BBK BISANG BLASS KAVENA Capital Partners AG : BBK Long/Short FX Program

Summary

The BBK FX portfolio is a rather unique mix of proprietary breakout- and trend following-algorithms that have been developed constantly over the last years. The goal of this strategy is to achieve substantial alpha over a medium- to long-term time horizon with relatively low volatility. Algorithms include pattern recognition, trend indicators and oscillators in combination with different time overlays. The portfolio is traded fully automated. All systems are intraday based and no overnight positions are held. The 5 active algorithms are being reallocated in the portfolio on a monthly basis through a severe Monte-Carlo-Simulation. As the strategy is trend following in nature, it has historically generated strong returns in trending markets. The program can be long, short or neutral.

Investment Strategy

BBK FX applies fully automated, short-term trading strategies which aim to profit from very rare combinations of indicators, mathematical chart patterns and time zones with a very high hit ratio. This leads to small and rare trades which also reduce the overall level of leverage and time to market in general. The key characteristics of the BBK FX systems can be summarized as follows: - Trend-following - Breakout - Countertrend - Time Overlay’s - Multi-model concept - Identical algorithms and parameters per model across all markets - Intraday trading - No overnight positions - Average holding period less than 3 hours - Highly liquid FX spot only - 100% automated - Max. applied leverage is 5 - Average leverage is 3 • BBK FX 1 –Trend-follower: Combination of time overlays and trend indicators • BBK FX 2 – Trend follower: Combination of time overlays and price patterns • BBK FX 3 –Breakout: Combination of time series analysis and oscillators • BBK FX 4 – Breakout: Combination of time series analysis and price patterns • BBK FX 5 – Countertrend: Combination of oscillators and price patterns Diversification is realized by the use of different time frames (from minutes to hours), different indicators and different chart patterns. 3 development periods over a total of 14 years are applied. 30% Out of Sample – 40% In Sample (optimization period) – 30% Out of Sample. The systems have to work profitable and with a minimal max. drawdown in each of the 3 periods. In general, only a minimum of parameters are optimized. Such as the time zone or a parameter of an indicator. Positions are weighted in a manner, that the leverage never exceeds a level above five. From that “total value” on, the systems are weighted based on a risk based Monte Carlo Simulation where the max. drawdown is supposed to be minimized. Leverage: • Avergae Leverage is < 3 • Maximum applied Leverage is 5 • Allowed maximum Leverage is 10 (based on Offering Memorandum) • Low Leverage Ratios are key to survive Pricing Gaps due to unexpected events Trading Frequency: • Minimum Number of Trades (round turns) per Day is 0 • Average Trade Number per Day is 4 • Maximum Number of Trades per Day is 9 • Low Trading Frequency does reduce costs (commission and slippage) significantly Time to Market: • Minimum can be as low as 0% per Day (out) • Average Time to Market per Day is approximately 6 hours or 25% • Maximum Time to Market per Day is approximately 17 hours or 71% • Individual systems are having a Time to Market Ratio of 6 to 15% • Low Time to Market Ratio does reduce risk of unexpected events significantly Trading Stops: • Each Trading System does apply a Trading Stop (calculated based on price development of underlying) which is send in to the market and after being triggered and a so called Hard Stop which is placed together with the entry order. Both stops do cover profit and losses. • Trading Stops are based on trend, volatility and pattern calculations. Depending on the applied time frame of the Trading System (from minutes to hours) the trading stops do range from approximately 15 to 90 pips per trade. • Hard Stops are used in case of any technical interruption between our server and/or trading systems and the broker occurs. As Hard Stops are directly placed together with entry orders, these stops would secure an exit in case of a technical problem with no human interaction. Hard Stops are placed between 0,50% and 1,00% (on profit and loss site) away of the entry point in terms of the underlying. These Hard Stops are also called worst case stops and have never been triggered yet. Maximum Drawdown: • The Maximum inter monthly Drawdown in the backtest was 7.75% • Based on MCS we have calculated a possibility of a Maximum Drawdown of 22% • Hence, after a Maximum Drawdown of 25%, the trading would be seen as not applicable anymore and halted • Based on the Calmar Ratio, it would take less than 3 months to recover from the Maximum Drawdown of 7.75% Volatility: • As only intraday systems are applied, daily changes in price direction can be detected and used • A similar number of long- and short trades should further reduce volatility • Different indicators and patterns reduce the dependence between the systems

Risk Management

At the trading system level (development stage): • Very few inputs and logical inputs • Four different time periods (control – training – control – live on paper) • Different data feeds (Pinnacle, Bloomberg, L&P, IB) • Data mirroring and synthetic data • System analysis only for long- or short trades • System parameter variation (indicator values) • Variation of the test settings (slippage, commissions, delays) • Brute Force robustness test • Monte Carlo Simulation • Analysis of the equity curve with special indicators • Paper trading on a live account At the trading system level (trading stage): • Fully automated loss-, trailing, volatility and profit stops for long- and short positions • Fully automated exist strategies for long- and short trades • Running analysis of the equity curve with state of the art equity curve indicators • Charting the equity curve on a weekly basis At the portfolio level (development stage): • Different algorithms based on the same strategy • Non correlated FX pairs • Non correlated algorithms • Different time frames • Volatility and money value adjustments • Monte Carlo Simulation • Macro-economic analysis At the portfolio level (trading stage): • Monitoring and analysing margin levels • Live monitoring (trades, limits, account) • Settlement control • Exchanging existing systems with new systems • Adding new systems • Macro-economic analysis