3.3 PARTNERSHIPS, ALLIANCES
AND OTHER STRATEGIC ACTIVITIES

3.3.1 Post-trade activities
At the time of its creation, Euronext decided to opt for a horizontal business model. In line with this decision, the company introduced a radical change to its business activities by disposing of its post-trade activities. Today, Euronext focuses on its core business activities (providing trading facilities for financial instruments), while clearing activities and settlement and custody are handled by LCH.Clearnet Group Ltd and Euroclear. In Belgium and Portugal, settlement activities are performed by Euronext's subsidiaries, CIK and Interbolsa.

3.3.1.1 LCH.Clearnet Group
On 22 December 2003, Euronext sold its 80.48% stake in Clearnet S.A. and 17.7% interest in LCH Ltd to LCH.Clearnet Group Ltd in exchange for a 49.1% stake in a new company created by the merger of the two clearing organizations. Later, Euronext sold a 7.6% stake in LCH.Clearnet Group Ltd, leaving it with a 41.5% interest. This interest is made up of ordinary shares (24.9%) and redeemable convertible preference shares, or RCPSs (16.6%), which will either be redeemed or be converted in ordinary shares that can subsequently be sold. As Euronext no longer holds a majority interest in Clearnet, it ceased to consolidate the clearing organization's balance sheet and operating results as of 22 December 2003.

2004 was the first full year of existence for
LCH.Clearnet Group Ltd. The company provides central counterparty services to users of Euronext's cash and derivatives markets and a range of other customers across Europe. In order to structure the relationship between Euronext and LCH.Clearnet, the organizations have concluded a clearing agreement and a service level agreement that set performance standards and define the clearing services LCH.Clearnet provides to Euronext.

Euronext and LCH.Clearnet Group Ltd have agreed to work in close collaboration and perform their obligations in good faith, with the emphasis on active and regular contact, while maintaining an ongoing dialogue with members and third parties. To facilitate the exchange of information, various joint committees have been set up to discuss strategic matters, commercial initiatives and projects. Close co-operation also exists between Euronext, LCH.Clearnet and the settlement organizations.

Main projects relating to Euronext
In 2004, LCH.Clearnet Group Ltd took a number of significant steps towards implementing Euronext's horizontal integration model. The most important step was the launch of a service that allows members based in Belgium, France and the Netherlands to have their transactions settled via either their local CSD or Euroclear Bank.
LCH.Clearnet is also actively involved in Euroclear's ESES (Euroclear Settlement for Euronext-Zone Securities) project (see section 3.3.1.4 on Euroclear).
In 2004, LCH.Clearnet Group Ltd completed the integration and harmonization of clearing operations for the Euronext derivatives markets with the migration of the Dutch market to the Clearing 21® system.

Other projects
During 2004, LCH.Clearnet Group Ltd launched an investigation into how the business activities and systems of LCH.Clearnet Ltd and LCH.Clearnet S.A. should be integrated in order to obtain synergies in terms of both infrastructure and organization. While this requires an initial investment, the related synergies should mean higher profits for LCH.Clearnet Group Ltd and cost savings for its customers.

3.3.1.2 CIK
CIK is a wholly-owned subsidiary of Euronext that provides settlement and custody services for securities in Belgium.

2004 performance
CIK's revenues grew strongly in 2004. Primary revenues increased 31% compared with 2003 to €19.4 million, while total expenses amounted to €14.7 million, a rise of only 4.8% thanks to tight cost control. As a result, CIK's EBITA rose by 119.8% to €4.8 million, representing an EBITA margin of 24.8%.

2004 highlights
In 2004, CIK took steps to diversify its activities. CIK's most recent projects have resulted in new products and services that are growing in popularity in the Belgian financial community.

An increasing number of investment funds have opted for the PRIOS (Printing of securities on demand) service, in which CIK prints securities on a just-in-time basis. Details of positions in these funds are recorded in book-entry form, which enables financial intermediaries to settle transactions efficiently and keeps the number of printing requests down. This system avoids the need to print large quantities of certificates at the time of the issue, enables positions to be centralized and dematerialized, and lowers costs. As this service has been officially recognized by Luxembourg's authorities, it is not restricted to Belgian investment funds. At the time of writing, CIK's PRIOS printing on demand service covered more than
800 financial instruments.

During the year under review, CIK also launched DIFS (Domestic Investment Funds Settlement), a routing and settlement solution for domestic funds that integrates the front-office and back-office aspects of transactions in domestic investment funds between financial intermediaries, and creates an STP process from transaction capture to final settlement.

CIK also offers a shareholder register service that allows issuers to combine a listing on Euronext Brussels with registration services. Issuers can now contract out administrative work and focus on maintaining close relationships with shareholders. The shareholder register service is available for listed and unlisted instruments and has proved to be an efficient settlement solution.

Outlook
As part of the ongoing consolidation and rationalization of Europe's post-trade processing infrastructure, in November 2004 Euronext and Euroclear signed a letter of intent for a full takeover of CIK by Euroclear. This transaction, which is subject to the completion of a due diligence investigation by Euroclear and conditional upon obtaining the necessary approval and consent, is expected to be completed during the first half of 2005.

3.3.1.3 Interbolsa
Interbolsa, a wholly-owned subsidiary of Euronext Lisbon, is responsible for the management of settlement systems and CSD systems in Portugal. It supplies the main participants of the capital market (financial institutions and issuers) with securities registration depository and custody services as well as settlement and clearing systems that process securities transactions. By creating competitive conditions, reducing systemic risks and protecting investors' rights, it also contributes to the development of the capital market.

To achieve its mission, Interbolsa carries out a wide range of activities that focus on its role as a CSD, a provider of settlement systems and as the national numbering agency for Portugal.

2004 performance
In the year under review, Interbolsa's EBITA grew by 20.8% year-on-year to €8.2 million. Operating income increased by 3.7% compared with 2003. Owing to the success of its cost reduction policy, Interbolsa's operating costs fell from €6.7 million to €5.7 million, a decrease of 14.4% on the previous year.

2004 highlights
In 2004, Interbolsa started a securities lending and borrowing project with Portuguese market members as a way of dealing with settlement failures, which, although few in number, still cause problems. It also introduced a new business-oriented model created during collaborative workshops with the main players on the Portuguese capital market, and implemented changes in its settlement systems to support the migration of the Portuguese derivatives market on 22 March 2004.

2004 also saw major developments in Interbolsa's organizational and operational structure. These included the reorganization of its premises, is the creation of a business continuity plan, and the outsourcing of the safekeeping of all physical certificates.
The Securities Market Commission conducted an investigation to evaluate the extent to which Interbolsa's systems comply with various recommendations made by ESCB/CESR. The outcome of this investigation was satisfactory.
Finally, Interbolsa was in regular contact with Euroclear in connection with developments regarding European consolidation and their impact on the Portuguese securities market.

3.3.1.4 Euroclear
In line with its policy of disposing of its clearing and settlement activities, Euronext has a direct minority holding of 2.34% in Euroclear plc and indirectly participates in Euroclear through Sicovam Holding, in which Euronext has a stake of 9.6%. Euroclear is Euronext's partner for the settlement of transactions concluded on its markets, and the two groups have developed a close relationship. Euronext is now involved in a number of strategic projects at Euroclear that are aimed at providing a seamless, cost-effective cross-border environment for market users and eliminating fragmentation in liquidity.

A first step in this direction was the Settlement Connect ESES Brussels/Amsterdam project. Following the completion of this project in 2004, all market participants in Belgium, France and the Netherlands are now able to settle transactions either via their local CSD or via Euroclear Bank.

The first step, ESES (Euroclear Settlement for Euronext-Zone Securities), was initiated in 2004. Its purpose is to create an integrated settlement platform for local and remote Euronext users in order to bring about seamless transaction processing from trading to settlement.

ESES will provide CIK, Euroclear France and Euroclear Nederland (the Belgian, French and Dutch CSDs, respectively) with a common settlement and custody platform in which the system functionalities, market rules and practices of all three markets are harmonized.
ESES is therefore a vital stage in the creation of a single platform for the Euroclear group.

3.3.2 Euronext first class IT providers
3.3.2.1 AtosEuronext

Introduction
AtosEuronext, a 50:50 joint venture formed on 30 June 2000 by Euronext and Atos Origin, is Euronext's preferred IT service provider. AtosEuronext combines in-depth knowledge of the financial and capital markets with advanced technology, and is one of Europe's leading IT service providers in the international financial sector and exchange community. It has achieved this position by providing significant added value and focusing on a small number of specialized areas. Its main areas of expertise are shown below.

Business overview
AtosEuronext licenses technology to third parties. Its licensing activities guarantee a regular flow of revenues to finance the research and development of new technology systems and new functions. The licensing agreements may form part of merger agreements, alliances or joint ventures between institutions that use identical or similar systems, thus creating potential synergies and cost savings.
In addition to licensing systems to numerous banks, financial institutions, on-line brokers, ECNS and B2B suppliers, AtosEuronext actively promotes its trading systems (including NSC) and clearing systems around the world.
The intellectual property rights to the NSC system, which was originally developed by Euronext Paris, have been transferred to AtosEuronext, which has licensed the NSC system to eleven stock exchanges and derivatives exchanges besides Euronext.

2004 performance
• Turnover: €224 million
• EBITA: €26.8 million
• Staff: 945 people

In 2004, AtosEuronext focused on building on its existing businesses.
• During 2004, AtosEuronext developed the cash trading platform of the Kuala Lumpur Stock Exchange, its first customer alongside Euronext and LCH.Clearnet. AtosEuronext plans to build on this success and extend its presence in the Asia-Pacific region.
• At the end of 2004, LCH.Clearnet Group renewed its contract with AtosEuronext for operating its IT system. AtosEuronext gives Euronext access to a pool of expertise and technological resources without demanding the level of investment required for in-house development, and is responsible for managing much of the software related to Euronext's exchange activities. AtosEuronext also provides a range of services to Euronext, including the supply of operating equipment, network management, office equipment management, software maintenance, software licensing, project design and development, consulting services and technical assistance. It works closely with Euronext.liffe Market Solutions to meet Euronext's constantly evolving technological needs.

3.3.2.2 Euronext.liffe Market Solutions
Euronext provides IT services through Euronext.liffe Market Solutions. This division designed and built LIFFE CONNECT®, the most highly advanced and widely distributed electronic trading platform in the world. Euronext.liffe Market Solutions distributes LIFFE CONNECT® and provides system support to derivatives market and users in 29 countries around the world. These include every major financial centre, Euronext.liffe, the Chicago Board of Trade (CBOT), and the Tokyo International Financial Futures Exchange (TIFFE). In 2004, three North American commodity exchanges - Kansas City, Minneapolis and Winnipeg - started using e-cbot, a special version of LIFFE CONNECT®, to support overnight trading. Euronext.liffe Market Solutions provides derivatives markets with various software solutions and hosting services. The division works continuously on the development of LIFFE CONNECT® to ensure that the system remains at the cutting edge of trading technology, and has capitalized on its network management expertise by launching the innovative LIFFE CONNECT® Network, which provides exchange users with a wider range of alternatives for connection. Thanks to this policy of constant innovation, LIFFE CONNECT® is rapidly gaining recognition as the global derivatives industry's preferred platform for processing complex trades in futures and options.

Outlook
2005 should see further steps in Euronext's continued move to rationalize its IT activities. Discussions were started in the third quarter of 2004 between Euronext and Atos Origin to extend their current joint venture by combining AtosEuronext and Euronext.liffe Market Solutions. This project, which is in line with Euronext's strategy to rationalize its IT operations, should result in the creation of one of the largest exchange and clearing house technology service providers. Subject to regulatory approval, its completion is planned for the second half of this year.

•The NSC trading engine is currently used by eleven exchanges around the world (besides the four Euronext cash markets).
•Liffe Connect® is used by the five Euronext derivatives markets and has been adopted by TIFFE (Tokyo International Financial Futures Exchange), CBOT (Chicago Board of Trade), and the commodity exchanges of Kansas City, Minneapolis and Winnipeg.
(1) Until the end of 2004 (2) Facility management in Paris

3.3.3 Other partnerships
3.3.3.1 Powernext: confirmed growth in 2004
Introduction
Powernext S.A., France's first power exchange, was launched in November 2001 following the liberalization of Europe's electricity markets under the 1996 European Directive, which was enacted in French law in 2000. On this market, electricity producers, consumers and traders can trade power for delivery on the French electricity network. Since its creation, Powernext has benefited fully from France's position in Europe's electricity market and network.

Euronext Paris holds a 34% stake in Powernext S.A. The remaining capital, 17%, is held by HGRT (a holding company owned by European transmission operators), and the remainder by the major European finance and electricity trading specialists BNP Paribas, Electrabel, Société Générale, Total, Endesa and Atel.

Business overview
2004 was a highly successful year for Powernext. During the year, the Powernext market achieved some of the objectives set at the time of its creation. Its original objectives were:
• to establish an undisputed reference for energy prices in France, with a new competition-boosting trading facility to diverse market players and an advantageously positioned power network;
• to contribute to the rationalization of the European power markets by providing a Europe-wide day-ahead service;
• to build a unified financial power market in Europe and launch a range of products that provide hedging for all energy-related risks.
Thanks to its sustained growth, Powernext has become a leading benchmark for energy prices. The launch of Powernext FuturesTM - a futures market - marks the first step towards a medium-term reference price for France.

2004 performance
Rising volumes
Trading on the Powernext Day-Ahead™ segment grew by 89%, from 7.48TWh to 14.18TWh.
The Powernext Futures™ market started promisingly. In less than seven months, the volume of contracts traded amounted to 12.86 TWh. Powernext Futures™ also had 28.25% share of the market for EEX Futures, which were launched over two years ago.
The market currently has thirteen members, which should increase to twenty by the beginning of 2005.

Less volatile prices
During 2004, the base load price averaged €28.13/MWh and the peak load price €33.71/MWh. This is a fall of 3.7% for base load prices and 10.9% for peak load prices compared to 2003.
Daily volatility was much lower than in the two previous years, falling to 27% (base load) and 37% (peak load).

More liquidity
Powernext Day-Ahead™ welcomed ten new members in 2004. Members continued to be very active, with 89% trading every day during the year.

Resilience
The market remained highly resilient. In December, an additional market order of 50MW for each hour of the day resulted in a change of only €0.16/MWh (0.53%) in the equilibrium price, while a 100MW order resultes in change of €0.32/MWh, or 1.07% of the equilibrium price, confirming the role of Powernext Day-Ahead™ as a benchmark for short-term prices. Powernext's profits reflect the growth in volumes and number of members it enjoyed during 2004.
In connection with the rationalization of the European market, Powernext signed a partnership agreement with its Dutch counterpart and various transport network operators in order to create a power exchange for Belgium. The Belgian power exchange, which is scheduled to be launched in 2005, will be linked to the French and Dutch power exchanges.
Finally, Powernext announced plans to launch a European CO2 emission exchange in conjunction with the Caisse des Dépôts and Euronext, in order to help its members address the wide range of energy issues they face.

Introduction
After many years of close collaboration through MTS France - the leading electronic trading platform for French government bonds - Euronext and MTS once again joined forces to produce the first genuinely independent, transparent, pan-European government bond indices, collectively known as the EuroMTS Indices.

MTSNext, world's leading family of real-time bond indices platform
EuroMTS Indices are managed by MTSNext, a joint venture launched in London on 9 May 2003 with capital of e1.5 million. MTS SpA. holds two thirds of the shares of MTSNext; the remainder are held by Euronext. The first EuroMTS indices launched in 2003 comprised euro-denominated total return index series originally compiled by the CNO (French Bond Association), called the CNO Etrix index series. These indices were designed to measure the performance of the euro-zone government bond market and were based on real-time, tradable prices from the inter-dealer MTS platform, the largest electronic platform for bond trading in the euro-zone. The indices are extremely transparent, highly replicable and independent. Such characteristics were previously found only in equity indices.
In 2004, thanks to experience gained from the EuroMTS indices launched in 2003 and the availability of prices on the MTS trading platform, MTSNext began to expand its range of indices to include inflation linked bonds and an index based on new EU entrants. Through the MTSNext partnership, Euronext intends to support the creation of cash and derivatives products that will be distributed and traded on its own trading platforms.

Business overview
By the end of 2004 :
• Assets worth €200 billion were benchmarked to the EuroMTS indices.
• Three trackers (exchange traded funds) based on the EuroMTS indices had been launched in France and Italy, representing €590 million in assets under management and an average daily trading volume of €6 million. Trackers on the EMTXi are expected to be launched in the first half of 2005.
• Seven structured products had been issued in France, Germany and Italy.
• Monthly index research was being produced by leading investment banks, and the ECB highlighted the benefits of the indices in its 2004 Euro Bond Market Study. In total, 190 users had signed up for index information via the MTSNext automated website delivery system.
In January 2005, MTSNext announced that Banca IMI was the first licensee of its EuroMTS Inflation Linked Index (EMTXi), and would use the index as the underlying reference for its Certificates Reflex listed on the Italian Stock Exchange. It also announced that Erste Bank was the first Austrian licensee for the EuroMTS 5-7 Index (EMTX 5-7), which it
would be used as the underlying reference in a new
12-year maturity Rainbow structured product listed on the Vienna Stock Exchange.

Outlook
The indices will undoubtedly contribute to the growth of the euro-zone government bond market. MTSNext is fully committed to developing markets in OTC and exchange-traded instruments to support a variety of cost-efficient bond investment strategies. While in 2004 its primary aim was to establish the EuroMTS indices brand in France and Italy, in 2005 the main focus will be on establishing the indices in other euro-zone countries and launching new indices such as covered bonds, Treasury bills and agencies. A MoU is scheduled to be signed between MTSNext and Euronext.liffe for the development of EuroMTS index derivatives.