Investment Trends With...
Michael Soni
President & CEO
Cronus Capital Markets

SecuritySolutionsWatch.com: Cronus Capital Markets (CCM) and the International Securities Exchange (NYSE:ISE) recently announced the introduction of an equity index to represent the homeland security industry. Before we get to the Index itself, please give our audience an overview of both CCM and ISE and the respective roles each company will play with the Index.

Mr. Michael Soni: Cronus Capital Markets (CCM), with offices in Toronto and New York, deconstructs and filters the markets in order to identify sectors experiencing a higher frequency of opportunities. As a result, CCM is constantly in a process of unlocking value, for both the corporations in the sector, and for the investors who have interest.
In addition to offering sector-based strategic advisory services to corporations and institutional investors, CCM is also a leading provider of research, intelligence and media, to the business and investment communities. CCM covers the following sectors; Homeland Security, Biometrics, RFID, Nanotechnology, Alternative Energy, Precious Metals, and Oil & Gas. (www.cronuscapitalmarkets.com)
ISE, the world's largest equity options exchange, developed an innovative market structure that integrated auction market principles into an advanced screen-based trading system, ISE launched the first fully electronic US options exchange in May 2000. ISE continually enhances its trading systems to provide investors with the best marketplace to execute their options orders. (www.iseoptions.com)

CCM provided the research and consulting for the development of the index and the ISE was responsible for managing index calculation, providing an efficient and liquid marketplace for options based on the index, and establishing weighting methodology rules. The entire process was very collaborative and we are extremely pleased to be working with the ISE. Together, we will manage the evolution of the index, always ensuring that it accurately reflects the Homeland Security industry.

SecuritySolutionsWatch.com: Michael, what about your background?

Mr. Michael Soni: Prior to founding Cronus Capital Markets Inc., I was managing private money focused in the international venture capital and hedge fund arenas During the 1990’s, I was a leading member of a top ranked Canadian money management team at Scotia McLeod, with $250 million dollars in assets. I was primarily responsible for equity research, trading, and investment strategy. In 1997-98 I was a regular co-columnist for TheStreet.com, focusing on North American Equities. I attended the University of Toronto where I studied business and philosophy.



SecuritySolutionsWatch.com: We understand the Index includes 30 companies. Who are they and what is the selection criteria?

Mr. Michael Soni: The ISE-CCM Homeland Security Index (ISE:HSX) includes small, mid, and large capitalization US companies. These Homeland Security companies are some of the largest, most liquid, and most mature of the entire Homeland Security Sector Universe. They strongly represent, in a balanced fashion, the total Homeland Security Sector and its related missions. HSX has been constructed specifically to isolate “Homeland Security Companies”, in order to present an accurate and pure representation of the Homeland Security Sector. Defense contractors and large conglomerates have been excluded for reasons of purity, even though they may be a contractor with the Department of Homeland Security and have a presence in the sector.

The objective of HSX is to provide investors with the ability to track the Homeland Security Sector; through ongoing analysis of the benchmark companies included in the Index which are directly involved with Homeland Security, either through contractual work with the Department of Homeland Security, other law enforcement/government agencies, or in the production of products and/or services that meet the needs of Homeland Security as defined by the Department of Homeland Security and/or the private sector.

Perhaps, the most interesting is the likelihood that the index-based products will provide traders, institutional and individual alike, the option to hedge themselves against geopolitical tensions affecting domestic security. Historically speaking, there has been a correlation between terror warnings/attacks and rallying (perceived) homeland security stocks.

The selection criteria for HSX includes comprehensive market capitalization, liquidity, and weighting concentration requirements that ensure an index product’s high tradability.

The following are some key criteria, a full list can be found in the Index Methodology Guide at http://www.iseoptions.com/pdf/ISE-HS-IMG.pdf

1. The component’s business must fall into at least one of the six Homeland Security Missions.
2. The component security must be listed on a major stock exchange for the past 120 days.
3. Component’s that receive Department of Homeland Security contracts are given greater consideration than those without contracts. Department of Homeland Security contracts, as criteria however, are not mandatory.
4. Each component security has a market capitalization of at least $100 million.
5. Trading volume of each component security has been at least one million shares for each of the last six months, except that for each of the lowest weighted component securities in the index that in the aggregate account for no more than 10 % of the weight of the index, trading volume has been at least 500,000 shares for each of the last six months.
6. No single component security represents more than 24% of the weight of the index.
Stocks included in the index are as follows;
(LLL) L-3 Communications Holdings
(MFE) McAfee Inc
(TMO) Thermo Electron Corp
(CHKP) Check Point Software (US)
(HRS) Harris Corp
(ZBRA) Zebra Technologies Corp A
(UIS) Unisys Corp
(CAI ) CACI Intl Inc A
(FLIR) FLIR Systems Inc
(STE) STERIS Corp
(MSA) Mine Safety Appliances
(TTN) Titan Corp
(TASR) Taser International Inc
(RSAS) RSA Security Inc
(ANT) Anteon Intl Corp
(ISSX) Internet Security Systems
(TTEK) Tetra Tech Inc
(WGII) Washington Group Intl Inc
(SRX) SRA Intl Inc A
(IDNX) Identix Inc
(CPHD) Cepheid Inc
(VRNT) Verint Systems Inc
(MANT) Mantech Intl Corp A
(ACTI) Activcard Corp
(APSG) Applied Signal Technology Inc
(OSIS) OSI Systems Inc
(RAE) Rae Systems Inc
(SINT) SI International Inc
(VISG) Viisage Technology Inc
(HEPH) Hollis-Eden Pharmaceuticals


SecuritySolutionsWatch.com: How do investors go about trading the Index at this time?

Mr. Michael Soni: HSX index options are available for trading through virtually every options broker, including online brokers. It is as easy as trading options on any stock or any other index. Since HSX is listed on the ISE, investors can also execute various spread trading strategies, including butterflies, straddles, strangles, and any other combination up to four legs.

SecuritySolutionsWatch.com: How has the performance been?

Mr. Michael Soni:

HSX performance M-T-D is 2.04%
HSX performance Y-T-D is - 9%.
HSX 1 Year performance is 4.32%
HSX 3 Year performance is 56.14%
HSX 5 Year performance is 13.39%


SecuritySolutionsWatch.com: As the government expands the deployment of biometrics, bomb and chemical detection, and a host of other technologies for security, do you see the enterprise sector becoming a bigger user of these technologies as well. Which companies in your Index might benefit from that?

Mr. Michael Soni: Private sector spending has occurred at a slower rate than some have anticipated. I, along with our partner the Homeland Security Industries Association, believe that private sector spending for homeland security will continue to increase in the years a head, especially as corporations, more and more, become targets of aggression.

Generally, all the companies in the index will benefit from increased spending, from both the government and the private sector, because these are what I would describe as the go to companies as it relates to homeland security solutions.

Biometrics plays in the index are Identix Inc. (NASDAQ:IDNX), Viisage Technology Inc. (NASDAQ:VISG), and to a lesser degree Activcard Corp (NASDAQ:ACTI).

Detection plays in the index are Cepheid Inc. (NASDAQ:CPHD), OSI Systems Inc. (NASDAQ:OSIS), and RAE Systems (NASDAQ:RAE).

Some Cyber Security plays are McAfee Inc (NYSE:MFE), Internet Security Systems (NASDAQ:ISSX), and Check Point Software (NASDAQ:CHKP)

SecuritySolutionsWatch.com: In general, what are the market drivers for the companies in your Index for the next 3 to 5 years?

Mr. Michael Soni: Market drivers are government and private sector spending, geopolitical tension, and trigger events such as terrorist attacks in the US and in Europe.

SecuritySolutionsWatch.com: Thank you very much for your time today, Michael, is there any other subject you would like to talk about?

Mr. Michael Soni: Yes, actually. Due to the newness of the Homeland Security Sector, it exists in a fragmented state. HSX is a great start as it relates to focusing investor attention in this direction, however, much more needs to be done. At CCM, we feel that what we are actually doing is creating infrastructure for the sector. In addition to HSX, another move in that direction is the Homeland Security Sector Report (HSSR), which we have commissioned via our partner Investrend Research, the leading independent research institution in the world, and under the auspices of our other partner, the Homeland Security Industries Association.

The HSSR is an independent, quarterly, comprehensive, and objective sector report. The research found in the HSSR will be completely independent in nature and will provide detailed coverage of the following six Homeland Security Missions and sub-missions; [Intelligence & Warning (Domestic Intelligence, Foreign Intelligence), Border & Transportation Security (Aviation, Maritime, Ground Transport, Land Border), Domestic Counterterrorism (Domestic Prevention, Foreign Prevention), Protection of Critical Infrastructure and Key Assets (Physical Security, Air/Sea Entry Points, Cyber Security), Defense Against Catastrophic Threats (Bioterrorism, Nuclear/Dirty Bomb), and Emergency Preparedness & Response (Preparedness, Mitigation)].

The HSSR will also provide analysis on homeland security spending, market size, growth arenas, the regulatory environment and sector trends. In addition, commentary on Homeland Security technologies such as sensor, screening, biometrics, RFID, cyber-security, and others, will be present.

The 2nd quarter HSSR, including an enrollment-based Company Research Directory (CRD), will be distributed and available- at no cost, to investors through the Investrend Distribution Network on July 19th. The CRD will be comprised of “Spotlight Reports,” which will provide homeland security related companies with independent research and analysis to ensure that their corporate profile is heightened, within the context of widely available independent research coverage.

The “Spotlight Reports”, which comprise the CRD, will present to investors in an easy to read format the Homeland Security business activities of a particular company. This analysis will provide investors with the ability to ascertain the degree and nature of involvement that a particular company has within the Homeland Security Industry.

Thank you.