// GLOBAL TRADING SYSTEM™

At the heart of M3’s tax solution is our proprietary Global Trading System™. Like a GPS, our GTS tells us where we are, where we want to go, and provides a tax efficient path to get there. Based on the institutional transition business pioneered by CalPERS(2) over 30 years ago, this quantitative tool enables us to transition existing low basis stock portfolios to optimal portfolios created by advisors within the tax tolerance of the client. The GTS achieves this by simultaneously factoring:

• Tax implications of each potential trade combination
• Correlation between stocks in the existing and target portfolios
• Risk characteristics of each stock in existing and target portfolios
• Transaction costs
• Investor’s capital gains budget

To understand and appreciate the power of the GTS, let’s look at the management of a single stock inside a transition.

Let’s assume the advisor has already developed an asset allocation target for a client. In this example, the existing portfolio owns XYZ, a large financial institution, at a significant gain while the target model owns ABC, also a large financial institution.

As a result:

• The tax implication of trade, transaction cost, and correlation of securities are not considered.

• The sale of XYZ and purchase of ABC triggers significant capital gains and unnecessary transaction costs.

However, M3’s GTS makes different decisions, producing a more desirable result. M3’s transition first moves to a hybrid stage and continuously seeks to reduce tracking error to the model:

With our process, the portfolio performs more like the target model while meeting investor’s capital gains budget. That means the investor retains more dollars and can earn more with more™.