in equity securities, the SEC announced on October 14, 2008, that it was adopting a rule requiring that self-clearing broker dealers deliver securities by settlement date, or if the participants have not delivered shares by settlement date, immediately purchase or borrow securities to close out the fail to deliver position by no later than the beginning of regular trading hours on the settlement day following the day the participant incurred the fail to deliver position.

A participant that does not comply with this close-out requirement will not be able to short sell the security either for itself or for the account of any customer, unless it has previously arranged to borrow or borrowed the security, until the fail to deliver position is closed out. This Rule has now been adopted permanently by the SEC and is known as SEC Rule 204.

SHORT SALES

With respect to short sales, any fail to deliver by regular settlement date (trade date plus three or “T+3”) must be bought in no later than the beginning of trading (9:30 a.m. ET) the next day (“T+4”). If the security that is failing is not bought in on the next settlement date at or before the opening of trading, then the broker dealer is penalized in that it must not effect short selling in that security for itself or by any of its clients unless it has obtained a guarantee from a lender known as a “pre-borrow”. The SEC has stated in industry conference calls that the manner of the buy-in must be with a Market on Open (“MOO”) order on T+4. We understand that a MOO price may be higher than a price that could be obtained throughout the trading day but the SEC mandates that we purchase not later than on the open.

LONG SALES

In addition, all fail to deliver positions resulting from long sale transactions on T+3 must be bought in no later than the open of trading on T+6. Just as with T+4 buy-ins, it must be made using a MOO instruction. If a broker-dealer has failed to buy in the Securities within the stated time periods, then the broker-dealer and its clients are penalized in that the broker dealer must not effect short selling in that security for its own account or for the account of any customer without first pre-borrowing the security.

WHAT DOES THIS MEAN FOR ITG’S CLIENTS?

To comply with the rule, ITG Inc. and its affiliates adopted a policy to prevent fails and to buy in any fails to deliver on a timely basis. Please be advised that if a client fails to deliver on settlement date, ITG will promptly resolve the fail through a “buy-in” transaction no later than 9:30a.m. ET on T+4 (in the case of short sales) or T+6 (in the case of long sales). ITG will purchase in the market the securities not later than the open of trading to satisfy its delivery obligation and will pass the buy-in price, which will be based on then current market conditions to the client. This price may be greater than the price at which the client sold the shares. To the extent we are unable to resolve the failed delivery of shares the client owes ITG through a buy-in, all ITG clients’ ability to effect short sales through ITG in that failing security will be subject to the condition that ITG must pre-borrow the shares the clients are selling short. If ITG cannot pre-borrow the shares then the security that was not bought in as required will be placed on a restricted list and any short sale orders in such security will be automatically rejected. This penalty condition could persist for several days until the fail is satisfied.

WHAT CAN CLIENTS DO TO PREVENT FAILS?

Clients are urged to settle their transactions with ITG in a timely manner to avoid the possibility of a buy-in or other limitations being imposed. Clients should contact their custodian or prime broker and become familiar with their processes and demand that the custodian or prime broker make prompt delivery to comply with the SEC requirements.

Please contact your Account Executive with any questions.