10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended DECEMBER 31, 2006

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 0-31049

TradeStation Group, Inc.

(Exact name of registrant as specified in its charter)

Florida	65-0977576
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
8050 S.W. 10th Street, Suite 4000, Plantation, Florida	33324
(Address of principal executive offices)	(Zip Code)

954-652-7000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $.01 per share	NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨  Yes    þ  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨  Yes    þ  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ  Yes    ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨                    Accelerated filer  þ                    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ¨  Yes    þ  No

The aggregate market value of voting stock held by non-affiliates as of June 30, 2006 (based upon the closing price of $12.67 per common share as quoted on The NASDAQ Global Select Market on such date), was approximately $343,677,000.

The registrant had 44,755,691 shares of common stock, $.01 par value, outstanding as of March 1, 2007.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrant’s definitive proxy statement to be filed within 120 days after December 31, 2006 in connection with its 2007 annual meeting of shareholders are incorporated by reference in Part III of this report.

TABLE OF CONTENTS

		Page
PART I
ITEM 1.	BUSINESS	1
	Overview and Recent Developments	1
	Industry Background	3
	Products and Services	5
	Sales and Marketing	7
	Strategic Relationships	7
	Technology Development	7
	Customer Services and Support and Training	8
	Competition	9
	Intellectual Property	10
	Government Regulation	11
	Employees	13
	Available Information	14
ITEM 1A.	RISK FACTORS	14
ITEM 1B.	UNRESOLVED STAFF COMMENTS	24
ITEM 2.	PROPERTIES	24
ITEM 3.	LEGAL PROCEEDINGS	24
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	25
PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	26
	Common Stock Information	26
	Dividend Policy	26
	Recent Sales of Unregistered Securities	26
	Share Repurchases	27
ITEM 6.	SELECTED FINANCIAL DATA	28
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	29
	Overview	29
	Critical Accounting Policies and Estimates	32
	Results of Operations	33
	Years Ended December 31, 2006 and 2005	34
	Years Ended December 31, 2005 and 2004	39
	Income Taxes	41
	Variability of Results	42
	Liquidity and Capital Resources	42
	Off-Balance Sheet Arrangements	45
	Recently Issued Accounting Standards	46
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	47
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	48
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	48
ITEM 9A.	CONTROLS AND PROCEDURES	48
ITEM 9B.	OTHER INFORMATION	49
PART III
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	50
ITEM 11.	EXECUTIVE COMPENSATION	50
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	50
	Equity Compensation Plan Information	50
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	51
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	51
PART IV
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	52
SIGNATURES		56

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PART I

ITEM 1. BUSINESS

Overview and Recent Developments

TradeStation Group, Inc., a Florida corporation formed in 2000, is the successor company to a publicly-held trading software company that was formed in 1982. TradeStation Group is listed on The NASDAQ Global Select Market under the symbol “TRAD.” TradeStation Securities, Inc., an online broker-dealer and futures commission merchant, and TradeStation Technologies, Inc., a trading technology company, are TradeStation Group’s two operating subsidiaries. The company’s core product/service, which is offered by TradeStation Securities, is TradeStation, an award-winning, direct market access (DMA) electronic trading platform that enables traders to test and automate “rule-based” trading strategies (both technical and fundamental) across multiple asset classes, namely, equities, equity options, futures and, expected later this year, foreign currencies (forex). The company’s other subsidiary, TradeStation Europe Limited, a United Kingdom private company, authorized and regulated by the UK Financial Services Authority (FSA) as an introducing broker, is in its start-up phase.

TradeStation Securities is a leading online brokerage firm that serves the active trader and certain institutional trader markets, and is the company’s principal operating subsidiary. TradeStation Securities is a member of the New York Stock Exchange (NYSE), NASD, Securities Investor Protection Corporation (SIPC), National Futures Association (NFA), National Securities Clearing Corporation and the Depository Trust Company (together, the Depository Trust & Clearing Corporation or “DTCC”), Options Clearing Corporation (OCC), American Stock Exchange (AMEX), Boston Options Exchange (BOX), Chicago Board Options Exchange (CBOE), Chicago Stock Exchange (CHX), International Securities Exchange (ISE), NYSE ARCA and Philadelphia Stock Exchange (PHLX). TradeStation Securities’ business is also subject to the rules and requirements of the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC) and state regulatory authorities (the firm is registered to conduct its brokerage business in all 50 states and the District of Columbia). TradeStation Securities self-clears most of its equities and equity options business, and uses an established futures clearing firm and an established forex dealer firm to clear its futures and forex business.

The TradeStation electronic trading platform seamlessly integrates powerful strategy trading software tools, historical and streaming real-time market data, and direct-access order-routing and execution. Direct-access (also known as direct market access or DMA) trading means, with respect to equities, equity options, futures and forex transactions, direct Internet connections to electronic marketplaces. These include: for stocks and Exchange Traded Funds (ETFs), electronic communication networks (ECNs), the NYSE’s SuperDOT (for NYSE and other listed securities) and NASDAQ Market Center (for NASDAQ and other listed securities); for futures, electronic futures exchanges such as the Chicago Mercantile Exchange’s (CME’s) Globex and the Chicago Board of Trade’s (CBOT’s) eCBOT; for equity options, electronic options exchanges offered by the AMEX, BOX, CBOE, ISE, NYSE ARCA and PHLX; and, for forex, the electronic inter-bank market or a seamless connection through a dealer system that is itself connected to the electronic inter-bank market. In each of these electronic marketplaces, buyers and sellers (or counterparties) participating on the network are matched, often instantaneously following the placement of their orders. In addition to strategy trading tools, real-time market data and direct-access order execution, the TradeStation electronic trading platform offers state-of-the-art advanced order placement functions, powerful automated and manual order placement capabilities, and numerous advanced charting and analytics features.

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In the Technical Analysis of Stocks and Commodities magazine Readers’ Choice Awards published in February 2007, TradeStation Securities was named, for the third consecutive year, Best Futures Brokerage, and was also named in Stocks & Commodities magazine, for the fifth year in a row, best Direct Access Stock Brokerage, best Institutional Platform, and best Professional Platform.

At December 31, 2006, TradeStation Securities had approximately 31,500 equities, futures and forex accounts, the vast majority of which were equities and futures accounts, as compared to nearly 24,500 accounts at the beginning of 2006. During the 2006 fourth quarter, TradeStation Securities’ brokerage customer account base averaged nearly 63,000 daily average revenue trades (often called “DARTs”), as compared to 49,000 during the 2005 fourth quarter. During 2006, the average TradeStation Securities account made over 500 revenue trades. As of December 31, 2006, the average asset balance of an equities account was approximately $80,000 and the average asset balance of a futures account was approximately $19,000. Total account assets were approximately $1.6 billion.

TradeStation Technologies, one of the company’s other operating subsidiaries, owns all of our intellectual property. A formal patent application covering major aspects of the TradeStation electronic trading platform was filed by TradeStation Technologies with the United States Patent and Trademark Office in October 2001. Final action on this application by the patent office is expected later this year. TradeStation Technologies also filed, early in 2005, a patent application relating to the display and execution of options trades, and owns a patent, issued January 2000 with a priority date of August 1995, that covers methods, computer systems and software that combine or integrate technical and fundamental market data and analysis into a common or unified display. TradeStation Technologies also provides subscription services for TradeStation. The subscription version of TradeStation is an institutional-quality service that offers strategy trading software tools that generate real-time buy and sell alerts based upon the subscriber’s programmed strategies, but does not include order execution. Subscribers are charged a monthly subscription fee. Last year, the TradeStation trading software platform was named, for the fourth year in a row, best Subscription Internet Analytical Platform in the Technical Analysis of Stocks and Commodities magazine Readers’ Choice Awards published in February 2007, as well as, for the third year in a row, best Options Analysis Software, best Trading Systems-Stocks, best Trading Systems-Futures, and best Trading Systems-Options.

In February 2007, Salomon Sredni, the company’s President and Chief Operating Officer since 1999, was promoted to Chief Executive Officer and President, and William and Ralph Cruz, the company’s co-founders, and Co-Chairmen and Co-Chief Executive Officers since 1996, announced that they would be transitioning out of their day-to-day roles with the company by continuing as non-executive Co-Chairmen of the Board of Directors and in an advisory capacity on key projects and initiatives.

Our principal executive offices are located in The TradeStation Building, 8050 S.W. 10^th Street, Suite 4000, Plantation, Florida 33324, and our telephone number is (954) 652-7000.

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THIS REPORT (PARTICULARLY “ITEM 1. BUSINESS,” “ITEM 3. LEGAL PROCEEDINGS” AND “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS”) CONTAINS STATEMENTS THAT ARE FORWARD-LOOKING WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE “ITEM 1A. RISK FACTORS.”

Industry Background

Active Trader Market

An active trader has been defined by Celent Communications in a May 2005 research report as one who trades on average at least 10 times per month, or 120 times per year. Celent believes there are approximately 350,000 active traders under that definition. Celent also defined a broader active trader market, which includes all who trade, on average, at least 50 times per year, and estimates that broader market to include 750,000 to 800,000 traders. That research report also offers an estimate of 100,000 individuals who trade between 500 and 1,000 times per year, and of 30,000 individuals who trade 1,000 times or more a year. Similarly, a November 2005 research report by Fox-Pitt, Kelton characterized active traders as those who tend to trade from 10 to 20 times a month, with account balances in the $25,000 to $75,000 range, and who utilize margin to some degree in their trading. Celent’s May 2005 report estimated that the top 6% of all online brokerage accounts (Celent estimated there to be 25 million online brokerage accounts in 2005, 6% of which equals 1.5 million accounts) make up 56% of all trading and margin revenue for retail brokerage firms serving the active trader market.

The most active traders, the 30,000 or so who, Celent estimates, trade at least 1,000 times a year, are often called “semi-professional” or “hyper-active” traders. These traders are generally considered to be the most profitable portion of the active trader market. Bear, Stearns & Co., in a January 2006 equity research report, defined the semi-professional market as one whose participants trade, on average, nearly 60 times per day (roughly 15,000 trades per trader, per year), and estimated the size of that market at the end of 2005 to be approximately 27,000 traders. According to the Bear Stearns report, those 27,000 or so semi-professional traders made up, in 2005, an estimated 27% of total NYSE and NASDAQ daily share volume and an estimated 77% of total online trade volume. The Bear Stearns report emphasized the importance to this market of multiple asset classes, stating that: “Today, we believe that the biggest focus is on trading multiple asset classes from a single, yet global, platform,” and that traders “are demanding trading platforms that are capable of connecting them to the cash equities markets, the futures markets, the options markets, and the foreign exchange (FX) markets, among others.” The November 2005 Fox-Pitt, Kelton report added that semi-professional traders use highly sophisticated software, often engage with higher stakes, and are much more likely to utilize strategies across asset classes beyond just equities and equity options, such as futures and forex, with trading on margin being prevalent. Richard Bove, a research analyst for Punk Ziegel & Company, goes even further in his January 6, 2006 research report, suggesting that the trading of common stock (cash equities) is no longer a growth business and that the industry is seeking to diversify outside of the equity markets.

It is worth noting that all of the above-mentioned statistics appear to relate solely to equities accounts and equities trade volume, meaning that the futures and forex online trader markets, which are a fraction of the size of the online equities market but are growing, are in addition to the estimates described above.

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The vast majority of active traders are believed to be with “traditional” online brokerage firms (e.g., E*Trade, Fidelity, Schwab and TD Ameritrade). It is generally accepted in the online brokerage industry that 5% to 10% of each large online brokerage firm’s customer base consists of active traders, and that those active traders are responsible for the vast majority of those firms’ trades. Accordingly, nearly all of the large online brokerage firms have tried over recent years to acquire direct-access firms or technology, and more sophisticated trading analysis platforms, in order to retain and grow this most valuable segment of their customer bases.

We believe an online brokerage firm focused on active traders, in order to maximize its potential for successful market penetration, needs to deliver:

• Fast electronic order placement and execution, including both automated and one-click manual order placement capabilities

• State-of-the-art advanced orders capabilities – the ability to use various order-placement features (limits, trailing stops, simultaneous orders, contingency orders, reserve orders, hidden orders, pegged orders, discretionary orders, etc.)

• Intelligent/smart order routing to maximize liquidity and help achieve best execution

• The ability to analyze and trade multiple asset classes (equities, equity options, futures and forex) using the same platform

• Access to most, if not all, major avenues of execution (the major ECNs, NASDAQ Market Center, SuperDOT, Globex, eCBOT, the major electronic options exchanges, etc.)

• Strategy testing and strategy automation capabilities, as well as advanced charting and analysis software tools

• Competitive commission pricing structures for equities, equity options, futures and forex

• Streaming, real-time quotes, including meaningful market depth displays

• Trade desk, customer account and technical support services

• Customer training services

TradeStation Securities offers each of the above-mentioned features.

Institutional Trader Market

We see the institutional trader market, as it relates to potential customer relationships for direct market access brokerage firms like TradeStation Securities, as hedge fund and money managers, commodity trading advisors and commodity pool operators, and registered investment advisers who use short-term trading strategies. According to recent estimates, there are approximately 9,000 hedge funds today, which are estimated to manage up to $1.25 trillion of invested assets, and 8,000 registered investment advisers, which are estimated to manage more than $23 trillion of invested assets. Also, of the largest hedge fund complexes, those with over $1 billion in assets, a majority have funds or commodity pools sponsored, operated or advised by CFTC-registered commodity trading advisors and/or commodity pool operators. The CFTC recently reported that there are approximately 3,250 commodity pools and more than 2,000 registered commodity pool operators.

Many believe that buy side institutional traders have become less and less pleased with Wall Street (traditional sell side brokerage firms) and are moving, to one degree or another, towards using direct market access execution of their trading decisions. The January 2006 Bear Stearns report states that “the impact of financial technology on the securities markets cannot be understated,” noting that “the technologies originally developed to give the ‘day trader’ the ability to trade with professionals is now, ironically, being targeted at institutional customers by most brokerage firms.” According to an April 2004 report by The Tabb Group, institutional “[b]uy side traders now have access to powerful technologies to better understand, manage, and execute trades faster, more efficiently, less expensively, and more effectively than at any point in the past,” and that these technologies offer capabilities “which automatically execute large orders in accordance with a chosen trading strategy.”

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Features and services that are important to many buy side institutional traders include sophisticated decision-support front ends that enable analysis and development of sophisticated rule-based trading strategies, automated strategy trading, intuitive order placement, advanced portfolio/basket trading, multiple account trade allocation, a detailed, flexible order management/portfolio management system (or the ability to integrate with their management systems), and a broad scope of assets (equities, equity options, futures and forex) that can be analyzed and traded using the same platform. TradeStation contains decision-support and automated trading and manual order placement functionality, list/basket trading, multiple account trade allocation, and state-of-the-art direct-access execution services for equities, equity options and futures trading (and soon for forex trading), and continues to work on more advanced portfolio/basket trading features and new order and risk management system compatibilities and features.

Products and Services

Overview – TradeStation

Our main product/service offering is the TradeStation electronic trading platform, complete with electronic order execution services, for self-directed, active, including semi-professional, traders and certain segments of the institutional buy side trader market. TradeStation does not provide investment or trading advice or recommendations, or recommend the use of any particular strategy, but rather enables the trader to design, test, optimize and automate his own, custom trading strategies. TradeStation is a registered trademark in the United States, Australia, Canada, the European Union, Indonesia, Korea, Singapore, South Africa and Taiwan.

In addition to offering the TradeStation electronic trading platform to the brokerage customers of our TradeStation Securities subsidiary, we offer, through our TradeStation Technologies subsidiary, TradeStation subscriptions. The difference between the TradeStation electronic trading platform and the TradeStation subscription service is that the subscription service does not include order execution or account management capabilities.

TradeStation has, since its initial release as a strategy trading software program in 1991, been our flagship product. From 1996 until October 2001 it was marketed worldwide to institutional traders on a monthly subscription basis by Telerate, Inc. as a premium tool for the Telerate data feed service. It has also served, and continues to serve, as a strategy trading platform for numerous third-party trading software applications. Its state-of-the-art technology empowers the trader to design and develop a rule-based trading strategy based upon the trader’s objective rules and criteria, test the potential profitability of that trading strategy against historical data, and then computer-automate it to monitor the applicable market and alert the trader in real-time (or instantaneously place the trade order) when the criteria of the trading strategy have been met and an order should, therefore, be placed. The principal features of TradeStation that enable the trader to design and develop trading strategies are EasyLanguage and the PowerEditor. EasyLanguage is a proprietary computer language we developed consisting of English-like statements and trading terms which can be input by the trader to describe particular objective rules and criteria. The PowerEditor is a compiler of EasyLanguage statements that provides the trader with considerable flexibility to modify and combine different trading rules and criteria, which ultimately result in the design of the trader’s trading strategies. EasyLanguage and PowerEditor are also registered trademarks.

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Brokerage Services

TradeStation Securities’ principal offering today is online brokerage services, covering equities (principally stocks and ETFs), equity options, futures (including futures options) and forex transactions, through the TradeStation electronic trading platform. Equities, equity options and futures are all direct market access offerings, and a direct market access offering for forex is expected to be launched later this year. TradeStation Securities’ targeted customer base for brokerage services includes active, including semi-professional, traders and certain institutional traders, such as hedge fund and money managers and investment advisors who use short-term trading strategies. In addition to providing online services through the TradeStation electronic trading platform, the brokerage firm offers personal support services by its registered trade-desk representatives who execute customers’ orders through direct-access order execution systems if the customer is for some reason unable or unwilling to place the order using his or her own computer.

Having a “direct-access” order execution system, whether accessed directly by the brokerage customer through the TradeStation electronic trading platform or by a TradeStation Securities broker on behalf of the brokerage customer, means that both the online services and the firm’s trading desks are directly connected to electronic equities, equity options and futures market centers. This system often results in the simplest, most direct and speediest execution of orders at the best available price. With respect to pit-traded futures contracts, TradeStation is directly connected to its futures clearing agent’s online execution system, which sends the order directly to the trading pit. Approximately 98% of the company’s futures trades are on the electronic futures exchanges. With respect to forex deals, the TradeStation electronic trading platform is currently directly connected to a third-party forex dealer’s online deal system, which then electronically places the forex orders, but the company plans to launch a “direct-access” forex offering later this year.

TradeStation Securities self-clears for its active trader equity securities accounts. Institutional accounts for equity securities and futures are carried on a “fully disclosed” basis by the brokerage’s clearing agents or are given order execution services on a “delivery vs. payment / receipt vs. payment (DVP/RVP) basis for equities, or a “give-up” basis for futures, in either case with the orders cleared and settled by the client’s prime brokerage firm. All individual futures accounts are carried on a “fully-disclosed” basis by the brokerage’s futures clearing agent. TradeStation Securities executes its customers’ securities and futures transactions on an agency basis only, as opposed to a principal basis. That is, it acts as the agent for its customers directly in the market. When brokerage firms perform transactions on a principal basis, they are permitted to accept a customer’s order to purchase, purchase the securities in the market for the brokerage firm, and then sell the securities to the customer. TradeStation Securities does not do this. It always charges only an agreed-upon commission and never earns income from marking up or marking down its customers’ securities or futures transactions. For forex deals, an unaffiliated forex dealer firm acts as principal/counterparty for, and clears, all deals with the company’s forex customers.

Software Products and Services

In December 2000, we launched the TradeStation electronic subscription service. The TradeStation electronic subscription service includes our award-winning strategy trading features and functions, streaming real-time charts and quotes, streaming news, state-of-the-art analytical charting, and all other features included in the TradeStation electronic trading platform other than trade order placement and other trading or brokerage-related features or services. Effective May 1, 2006, the TradeStation electronic subscription service was offered to new subscribers at the monthly rate of $249.95 and to legacy customers who had “upgraded” at a monthly rate of $179.95. We evaluate our approach to subscription fee pricing on an ongoing basis, which may result in different

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price offerings during 2007. TradeStation (both as a subscription service and as a brokerage account trading platform) also offers our OptionStation and RadarScreen functions and features. OptionStation, also an award-winning technology, is an options trading analysis product for equity, index and futures options that enables traders to explore options trading strategies. RadarScreen enables traders to scan securities markets to identify potential buying or selling opportunities based upon the traders’ own trading strategies.

We ceased marketing our legacy software products in May 2000 and ceased marketing our subscription software services in December 2000. Accordingly, in 2004, 2005 and 2006, and, we expect, for the foreseeable future, our brokerage operations produced and should continue to produce the majority of our revenues. In 2004, 2005 and 2006, revenues from brokerage services (consisting primarily of brokerage commissions and fees and net interest income) accounted for approximately 86%, 89% and 92%, respectively, of our total consolidated net revenues, and software products and services accounted for approximately 14%, 11% and 8%, respectively, of our total consolidated net revenues over that three-year period.

Sales and Marketing

Our marketing in 2006 consisted principally of print advertising in Active Trader, Futures, SFO, and Technical Analysis of Stocks & Commodities magazines, direct mail and e-mail, sales seminars, and our Web sites, and television advertising on financial news channels. The mix and frequency of television, print, Web-site, direct-mail and in-person marketing methods that we use to try to achieve results will likely be continually modified as we test such methods and mixtures and analyze and interpret the results.

Revenues derived from customers outside of the United States for the years ended December 31, 2006, 2005 and 2004, were approximately 11%, less than 10% and approximately 12%, respectively. International revenues are collected in U.S. dollars. We conduct no marketing, sales or other operations, and maintain no assets, outside of the United States, other than relating to our start-up operations in London via our United Kingdom subsidiary, TradeStation Europe Limited.

Strategic Relationships

Clearing Services. Our brokerage’s clearing services for institutional securities accounts, and for all futures accounts, are currently provided by Bear, Stearns Securities Corp. and R.J. O’Brien & Associates, Inc., respectively, pursuant to industry-standard clearing agreements.

Forex Deal Services. Our forex deal services are currently provided through an arrangement with GAIN Capital Group, Inc. Forex customers design, test, optimize and automate their forex strategies using TradeStation, then, when a deal order is to be placed, the customer connects directly to GAIN Capital’s online deal system, and places the order. GAIN Capital is the counterparty/principal for each forex deal.

Technology Development

We believe that our success depends, in large part, on our ability to offer unique, Internet-based trading technologies with state-of-the-art order execution technologies, and continuously enhance those technologies, as well as develop and implement well-designed and user-friendly Web sites. To date, we have relied primarily on internal development of our products and services. We

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currently perform all quality assurance and develop user education and other training materials internally. In 2006, 2005 and 2004, technology development expenses were approximately $5.2 million, $4.5 million and $4.4 million, respectively. As of December 31, 2006, our technology development team was comprised of 85 people, as compared to 80 as of December 31, 2005, a 6.3% increase.

We view our technology development cycle as a four-step process to achieve technological feasibility. The first step is to conceptualize in detail the defining features and functions that we believe our targeted market requires from the product or service, and to undertake a cost-benefit analysis to determine the proper scope and integration of such features and functions. Once the functional requirements of the product or service have been determined, the second step is to technically design the product or service. The third step is the detailed implementation, or engineering, of this technical design. The fourth step is rigorous quality assurance testing to ensure that the final product or service generally meets the functional requirements determined in the first step. Several refinements are typically added and tested in the quality assurance phase of development. Once this process is completed, technological feasibility has been achieved and the working model is available for release to our customers.

The market for strategy trading software tools, streaming real-time market data and news services, and online order execution services is characterized by: rapidly changing technology; evolving industry standards in computer hardware, programming tools and languages, operating systems, database technology and information delivery systems; changes in customer requirements; and frequent new product and service introductions and enhancements, as well as technical consolidation of products and services. Our success will depend, in part, upon our ability to develop and maintain competitive technologies and to develop and introduce new products, services and enhancements in a timely and cost-effective manner that meets changing conditions such as evolving customer needs, existing and new competitive product and service offerings, emerging industry standards, changing technology, and increased capacity and stability requirements as we grow our business and as minimum customer acceptability standards for capacity and stability increase in our industry. There can be no assurance that we will be able to develop, introduce and market, on a timely basis, if at all, products, services or enhancements that respond to changing market conditions or that will be accepted by customers. Any failure by us to anticipate or to respond quickly to changing market conditions, or any significant delays in the introduction of new products and services or enhancements, could cause customers to delay using, or decide against the use of, our products and services and could have a material adverse effect on our business, financial condition and results of operations.

Customer Services and Support and Training

We provide customer services and support and product-use training in the following ways:

Customer Services and Support. Telephone account and technical support service is provided to brokerage customers through a trained customer service team. Advanced EasyLanguage consulting services (services that technically assist customers in the use of EasyLanguage to write the customers’ own trading strategies) are available from internal resources and from unaffiliated, independent EasyLanguage consultants. A substantial amount of technical support information is also provided on our Web sites.

Product-use Training. We consider user education important to try to help our customers increase their abilities to use our products and services fully and effectively. The majority of our training materials consist of extensive online documentation and technical assistance information on our Web sites, including online tutorials, as well as in-person training seminars, so that our

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customers may learn to use and take full advantage of the sophisticated technology of the TradeStation electronic trading platform. The TradeStation.com Support Center includes access to an interactive community for active traders who engage or have interest in the development, testing and use of objective trading strategies. The community provides numerous discussion forums on a variety of topics related to strategy development and technical trading, as well as TradeStation product and service features, articles about trading from industry leaders, and a “library” of strategy indicators, rules and components written in our proprietary EasyLanguage, many of which are donated by third parties.

Competition

The market for online brokerage services is intensely competitive and rapidly evolving, and there appears to be substantial consolidation in the industry in three different ways. First, there has been over the past several years and continues to be consolidation of three types of services that traditionally were offered separately: online brokerage services; real-time market data services; and trading analysis software products and services. With the TradeStation electronic trading platform, we have embraced this consolidation by offering all three of these services in a fully-integrated, seamless manner. Second, we believe consolidation is occurring in the four major online execution markets for active traders – equities, equity options, futures and forex – meaning that, contrary to specializing in offering services for only one of those market instruments, more and more firms are offering or plan to offer three or four of those services. With our offering of online trading services for all four of these markets, we have embraced this consolidation as well. Third, as a result of price pressure, unused infrastructure capacity at the largest online brokerage firms, and the desire of the larger firms to acquire sophisticated electronic trading technologies, there have been numerous acquisitions in our industry, mostly by larger firms that are seeking to increase their ability to compete on both quality and price.

We believe that competition, as well as consolidation, will continue to increase and intensify in the future. We believe our ability to compete will depend upon many factors both within and outside our control, including: price pressure; the timing and market acceptance of new products and services and enhancements developed by us and our competitors; our ability to design and support efficient, materially error-free Internet-based systems; market conditions, such as recession and volatility; the size of the active trader market today and in the future; the extent to which institutional traders are willing to use electronic brokerage services offered by firms that have traditionally served mostly retail customers; product and service functionality; data availability and cost; clearing costs; ease of use; reliability; customer service and support; and sales and marketing decisions and efforts.

We face direct competition from several publicly-traded and privately-held companies, principally online brokerages and futures commission merchants, including providers of direct-access order execution services. Our competitors include the many online brokerages currently active in the United States, some of which offer both equities and futures brokerage services, including Banc of America Investment Services, Charles Schwab & Co. (including CyberTrader), E*Trade Securities, Fidelity Brokerage Services, Interactive Brokers, Merrill Lynch Direct, OptionsXpress, Redi Products - a division of Spear, Leeds & Kellogg (which is owned by Goldman Sachs), Scottrade Financial Services, TD Ameritrade, and Townsend Analytics (which is owned by Lehman Brothers). Those brokers currently serve, in the aggregate, more than 90% of existing online accounts, and many are focused on attracting and retaining active traders. Many online brokerages currently claim to offer direct-access service. Even though we are rated as one of the

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best online brokerage firms in the United States, there can be no assurance that we will be able to maintain such ratings, be rated that highly in the future, compete effectively with our competitors, adequately educate potential customers about the benefits our products and services provide, or continue to offer such products and services.

Many of our existing and potential competitors, which include large, online discount and traditional national brokerages and futures commission merchants, and financial institutions that are focusing more closely on online services, including electronic trading services for active traders, have longer operating histories, significantly greater financial, technical and marketing resources, greater name recognition and a larger installed customer base than do we. Further, there is the risk that larger financial institutions which offer online brokerage services as only one of many financial services may decide to use extremely low commission pricing or free trades as a “loss leader” to acquire and accumulate customer accounts and assets to derive interest income and income from their other financial services. We do not offer other financial services, and have no plans to do so; therefore, such pricing techniques, should they become common in our industry, could have a material, adverse effect on our results of operations, financial condition and business model.

Generally, competitors may be able to respond more quickly to new or emerging technologies or changes in customer requirements or to devote greater resources to the development, promotion and sale of their products and services. There can be no assurance that our existing or potential competitors will not develop products and services comparable or superior to those developed and offered by us or adapt more quickly to new technologies, evolving industry trends or changing customer requirements, or that we will be able to timely and adequately complete the implementation, and appropriately maintain and enhance the operation, of our business model. Recently, some of our larger competitors have been adding or emphasizing rule-based or strategy trading products and features to the active trader market, including comparison advertisements with our active trader offering. Increased competition could result in price reductions, reduced margins, failure to obtain any significant market share, or loss of market share, any of which could materially adversely affect our business, financial condition and results of operations. There can be no assurance that we will be able to compete successfully against current or future competitors, or that competitive pressures faced by us will not have a material adverse effect on our business, financial condition and results of operations.

Intellectual Property

Our success is and will be heavily dependent on proprietary software technology, including certain technology currently in development. We view our software technology as proprietary, and rely, and will be relying, on a combination of copyright, trade secret and trademark laws, nondisclosure agreements and other contractual provisions and technical measures to establish and protect our proprietary rights. We also have formal patent applications pending for the TradeStation trading platform, and own a patent that covers product features that have recently been incorporated into TradeStation. With respect to the pending patent applications, there can be no assurance that we will obtain patents broad enough in scope to have value, or obtain them at all. We also have registered copyright rights in our EasyLanguage dictionary and documentation and TradeStation software.

We have obtained trademark registrations for the TradeStation mark in the United States, Australia, Canada, the European Union, Indonesia, Korea, Singapore, South Africa and Taiwan. We have obtained registrations for the OptionStation mark in the United States, Canada and the European Union. We have obtained registrations for the EasyLanguage mark in the United States and the European Union. We have obtained registrations in the United States for the marks ActivityBar, PositionGraphs, PowerEditor, ProbabilityMap, ProSuite, RadarScreen, Test Before You Trade and other marks.

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We use an online subscription agreement for our Internet trading software and data services between TradeStation Technologies and each of the users (whether the users are brokerage customers or monthly subscribers) in order to protect our copyrights and trade secrets and to prevent such users from commercially exploiting such copyrights and trade secrets for their own gain. Since these licenses are not physically signed by the licensees, it is possible their enforceability is limited under certain state laws and the laws of many foreign jurisdictions.

Despite our efforts to protect our proprietary rights, unauthorized parties copy or otherwise obtain, use or exploit our software or technology independently. Policing unauthorized use of our software technology is difficult, and we are unable to determine the extent to which piracy of our software technology exists. Piracy can be expected to be a persistent problem, particularly in international markets and as a result of the growing use of the Internet. In addition, effective protection of intellectual property rights may be unavailable or limited in certain countries, including some in which we may attempt to expand sales efforts. There can be no assurance that the steps taken by us to protect our proprietary rights will be adequate or that our competitors will not independently develop technologies that are substantially equivalent or superior to ours.

There has been substantial litigation in the software industry involving intellectual property rights. We do not believe that we are infringing, or that any technology in development will infringe, the intellectual property rights of others. However, there can be no assurance that infringement claims will not be asserted by our competitors or others, and, if asserted, there can be no assurance that they would not have a material adverse effect on our business, financial condition and results of operations.

To the extent that we acquire or license a portion of the software or data included in our products or services from third parties (some data and software are licensed from third parties), or market products licensed from others generally, our exposure to infringement actions may increase because we must rely upon such third parties for information as to the origin and ownership of such acquired or licensed software or data technology. Software patent infringement cases in financial service industries are becoming more frequent, and we may be subject to litigation to defend against claimed infringement of the rights of others or to determine the scope and validity of the intellectual property rights of others. In the future, litigation will likely be necessary to establish, define, enforce, defend and protect patents, trade secrets, copyrights, trademarks and other intellectual property rights. Any such litigation would likely be costly and divert management’s attention, which could have a material adverse effect on our business, financial condition and results of operations. Adverse determinations in such litigation could result in the loss of proprietary rights, subject us to significant liabilities, require us to seek licenses from third parties, which could be expensive, or prevent us from selling our products or services or using our trademarks, any one of which could have a material adverse effect on our business, financial condition and results of operations.

Government Regulation

Our brokerage subsidiary, TradeStation Securities, is subject to extensive securities and futures industry regulation under both federal and state laws as a broker-dealer with respect to its equities and equity options business and as a futures commission merchant with respect to its futures and forex business. Broker-dealers and futures commission merchants are subject to regulations covering all

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aspects of those businesses, including: sales methods; trade practices; use and safe-keeping of customers’ funds and securities; clearing, processing and settlement of trades, and arrangements with clearing houses, exchanges and clearing corporations; capital structure; cash deposit or escrow requirements (or their equivalent); record keeping; conduct of directors, officers and employees; and supervision. To the extent TradeStation Securities solicits orders from customers or makes investment recommendations, it is subject to additional rules and regulations governing, among other things, sales practices and the suitability of recommendations to its customers.

TradeStation Securities’ mode of operation and profitability may be directly affected by: additional legislation; changes in rules promulgated by the SEC, NASD, NYSE, CFTC, NFA, the Board of Governors of the Federal Reserve System, DTCC, OCC, various securities and futures exchanges, and other self-regulatory associations and organizations; and changes in the interpretation or enforcement of existing rules and laws, particularly any changes focused on online brokerages that target an active trader customer base.

With respect to active trading, the NASD has adopted rules that require firms to provide customers with a risk disclosure statement about active trading. Further, the NASD and NYSE’s margin rules impose more restrictive requirements for “pattern” active traders. Governmental concern is focused in two basic areas: that the customer has sufficient trading experience and that the customer has sufficient risk capital to engage in active trading. A minimum equities account balance of $25,000 is required. TradeStation Securities’ customer account documentation specifies that being a brokerage customer of TradeStation Securities is only for traders who have experience in active trading, are willing to risk considerable amounts of capital (at least $50,000), and are interested in engaging in high-risk, short-term, speculative trading activity. We believe our brokerage firm’s minimum account opening requirements, as well as the extensive user education documentation and tutorials offered on our Web site, are consistent with both the letter and the spirit of current rules and regulations concerning active trading.

TradeStation Europe Limited, which was formed to introduce brokerage customers from the European Union to TradeStation Securities, is authorized and regulated by the FSA, and, in using its European “passport” to conduct such business throughout the European Union, is subject to the marketing, solicitation and other customer protection rules in effect in each European Union country in which it conducts such business.

The SEC, NASD, NYSE, CFTC, NFA, FSA and other self-regulatory associations and organizations (SROs) and state and foreign securities commissions and agencies can censure, fine, enjoin, suspend, expel or issue cease-and-desist orders to a broker-dealer or futures commission merchant or any of its officers or employees. For information about certain pending SRO inquiries and actions, see Item 3 – Legal Proceedings.

Marketing campaigns by TradeStation Securities to bring brand name recognition to its services and to promote the benefit of those services, such as the TradeStation electronic trading platform and its various features, are regulated by the NASD and NFA, and all marketing materials must be reviewed by an appropriately-licensed TradeStation Securities principal prior to release, and must conform to standards articulated by the SEC, NASD and NFA. The NASD or NFA may request that revisions be made to marketing materials, and can impose certain penalties for violations of its advertising regulations, including censures or fines, a requirement of advance regulatory approval of all advertising, the issuance of cease-and-desist orders, and the suspension or expulsion of a broker-dealer or futures commission merchant or any of its officers or employees.

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The SEC, NASD, NYSE, CFTC, NFA, DTCC and OCC and various other regulatory associations and organizations have stringent rules with respect to the maintenance of specific levels of net capital or cash deposit requirements and reserves by securities broker-dealers and futures commission merchants. Net capital is the net worth of the regulated company (assets minus liabilities), less deductions for certain types of assets as well as other charges. If a firm fails to maintain the required net capital it must cease conducting business and, if it does not do so, it may be subject to suspension or revocation of registration by the SEC or the CFTC and suspension or expulsion by the NASD, NYSE or NFA, and it could ultimately lead to the firm’s liquidation.

TradeStation Securities is registered as a broker-dealer in every U.S. state and the District of Columbia, and is subject to regulation under the laws of those jurisdictions, including registration requirements and being subject to sanctions if a determination of misconduct is made.

TradeStation Securities is a member of the SIPC. SIPC provides protection of up to $500,000 for each securities account brokerage customer, subject to a limitation of $100,000 for cash balances, in the event of the financial failure of a broker-dealer. For securities brokerage accounts the custody and trade clearing of and for which are handled by TradeStation Securities, an excess securities bond through HSBC Insurance Brokerage Limited, as agent of Lloyd’s of London, provides protection for any loss of securities and/or cash in excess of primary SIPC protection, up to $300 million in the aggregate (and up to $24.5 million per any one account). Based upon the asset size per account and in the aggregate of TradeStation Securities’ securities account customer base as of the date of this report, this excess-SIPC protection, combined with primary SIPC protection, should be more than adequate to cover the loss of 100% of those customer assets in the very unlikely event that TradeStation Securities experienced financial failure and all customer assets were somehow lost. To the extent TradeStation Securities clears its securities brokerage transactions through Bear, Stearns Securities Corp. (which, currently, it does only for institutional accounts), Bear, Stearns has obtained an excess securities bond that provides protection for any loss of securities and/or cash in excess of the primary SIPC protection. Neither SIPC nor excess-SIPC coverage applies to fluctuations in the market value of securities or any losses other than those directly caused by the financial failure of the broker-dealer, or to futures or forex accounts.

It is possible that other federal or state agencies will attempt to regulate our current and planned online and other electronic service activities with rules that may include compliance requirements relating to record keeping, data processing, other operation methods, privacy, pricing, content, and quality of goods and services as the market for online commerce evolves. Given the continuing growth of the electronic commerce market, federal or state authorities may enact additional laws, rules or regulations, not only with respect to online brokerage services, but to other online services we provide or may in the future provide. Such laws, rules and regulations, if and when enacted, could have a material adverse effect on our business, financial condition, results of operations and prospects.

Employees

As of December 31, 2006, we had 302 full-time equivalent employees, consisting of 104 in brokerage operations (which include clearing and account services, trade desk service and client service, including technical support), 85 in technology development (including software engineering, product management, user education and quality assurance), 64 in sales and marketing relating to

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brokerage services, subscriptions and software products (including 52 in sales and 12 in marketing and fulfillment), and 49 in general and administrative (including executive management, finance, information technology services, compliance and human resources). Our employees are not represented by any collective bargaining organization, and we have never experienced a work stoppage and consider our relations with our employees to be good.

Our future success depends, in significant part, upon the continued service of our key senior management and technology development personnel. The loss of the services of one or more of these key employees could have a material adverse effect on us. There can be no assurance that we will be able to retain our key personnel. Departures and additions of personnel, to the extent disruptive, could have a material adverse effect on our business, financial condition and results of operations.

Available Information

We offer access to our corporate TradeStation Group Web site via www.tradestation.com. We make available free of charge through our Web site this Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. We also make available, through our Web site, statements of beneficial ownership filed by our directors, officers, shareholders who own more than 10% of our issued and outstanding capital stock, and others under Section 16 of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such material is filed with, or furnished to, the Securities and Exchange Commission.

ITEM 1A. RISK FACTORS

The Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this report, as well as the preceding “Business” section of this report, should be read and evaluated together with the issues, uncertainties and risk factors relating to our business described below. While we have been and continue to be confident in our business and business prospects, we believe it is very important that anyone who reads this report consider these issues, uncertainties and risk factors, which include business risks relevant both to our industry and to us in particular. These issues, uncertainties and risk factors are not intended to be exclusive. Issues, uncertainties and risk factors are also included in other sections of this report when specifically relevant to a statement we have made about an aspect of our business, or our financial condition or results of operations.

This report also contains statements that are forward-looking within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this report, the words “anticipate(s),” “anticipated,” “anticipation,” “assume(s),” “assumption(s),” “become(s),” “belief(s),” “believe(s),” “believed,” “could,” “designed,” “estimate,” “estimates,” “estimated,” “expect(s),” “expected,” “expectation(s),” “going forward,” “future,” “hopeful,” “hope(s),” “intend(s),” “intended,” “look forward,” “may,” “might,” “opportunity,” “opportunities,” “outlook(s),” “pending,” “plan(s),” “planned,” “potential,” “scheduled,” “shall,” “should,” “think(s),” “to be,” “upcoming,” “well-positioned,” “will,” “wish,” “would,” and similar expressions, if and to the extent used, are intended to identify the forward-looking statements.

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All forward-looking statements are based on current expectations and beliefs concerning future events that are subject to risks and uncertainties, including the risks and uncertainties described below and elsewhere in this report. Actual results may differ materially from the results suggested in this report. Factors that may cause or contribute to such differences, and our business risks and uncertainties generally, include, but are not limited to, the items described below, as well as those described in other sections of this report, our other public filings and our press releases.

There Are Several Factors That May Cause Fluctuations In Our Quarterly Operating Results, Which Could Result In Significant Volatility In Our Stock Price

Quarterly revenues and operating results of TradeStation Group have fluctuated significantly in the past, and our quarterly revenues and operating results are likely to fluctuate in the future. Causes of such significant fluctuations may include, but are not limited to:

• general economic and market factors that affect active trading and brokerage revenues, including trade volume, market volatility, market direction or trends, the level of confidence and trust in the markets, and seasonality (summer months and holiday seasons typically being slower periods), and changes in interest rates – a significant and growing portion of our revenues is interest income, and increases or decreases in short-term rates may have a material impact on our revenues and net income;

• market or competitive pressure to lower commissions and fees charged to customers (our competitors continue to reduce their online brokerage commissions and we have recently announced a reduction in our futures commission pricing), or to reduce or eliminate monthly platform fees paid by brokerage customers (we have recently, on more than one occasion, materially reduced the trading activity thresholds our brokerage clients need to meet to qualify for a waiver of monthly platform fees), or to reduce interest rates charged to customers for margin loans or to increase the interest rates used to credit customers’ account cash balances;

• the quality and success of, and potential continuous changes in, sales or marketing strategies (which continue to evolve), including the effects of our recent decisions to change the structure of, and reduce, our futures commission pricing and to lower materially the trade activity thresholds that need to be met for a brokerage customer’s $99.95 monthly platform fee to be waived;

• technical difficulties, errors and/or failures in our electronic and software products, services and systems relating to market data, order execution and trade processing and reporting, and other software or system errors and failures (there have been several market data and order execution outages recently, the causes of which we have been working to correct, as well as failures to perform on the part of the brokerage firm’s back-office system vendor), any of which could result in a business or legal requirement to issue large credit amounts to customers, loss of accounts, reduced trading activity, loss of or diminished reputation and recognition in the industry, increased monetary costs and diversion of internal resources, regulatory inquiries, fines and sanctions, and other material adverse consequences (also, we do not maintain a seamless, redundant back-up system to our order execution systems, which could materially intensify the negative consequences described above);

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• pending or potential third-party claims or regulatory matters that turn out to be significantly more costly, in terms of both judgment or settlement amounts and legal expenses (or the refusal or failure of our insurer to make payments), or fines, than we currently estimate or expect, including, but not necessarily limited to, the two remaining claims filed in 2003 by the co-founders of the predecessor company to TradeStation Securities against the company, certain of its executive officers and directors and certain family partnerships owned by the two former Co-Chief Executive Officers (which seek, in the aggregate, tens of millions of dollars in damages), and pending issues relating to NASD OATS reporting, NYSE OTS reporting, and NASD short sale procedures;

• acquisitions of businesses, assets, accounts or similar transactions relating to company growth or strategies, which may significantly impact future financial results, our balance sheet and our cash position depending upon the type and size of any such transaction;

• variations from our expectations with respect to hiring and retention of personnel, sales and marketing expenditures, product development, customer account growth, customer trading activity and the share volume of customer trades, or other revenue or expense items;

• the ability to collect unsecured accounts receivable that may arise from time to time in the ordinary course of business or otherwise;

• the timing and success of our planned 2007 launch of a seamless forex trading platform;

• the success or lack thereof of the company’s new product feature that enables the design, testing and automation of fundamental data strategies;

• costs, material shifts in cash requirements and/or adverse financial consequences that may occur with respect to clearing organization, clearing agent and/or exchange requirements, or regulatory issues, including exchange, clearing agent or clearing organization cash deposit requirements, reserve and settlement requirements and other financial requirements;

• if revenues are lower than budgeted expectations (as a result of lower-than-expected share volume, brokerage accounts, assets per equity account or daily average trades or other reasons), the negative effects of such lower revenues to our bottom line, including our inability to make in a timely fashion commensurate expense reductions (as a large amount of our expenses do not vary with revenues in the short term);

• changes in demand for our products and services due to the rapid pace at which new technology is offered to customers in our industry;

• the size and frequency of any trading errors or unsecured brokerage account debit balances for which we may ultimately suffer the economic burden, in whole or in part (including losses from third-party claims that may arise from time to time – since June 1, 2002, we have not carried errors or omissions insurance for third-party claims);

• the appeal of our products and services to the forex and institutional markets (given our limited experience selling to those markets), and the cost of technology development and sales, marketing, compliance, technical, administrative and other infrastructure that may be required to improve our chances of success in those markets;

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• the appeal of our products and services to markets outside of the United States (principally Europe), given our lack of experience selling to markets outside of the United States, our success (or lack of success) in developing or enhancing products or services that may be more attractive to non-US traders, and the costs, including sales, marketing, compliance, administrative and development, that may be required to improve our chances of success in those markets; and

• the effect of any decision to suspend or terminate the company’s current share buy back plan.

Conditions In The Securities And Financial Markets May Affect Our Rates Of Customer Acquisition, Retention And Trading Activity, And Level of Interest Income

Our products and services are, and will continue to be, designed for customers who trade actively in the securities and financial markets. To the extent that interest in active trading, or trading generally, decreases due to low trading volumes, lack of volatility, significant downward movement in the securities or financial markets, or negative market sentiment, or future tax law changes, recessions, depressions, wars, terrorism (including “cyberterrorism”), or otherwise, our business, financial condition, results of operations and prospects could be materially, adversely affected. Unfavorable market conditions have, historically, seemed to severely negatively impact the share price of publicly-held online brokerage firms, and also usually result in more losses for our customers, which could result in increases in quantity and size of errors or omissions or other claims that may be made against us by customers. We do not currently carry any errors or omissions insurance that might cover, in part, some of those potential claims. See “The Nature Of Our Business Results In Potential Liability To Customers” below.

Also, we derive a significant portion of our brokerage revenues from interest income on customers’ credit balances and account borrowings. Therefore, changes in interest rates or in the size of such balances and borrowings, depending upon the extent of the change, could materially change, positively or negatively (depending upon the direction of the change) the amount of our interest income.

Our Industry Is Intensely Competitive, Which Makes It Difficult To Attract And Retain Customers

The markets for online brokerage services, trading software tools, and real-time market data services are intensely competitive and rapidly evolving, and there has been substantial consolidation of those three products and services in the industry, as well as consolidation of the types of financial instruments (equities, equity options, futures, forex) offered by firms. There has also been consolidation of online brokerage firms generally, as well as intense price competition. We believe that competition from large online and other large brokerage firms and smaller brokerage firms focused on active traders, as well as consolidation, will continue. Recently, some of our larger competitors have been adding or emphasizing rule-based or strategy trading products and features to the active trader market, including comparison advertisements with our active trader offering. Competition may be further intensified by the size of the active trader market, which is generally thought to be comprised of less than 10% of all online brokerage accounts. We believe our ability to compete will depend upon many factors both within and outside our control. Factors outside of our control include: price pressure (on transactional commissions, monthly platform fees and interest rates offered to customers for both credit balances and account borrowings); the timing and market acceptance of new products and services and enhancements developed by our competitors (including strategy back-testing and automation capabilities); market conditions, such as recession; the size of

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the active trader market today and in the future; the extent to which institutional traders are willing to use electronic brokerage services from firms that have traditionally served mostly retail customers; data availability and cost; and exchange and third-party clearing costs. Factors over which we have more control, but which are subject to substantial risks and uncertainties with respect to our ability to effectively compete, include: timing and market acceptance of new products and services and enhancements we develop; our ability to meet changing market demands for a unified, integrated trading platform that offers customers the ability to trade and manage portfolios containing multiple asset classes; our ability to design, improve and support materially error-free and sufficiently robust Internet-based systems; ease-of-use of our products and services; reliability of our products and services; and pricing decisions and other sales and marketing decisions and efforts (we have recently reduced futures commission pricing and our monthly platform fee waiver thresholds).

Systems Failures May Result In Our Inability To Deliver Accurately, On Time, Or At All, Important And Time-Sensitive Services To Our Customers

The online electronic trading platform we provide to our customers is based upon the integration of our sophisticated front-end software technology with our equally-sophisticated, Internet-based server farm technology. Our server farm technology is the foundation upon which online trading customers receive real-time market data and place buy and sell orders. However, in order for this technology to provide a live, real-time trading platform, it requires integration with real-time market data, which are currently provided directly by the exchanges or by systems of independent third-party market data vendors (who obtain the data directly from the exchanges), the electronic order book systems of ECNs and electronic systems offered by the exchanges, the clearing and back-office systems we license from SunGard for self-clearing and of the clearing agents we use for trades that we do not self-clear, and the forex deal order placement, settlement and back-office systems of or licensed to the forex dealer firm which is responsible for all of our customers’ forex trades. Accordingly, our ability to offer a platform that enables the development, testing and automation of trading strategies and the placement, execution, clearing and settlement of buy and sell orders depends heavily on the effectiveness, integrity, reliability and consistent performance of all of these systems and technologies. In particular, the stress that is placed on these systems during peak trading times could cause one or more of these systems to operate too slowly or fail. Outages and other system failures may also be caused by natural disasters and other events and circumstances beyond our control.

We have experienced several delays and outages since we launched our online trading platform, many of which related to data vendor, clearing agent, exchange and ECN outages or issues which are beyond our control. There have also been several market data and order execution outages recently, as well as failures to perform on the part of the brokerage firm’s back-office system vendor. Any major system failure or outage (or series of frequent failures or outages), regardless of the cause, could result in a business or legal requirement to issue large credit amounts to customers, loss of accounts, reduced trading activity, loss of or diminished reputation and recognition in the industry, increased monetary costs and diversion of internal resources, regulatory inquiries, fines and sanctions, and other material adverse consequences. Also, we do not maintain a seamless, redundant back-up system to our order execution systems, which could materially intensify these negative consequences.

Additionally, as a general matter not applicable only to our company, the integrity of these types of systems may be attacked by persons sometimes referred to as “hackers” who intentionally introduce viruses or other defects to cause damage, inaccuracies or complete failure. Also, “cyberterrorism,” should it occur, may significantly affect people’s willingness to use Internet-based services, particularly ones that involve their personal or company’s assets.

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During a system outage or failure, our brokerage may be able to take orders by telephone; however, only associates with appropriate licenses, knowledge and experience can accept telephone orders, and an adequate number of associates likely would not be available to take customer calls in the event of a system outage or failure. System delays, errors, outages and failures, depending upon how serious and how often they occur, could have a material adverse effect on our business, financial condition, results of operations and prospects. See “The Nature Of Our Business Results In Potential Liability To Customers” below.

The Loss Of Key Employees Could Decrease The Quality Of Our Management And Operations – Most Recently, The Company’s Co-Founders, Co-Chairmen and Co-CEOs Have Announced They Are Transitioning Out of Their Day-To-Day Roles And Will No Longer Serve As Executive Officers

Our success depends to a very significant extent on the continued availability and performance of a number of senior management and product development personnel. The loss of one or more of these key employees could have a material adverse effect on our company. In particular there may be adverse consequences to the company and/or its operations as a result of the recent change in company senior management roles, which included the transition of William and Ralph Cruz, the company’s co-founders and co-chairmen, out of their day-to-day senior management roles as Co-CEOs. The causes of potential adverse consequences may include changes in management styles or decisions that produce less favorable results than would have been produced under the prior management structure.

We Are Exposed to Credit Risk

We make margin loans to clients collateralized by client securities, and borrow securities to cover trades. In fact, nearly all of our clients’ accounts are margin, as opposed to cash, brokerage accounts. A portion of our net revenues is derived from interest on margin loans. To the extent that these margin loans exceed client cash balances maintained with us, we must obtain financing from third parties. We may not be able to obtain this financing on favorable terms or in sufficient amounts. By permitting clients to purchase securities on margin, we are subject to risks inherent in extending credit, especially during periods of rapidly declining markets in which the value of the collateral substantially decreases in proportion to the amount of a client’s indebtedness. While we have implemented additional risk-management procedures designed to reduce this risk, there can be no assurance that we will not experience periodic or frequent unsecured account debits that materially and adversely affect our results of operations. In addition, in accordance with regulatory guidelines, we collateralize borrowings of securities by depositing cash or securities with lenders. Sharp changes in market values of substantial amounts of securities and the failure by parties to the borrowing transactions to honor their commitments could have a material, adverse effect on our revenues and profitability.

The Nature Of Our Business Results In Potential Liability To Customers

Many aspects of the securities, futures and forex brokerage business, including online trading services, involve substantial risks of liability. In recent years there has been a high incidence of litigation involving the securities and futures brokerage industry, including both class action and individual suits and arbitrations that generally seek substantial damages, including in some cases punitive damages. Our proprietary order routing technology, in addition to offering charting, trade analysis and trade execution

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services of various kinds, is designed to automatically locate, with immediacy, the best available price in the appropriate market in completing execution of a trade triggered by programmed market entry and exit rules. There are risks that the electronic communications and other systems upon which these products and services rely, and will continue to rely, or our products and services themselves, as a result of flaws or other imperfections or limitations in their designs or performance, may operate too slowly, fail, cause confusion or uncertainty to the user, or operate or produce results not understood or intended by the user. An investor or trader using either our full electronic trading platform or our subscription service might claim that investment or trading losses or lost profits resulted from use of a flawed version of one of our trading software tools or systems, or inaccurate assumptions made by the trading software tools regarding data, or inaccurate data. Major failures of this kind may affect all customers who are online simultaneously. Any such litigation could have a material adverse effect on our business, financial condition, results of operations and prospects. We do not currently carry any errors or omissions insurance that might cover, in part, some of the above-described risks. While our contracts with customers are, we believe, clear that customers who do business with us must knowingly assume all of the risks described above, there can be no assurance that a judge, arbitrator or regulator would enforce or honor such contractual provisions. See “Conditions In The Securities And Financial Markets May Affect Our Rates Of Customer Acquisition, Retention And Trading Activity, And Level of Interest Income” and “Systems Failures May Result In Our Inability To Deliver Accurately, On Time, Or At All, Important And Time-Sensitive Services To Our Customers” above.

Dependence Upon Outside Data Sources And Clearing Relationships Creates Risks Outside Of Our Control Which May Affect Our Ability To Provide, And Our Cost To Provide, Market Data And Clearing And Account Services

Our business is currently dependent upon our ability to maintain contracts with private market and news data vendors and clearing and dealer firms in order to provide certain market data and news, and clearing and account services, respectively, to our customers. We currently obtain NYSE, AMEX, NASDAQ, regional equities exchange, Options Price Reporting Authority (OPRA), CME, CBOT, New York Mercantile Exchange/ Commodities Exchange (NYMEX/COMEX), New York Board of Trade (NYBOT), OneChicago and EUREX futures real-time market data directly from those exchanges, and real-time market depth displays directly from ECN book services, but obtain other market data (such as forex data) and news pursuant to non-exclusive licenses from private data vendors who in turn obtain the data from exchanges or other sources. Clearing and back-office account services for our brokerage customers are obtained from established clearing agents and, with respect to our self-clearing operations, our software system licensing agreement with SunGard. For our forex services, we rely on a third-party forex dealer firm for all trade activity account services. The data and news contracts typically provide for royalties based on usage or minimums, the clearing contracts provide for transactional clearing fees and charges, and the contract with the forex dealer provides for sharing a fixed amount of the spread made by the forex dealer in each deal. There can be no assurance that we will be able to renew or maintain contracts or acceptable clearing cost or vendor fee rates. In fact, in 2003 we needed to quickly change our futures clearing agent in response to a substantial increase in our clearing costs imposed by our former futures clearing agent. Changes (or, in some cases, the failure or inability to make changes) in our relationships with one or more of these third parties, or involuntary termination of one or more of those relationships, could have a material adverse effect on our business, financial condition, results of operations and prospects.

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We May Be Subject To Intellectual Property Litigation

There has been substantial litigation in the software industry involving intellectual property rights. Although we do not believe that we are or will be infringing upon the intellectual property rights of others, there was recently an infringement claim asserted against us and eight other online brokerage firms by a company named Datamize, Inc., which could have had a material adverse effect on our business, financial condition, results of operations and prospects if it was successful (we settled the suit in December 2004 for an amount immaterial to our financial statements). Such a case, as well as any other infringement case that may be brought against us, could result in our being unable to use intellectual property which is integral to our business.

We May Not Be Able To Adequately Protect Or Preserve Our Rights In Intellectual Property

Our success is and will continue to be heavily dependent on proprietary technology, including existing trading software, Internet, Web-site and order-execution technology, and those types of technology currently in development. We view our technology as proprietary, and rely, and will be relying, on a combination of copyright, trade secret and trademark laws, nondisclosure agreements and other contractual provisions and technical measures to protect our proprietary rights. We also have pending patent applications covering the TradeStation electronic platform, but we do not yet know if the patents will be issued. Policing unauthorized use of our products and services is difficult, however, and we may be unable to prevent, or unsuccessful in attempts to prevent, theft, copying or other unauthorized use or exploitation of our product and service technologies. There can be no assurance that the steps taken by us to protect (or defend) our proprietary rights will be adequate or that our competitors will not independently develop technologies that are substantially equivalent or superior to our technologies or products and services.

Self-Clearing Equity Trades For Active Trader Accounts Has Risks

Self-clearing operations for our active trader equities accounts began in September 2004 and for options trades began in March 2005. Prior to the September conversion of clearing services, all of our customers’ equities trades were cleared through Bear Stearns, as our clearing agent, which also provided to our active trader clients its short sale borrowing inventory. Cost savings and efficiencies of self-clearing may in future periods turn out to be less favorable than we expect as a result of unanticipated increased fixed, infrastructure or incremental costs, mistakes or other factors. Further, errors made by us related to the confirmation, receipt, settlement and delivery functions involved in securities transactions, the custody and control of client securities and other assets, or otherwise relating to the handling of our clients’ securities and funds, could lead to civil penalties and increased deposit and other requirements by governmental and self-regulatory organizations, as well as losses and liability in lawsuits relating to client accounts affected by such errors. Also, our savings may be more than offset by account losses or reduced trading activity if we experience difficulties in providing to our clients sufficient short sale borrowing inventory or if any self-clearing mistakes or failures occur which undermine our customers’ or prospects’ confidence in our ability to conduct reliable self-clearing operations. Also, our self-clearing back-office operations rely on the Phase3 self-clearing software licensed to us by SunGard, and our business would likely suffer substantial harm if that software fails, fails to be adequately supported by SunGard, or otherwise causes unintended results.

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We May Need Cash In The Foreseeable Future

While we anticipate having sufficient cash to meet our needs over the next 12 months, our future liquidity and capital requirements will depend upon numerous factors, including: the rate of customer acceptance of our products and services, including the number of new brokerage accounts acquired and the number and volume of trades made by our brokerage customers; the effect of price reductions; price competition that may result in our continuing to charge lower commissions and fees to customers; significant, increased infrastructure and operating costs as our business grows, large cash or security deposits (which were $20.2 million as of March 1, 2007, and which are expected to increase as our business grows); increased net capital or excess net capital requirements and unanticipated reserve and settlement requirements; unanticipated costs relating to our planned forex service offering; costs of technology development and sales, marketing, compliance, technical and administrative operations relating to increased and intensified pursuit of institutional customers; substantial legal costs and/or unexpected unfavorable outcomes in lawsuits and arbitrations currently pending against us; and competing technological and market developments. Funds, if and when needed, may be raised through debt financing and/or the issuance of equity securities, there being no assurance that any such type of financing on terms satisfactory to us will be available or otherwise occur. Any equity financing or debt financing which requires issuance of equity securities or warrants to the lender, or any securities litigation settlement or judgment that requires issuance of equity securities to the claimants, would reduce the percentage ownership of the shareholders of the company. Shareholders also may, if issuance of equities occurs, experience additional dilution in net book value per share, or the issued equities may have rights, preferences or privileges senior to those of existing shareholders.

Operation In A Highly-Regulated Industry And Compliance Failures May Result In Severe Penalties And Other Harmful Governmental Or SRO Actions Against Us

The securities and commodity futures industries are subject to extensive regulation covering all aspects of those businesses. Regulation of forex dealer and brokerage services is increasing as well. The various governmental authorities and industry SROs that supervise and regulate our brokerage firm have broad enforcement powers to censure, fine, suspend, enjoin, expel or issue cease-and-desist orders to our brokerage firm or any of its officers or employees who violate applicable laws or regulations. Additionally, rules relating specifically to active traders have been enacted and more may be enacted which severely limit the operations and potential success of our business. For example, about six years ago, the NYSE and NASD required brokerage firms to establish systems that enabled them to identify “pattern day traders” and to ensure that those types of accounts maintained higher minimum account balances and stricter margin maintenance requirements. In a more recent example, in January 2005 new “short sale” rules promulgated by the SEC became effective that could have materially, adversely affected our ability to provide quality short sale brokerage services to our equities brokerage customers. Our ability to comply with all applicable laws and rules is largely dependent on our brokerage’s maintenance of compliance and reporting systems, as well as its ability to attract and retain qualified compliance and other operations personnel and enter into suitable contractual relationships with appropriate vendors, lenders and counterparties. We currently have pending issues relating to NASD OATS reporting, NYSE OTS reporting, and NASD short sale procedures that could have negative consequences for our brokerage. In general, our brokerage could be subject to disciplinary or other regulatory or legal actions, fines and penalties in the future due to noncompliance.

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Our Brokerage Must Meet Net Capital And Other Financial Requirements As A Broker-Dealer That, If Not Satisfied, Could Result In Severe Penalties Or Other Negative Consequences, And Which At All Times Limit Our Right To Use All Of The Brokerage’s Cash

The SEC, the NASD, the CFTC, the NFA, the DTCC (i.e., NSCC and DTC), the OCC, certain exchanges and other regulatory and self-regulatory agencies or organizations have stringent rules with respect to the maintenance of specific levels of net capital by securities broker-dealers and futures commission merchants, large, fluctuating cash deposit requirements, and reserve, settlement and other financial requirements. Net capital is the net worth of the regulated company (assets minus liabilities), less deductions for certain types of assets as well as other charges. If a firm fails to maintain the required net capital it may be subject to suspension or revocation of registration by the SEC or CFTC and suspension or expulsion by the NASD or NFA, and it could ultimately lead to the firm’s liquidation. If such net capital rules are changed or expanded, or if there is an unusually large charge against net capital, operations that require the use of capital would be restricted. Also, our ability to withdraw capital from our TradeStation Securities brokerage subsidiary is subject to SEC rules, which in turn could materially impact our available working capital and materially impact or limit our ability to repay debt as and when due, redeem or purchase shares of our outstanding stock, if required or desirable, and pay dividends in the future. A large operating loss or charge against net capital could adversely affect our ability to expand or even maintain our then present levels of business, which could have a material adverse effect on our business, financial condition, results of operations and prospects. See “We May Need Cash In The Foreseeable Future” above.

There Are Risks Relating To Our Ability To Maintain Customer Privacy And Security And That Increased Government Regulation Of Internet Business May Occur

Customers may refuse to transact business over the Internet, particularly business, such as ours, that involves the handling of significant amounts of customers’ funds, due to privacy or security concerns. This risk will grow if, as and to the extent “cyberterrorism” occurs or is perceived to be a viable, prominent threat or likelihood to occur (or recur on a regular basis). We do incorporate security measures into our privacy policies. However, no assurances can be made that a breach of such measures will not occur, and a major breach of customer privacy or security could have serious consequences for our Internet-based operations, which are central to our business. Use of the Internet, particularly for commercial transactions, may not continue to increase as rapidly as it has during the past few years as a result of privacy or security concerns, or for other reasons. If this occurs, the growth of our operations would be materially hindered. If Internet activity becomes heavily regulated in these respects or otherwise, that could also have significant negative consequences for the growth of our current and planned operations.

Control Of TradeStation Group By The Cruzes Means That Important Decisions Affecting The Company Are Concentrated In The Judgment Of Two Related Individuals

As of March 1, 2007, affiliates of William R. Cruz and Ralph L. Cruz (the non-executive Co- Chairmen of our company) owned approximately 37% of the outstanding shares of our common stock, and we believe that no other shareholder or related group owned more than 7%. Therefore, the Cruzes have significant control over TradeStation Group on matters subject to shareholder approval, including the election of our Board of Directors and any merger, consolidation or sale of all or substantially all of TradeStation Group’s assets that may be proposed.

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ITEM 1B. UNRESOLVED STAFF C OMMENTS

Not applicable.

ITEM 2. PROPERTIES

We have a ten-year lease expiring in August 2012 (with two 5-year renewal options) that commenced in the summer of 2002 for an approximately 70,000 square-foot corporate headquarters in Plantation, Florida. Plantation is just west of Ft. Lauderdale, Florida (Broward County). This headquarters consolidated the personnel and operations of our former Miami and Boca Raton offices.

Our brokerage operations were formerly headquartered from 11,800 square feet of office facilities in Boca Raton, Florida pursuant to a lease that expired in February 2007. All of this space was subleased through February 2007 at lease rates significantly lower than the rates we paid.

Our brokerage operations include a 10,400 square foot branch office in Chicago, Illinois, pursuant to a lease that expires at the end of February 2012.

Our technologies subsidiary has an approximately 13,500 square foot leased facility in Richardson, Texas from which certain technology development and technical operations are conducted. A portion of those facilities serve as a branch office for TradeStation Securities. That lease expires July 31, 2007. We also lease exclusive rack space for our data server farms at two sites, one in Richardson, Texas (which is currently month-to-month) and one in Chicago, Illinois (expiring in August 2007).

Our United Kingdom subsidiary leases a two-room office in London, England, pursuant to a License that expires following 90 days written notice by either party.

We believe that our facilities are adequate to support our current operations and that, if needed, we will be able to obtain suitable additional facilities on commercially reasonable terms.

ITEM 3. LEGAL PROCEEDINGS

Three lawsuits were filed in 2003 by former principal owners of onlinetradinginc.com corp. (the predecessor of TradeStation Securities) against TradeStation Group, certain of its directors and executive officers and certain family partnerships owned by the two former Co-Chief Executive Officers. On July 25, 2003, Benedict S. Gambino, from whom the company, as of October 18, 2002, purchased 2,417,000 shares of its common stock in a private transaction, filed a lawsuit against the company and three of its executive officers, William R. Cruz, Ralph L. Cruz and Marc J. Stone, in the Circuit Court of Broward County, State of Florida. This lawsuit’s allegations included violation of the Florida Securities and Investor Protection Act, common law fraud, negligent misrepresentation, breach of fiduciary duty and breach of contract. On August 18, 2003, Andrew A. Allen Family Limited Partnership (owned and controlled by Andrew A. Allen), from whom the company, as of November 26, 2002, purchased 1,000,000 shares of its common stock in a private transaction, filed a lawsuit against the same defendants in the same court. This lawsuit’s allegations include violation of the Florida Securities and Investor Protection Act, common law fraud, breach of fiduciary duty, negligent misrepresentation and fraudulent inducement. On August 28, 2003, Farshid Tafazzoli and E. Steven zum Tobel filed a lawsuit against the company, William and Ralph Cruz, family partnerships owned and controlled by William and Ralph Cruz, Mr. Stone, Charles

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Wright and David Fleischman in the Circuit Court of Miami-Dade County, State of Florida. Mr. Tafazzoli’s claims relate to his family partnership’s sale, as of May 1, 2002, of 3,000,000 shares of company common stock to family partnerships owned by William and Ralph Cruz, and Mr. zum Tobel’s claims relate to his family partnership’s sale, as of May 3, 2002, of 133,942 shares of company common stock to Charles Wright. This lawsuit’s allegations include violation of the Florida Securities and Investor Protection Act, common law fraud and breach of fiduciary duty. Each of the three lawsuits has sought rescission of the share purchases and/or compensatory damages, plus interest, costs and attorneys’ fees.

The Tafazzoli/zum Tobel case is well into the discovery phase of litigation and, in the Allen case, the discovery phase has been completed, plaintiff’s motion to amend its complaint to add a claim for punitive damages was denied, and a trial has tentatively been scheduled for May 2007. The Gambino case has been settled and, pursuant to the settlement agreement dated November 3, 2006, was dismissed with prejudice. The Gambino settlement is not material to our consolidated financial position, results of operations or cash flows in any period.

We continue to believe all of the claims in the remaining two cases are baseless; however, no assurances can be given that a judge or jury will agree with our assessment.

TradeStation Securities is also engaged in routine regulatory matters and civil litigation or other dispute resolution proceedings, including matters which are currently pending relating to NASD OATS reporting, short sales procedures and short interest reporting, and two pending NASD arbitrations, incidental to, and part of the ordinary course of, its business. The NASD regulatory matters could ultimately result in censures, sanctions, fines and other negative consequences.

While no assurances can be given, we do not believe that the ultimate outcome of any of the above legal matters or claims will result in a material adverse effect on our consolidated financial position, results of operations or cash flows.

We decided, as of June 1, 2002, to no longer carry errors or omissions insurance that covers third-party claims made by brokerage customers or software subscribers as a result of alleged human or system errors, failures, acts or omissions. This decision was made based upon our assessment of the potential risks and benefits, including significant increases in premium rates, deductibles and coinsurance amounts, reductions in available per occurrence and aggregate coverage amounts, and the unavailability of policies that sufficiently cover the types of risks that relate to our business. We recently reviewed this insurance with insurance agents and our view remains unchanged.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of 2006.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock Information

Our common stock, par value $.01 per share, is listed on The NASDAQ Global Select Market under the symbol “TRAD.” The high and low closing sales prices based on actual transactions on The NASDAQ Global Select Market during each of the quarters presented were as follows:

	Closing Sales Price
	High		Low
2005:
First Quarter	$	7.05	$	5.73
Second Quarter		8.78		6.23
Third Quarter		10.14		8.70
Fourth Quarter		13.68		9.49
2006:
First Quarter	$	17.69	$	13.19
Second Quarter		16.17		11.99
Third Quarter		15.80		11.38
Fourth Quarter		16.39		13.10
2007:
First Quarter (through March 1, 2007)
	$	13.56	$	11.66

As of March 1, 2007, there were 77 holders of record of our common stock, and, based upon information previously provided to us by depositories and brokers, we believe there are more than 13,000 beneficial owners.

Divi dend Policy

We intend to retain future earnings to finance our growth and development and therefore do not anticipate paying any cash dividends in the foreseeable future. Payment of any future dividends will depend upon our future earnings and capital requirements and other factors we consider appropriate. We did not distribute any dividends during the years ended December 31, 2006, 2005, or 2004.

Recent Sales of Unregistered Securities

During the three months ended December 31, 2006, we did not issue or sell any unregistered securities. In January and February 2007, we issued to 250 employees (including 6 executive officers) and one consultant options to purchase an aggregate 372,350 shares of common stock. Such options vest ratably in annual increments over a five-year period and are exercisable at $12.43 or $13.12 per share, which were the closing prices of our stock on the dates the options were granted. All of the options were granted under the Incentive Stock Plan in the ordinary course, and expire, if they remain unexercised, on the tenth anniversary of the date on which they were granted.

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We also issued 152,439 restricted shares of common stock to Salomon Sredni, our Chief Executive Officer, in connection with and at the time of his promotion to that position in February 2007. The restricted shares, which had a fair market value of $2.0 million, were granted as a stock award under the Incentive Stock Plan and vest ratably in annual increments over a five-year period. If Mr. Sredni’s employment terminates prior to full vesting (other than by reason of death or disability), he will automatically forfeit, and the company will reacquire, the unvested shares for no consideration. Vesting accelerates 100%, automatically, in the event of Mr. Sredni’s death or disability, or a change in control of the company.

All the foregoing options were issued by us in reliance upon the exemption from registration available under Section 4(2) of the Securities Act of 1933, as amended. The 152,439 restricted shares were issued by us pursuant to our effective registration statement on Form S-8.

Share Rep urchases

In October 2006, our Board of Directors authorized, and we announced, the use of up to $60 million of our available and unrestricted cash, over a four-year period, to repurchase shares of our common stock in the open market or through privately-negotiated transactions. The stock repurchases are authorized to be made pursuant to a Rule 10b5-1 plan. The four-year period commenced on November 13, 2006 and ends on November 12, 2010. Pursuant to the buy back plan, $1,250,000 of company cash during each full calendar month (and prorated amount during the first and last months) of the four-year period (i.e., $15 million per 12-month period and $60 million for the four-year period) has been authorized to be used to purchase company shares at prevailing prices, subject to compliance with applicable securities laws, rules and regulations, including Rules 10b5-1 and 10b-18. The buy back plan does not obligate us to acquire any specific number of shares in any period, and may be modified, suspended, extended or discontinued at any time without prior notice.

The following table sets forth information on our common stock buy-back program for the quarter ended December 31, 2006:

	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plan	Approximate dollar value of shares that may yet be purchased under the plan
November 2006	49,250	$	15.22	49,250	$	59,250,000
December 2006	90,150		13.86	139,400		58,000,000
Total	139,400		14.34

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ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction with “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” and the Consolidated Financial Statements and Notes thereto included in this report. The Consolidated Statement of Income Data presented below for the years ended December 31, 2006, 2005 and 2004, and the Consolidated Balance Sheet Data as of December 31, 2006 and 2005, have been derived from our Consolidated Financial Statements included on pages F-1 through F-34 of this report, which have been audited by Ernst & Young LLP, an independent registered public accounting firm. The Consolidated Statement of Income Data presented below for the years ended December 31, 2003 and 2002, and the Consolidated Balance Sheet Data as of December 31, 2004, 2003 and 2002, have been derived from audited financial statements not included in this report. See also Note 17 of Notes to Consolidated Financial Statements - UNAUDITED QUARTERLY FINANCIAL INFORMATION for quarterly unaudited financial information for fiscal years 2006 and 2005.

	YEAR ENDED DECEMBER 31
	2006		2005		2004		2003			2002
	(In thousands, except per share data and footnotes)
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenues:
Brokerage commissions and fees	$	78,829	$	65,953	$	56,506	$	48,128		$	36,348
Interest income		44,587		24,490		6,358		3,054			2,352
Brokerage interest expense		4,635		3,513		710		—			—
Net interest income		39,952		20,977		5,648		3,054			2,352
Subscription fees		8,584		8,120		8,125		7,033			6,639
Other		1,181		1,949		1,989		2,258			3,414
Net revenues		128,546		96,999		72,268		60,473			48,753
Expenses:
Employee compensation and benefits		29,379		23,027		20,324		18,186			20,170
Clearing and execution		26,107		20,097		18,885		17,895			11,243
Data centers and communications		6,453		5,714		5,905		5,183			5,969
Advertising		4,315		3,830		2,737		1,325			2,659
Professional services		3,411		2,987		2,414		730			661
Occupancy and equipment		2,549		2,641		2,470		2,394			2,744
Depreciation and amortization		2,508		1,771		1,979		2,256			2,854
Other		3,854		4,415		2,741		1,611			685
Total expenses		78,576		64,482		57,455		49,580			46,985
Income before income taxes		49,970		32,517		14,813		10,893			1,768
Income tax provision (benefit)		18,951		11,451		119		(731	)		4
Net income	$	31,019	$	21,066	$	14,694	$	11,624		$	1,764
Earnings per share:
Basic	$	0.70	$	0.49	$	0.35	$	0.29		$	0.04
Diluted		0.67		0.48		0.33		0.27			0.04
Dividends declared per share		—		—		—		—			—
Weighted average shares outstanding:
Basic		44,591		42,728		41,658		40,467			43,328
Diluted		45,972		44,177		44,317		43,390			43,386

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	DECEMBER 31
	2006		2005		2004		2003		2002
	(In thousands, except footnotes)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents (1)	$	74,539	$	75,102	$	32,111	$	30,485	$	16,060
Cash segregated in compliance with federal regulations (2)		417,501		426,062		347,095		532		350
Receivables from brokers, dealers, clearing organizations and clearing agents		34,867		36,033		19,404		527		751
Receivables from brokerage customers, net		77,022		58,133		56,985		—		—
Deposits with clearing organizations and clearing agents		20,180		11,243		14,498		—		—
Total assets		649,087		615,134		479,676		38,001		22,618
Capital lease obligations (3)		—		—		8		194		1,382
Shareholders’ equity		118,205		82,521		49,325		29,746		12,393

(1) Includes restricted cash of $1.4 million, $1.7 million, $1.9 million, $2.2 million, and $3.1 million at December 31, 2006, 2005, 2004, 2003, and 2002, respectively. See Note 15 of Notes to Consolidated Financial Statements – COMMITMENTS AND CONTINGENCIES – Restricted Cash. Based upon the year-end calculation of Cash Segregated in compliance with federal regulations (see below), Cash and cash equivalents may increase or decrease on the second business day subsequent to year end. On January 3, 2007, Cash and cash equivalents increased by $7.6 million. On January 4, 2006, $9.5 million of the $75.1 million of Cash and cash equivalents was transferred to cash segregated in compliance with federal regulations. On January 4, 2005, Cash and cash equivalents was increased by $4.0 million. See Note 2 below.

(2) On the second business day of each month, if required, this amount is adjusted based upon the month-end calculation. On January 3, 2007, the December 31, 2006 cash segregated in compliance with federal regulations of $417.5 million was decreased by $7.6 million to $409.9 million. On January 4, 2006, the $426.1 million of cash segregated in compliance with federal regulations as of December 31, 2005 was increased by $9.5 million to $435.6 million. On January 4, 2005, the December 31, 2004 cash segregated in compliance with federal regulations of $347.1 million was decreased by $4.0 million to $343.1 million.

(3) Capital lease obligations are included in “Accrued expenses” in the Consolidated Balance Sheets.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion should be read in conjunction with the Selected Financial Data and the Consolidated Financial Statements and Notes to Consolidated Financial Statements contained in this report and the Risk Factors set forth in Item 1A of this report.

Overv iew

TradeStation Group, Inc., a Florida corporation formed in 2000, is the successor company to a publicly-held trading software company that was formed in 1982. TradeStation Group is listed on The NASDAQ Global Select Market under the symbol “TRAD.” TradeStation Securities, Inc., an online broker-dealer and futures commission merchant, and TradeStation Technologies, Inc., a trading technology company, are TradeStation Group’s two operating subsidiaries. The company’s core product/service, which is offered by TradeStation Securities, is TradeStation, an award-winning, direct market access (DMA) electronic trading platform that enables traders to test and automate “rule-based” trading strategies (both technical and fundamental) across multiple asset classes, namely, equities, equity options, futures and, expected later this year, foreign currencies (forex). The company’s other subsidiary, TradeStation Europe Limited, a United Kingdom private company, authorized and regulated by the UK FSA as an introducing broker, is in its start-up phase.

TradeStation Securities is a leading online brokerage firm that serves the active trader and certain institutional trader markets, and is the company’s principal operating subsidiary. TradeStation Securities is a member of the NYSE, NASD, SIPC, NFA, DTCC,

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OCC, AMEX, BOX, CBOE, CHX, ISE, NYSE ARCA and PHLX. TradeStation Securities’ business is also subject to the rules and requirements of the SEC, CFTC and state regulatory authorities (the firm is registered to conduct its brokerage business in all 50 states and the District of Columbia). TradeStation Securities self-clears most of its equities and equity options business, and uses an established futures clearing firm and an established forex dealer firm to clear its futures and forex business.

TradeStation Securities’ revenues consist primarily of transactional commissions and fees (including monthly platform fees) and interest derived from customer balances and margin lending to customers. With respect to monthly platform fees (a $99.95 charge made to less active brokerage customers for being granted access to use the TradeStation trading platform), beginning September 1, 2005 we launched a series of strategic marketing initiatives, the most recent as of November 1, 2006, which have reduced materially the trading activity thresholds that need to be met to qualify for a waiver of the monthly platform fee. Effective December 1, 2005, we also launched a strategic marketing initiative designed to attract high-volume futures traders – a change from our one-price-fits-all futures commission structure to a tiered commission structure that rewards more active traders with lower pricing. Under the revised pricing structure, the commission charged over the applicable exchange fee ranges from $1.20 down to 25 cents per contract (per side). We believe such marketing initiatives contributed to our account growth during 2006; however, we cannot measure specifically how many accounts have been added because of these initiatives. The latest reduction in trading activity thresholds required to qualify for a waiver of the monthly platform fee (the one effective November 1, 2006), assuming no benefits from additional account growth or trading, was a decrease in monthly revenues of approximately $100,000 and monthly net income by approximately $62,000.

Beginning in September 2004, TradeStation Securities commenced equities self-clearing operations for its active trader client base and commenced omnibus clearing of its standardized equity option trades through Broadcort, a division of Merrill Lynch. Beginning March 29, 2005, following issuance of its membership in the OCC, TradeStation Securities commenced full self-clearing of its standardized equity options trades for its active trader client base and terminated Broadcort’s clearing services. Self-clearing has provided substantial cost savings and efficiencies. TradeStation Securities currently clears institutional account securities trades through Bear, Stearns Securities Corp. on a fully-disclosed basis, or provides order execution services on a DVP/RVP basis with the orders cleared and settled by the client’s prime brokerage firm. Futures trades are cleared through R.J. O’Brien & Associates on a fully-disclosed basis, and for certain institutional futures accounts, order execution services are provided on a “give-up” basis with the orders cleared and settled by the client’s prime brokerage firm. Forex trades, through July 15, 2005, were cleared through R.J. O’Brien Foreign Exchange, and subsequent to July 15, 2005, through Gain Capital Group, Inc., each on a fully-disclosed basis (Bear, Stearns Securities Corp., Broadcort, R.J. O’Brien & Associates, R.J. O’Brien Foreign Exchange, and Gain Capital Group, Inc. are collectively referred to as “clearing agents” or “clearing agent firms”). In connection with an extension of its futures clearing agreement (which was set to expire December 31, 2005) and the agreement with its new forex clearing agent, TradeStation Securities began receiving in July 2005 materially more favorable interest-sharing and clearing fee/deal-spread sharing arrangements. These benefits are not based on growth in trading volume or any other contingency.

Effective January 1, 2006, a brokerage account has been defined as an account that either has a positive asset balance of at least $200 or has had activity within the past 180 days. In other words, an account is deemed inactive and is not included in counting total brokerage accounts if it has less than a $200 balance and has had no activity within the past 180 days. The effect of this modified account definition was a net positive adjustment of 511 accounts as of January 1, 2006 (i.e., a positive adjustment to the number

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of futures and forex accounts exceeded a negative adjustment to the number of equities accounts by 511). Periods prior to 2006 have not been and will not be restated to reflect the modification to the definition. As of December 31, 2006, TradeStation Securities had 31,502 equities, futures and forex accounts (the vast majority of which were equities and futures accounts), a net increase of 7,018 accounts, or 29%, when compared to the 24,484 accounts (as adjusted) as of January 1, 2006.

During the year ended December 31, 2006, TradeStation Securities’ brokerage customer account base averaged 60,706 daily average revenue trades (often called “DARTs”), an increase of 42% when compared to 42,714 during 2005. The following table presents certain brokerage metrics and account information:

	For the Years Ended December 31,						% Change
	2006		2005		2004		2006 vs. 2005		2005 vs. 2004
Daily average revenue trades (DARTs)		60,706		42,714	33,270		42	%	28	%
Client Trading Activity – Per Account
Annualized trades		512
Annualized net revenue per account	$	4,147
	As of
	Dec 31, 2006		Jan 1, 2006		% Change
Client Account Information
Total brokerage accounts		31,502		24,484	29	%
Average assets per account – equities	$	79,998	$	85,196	(6	)%
Average assets per account – futures	$	19,034	$	17,424	9	%

We compute DARTs as follows: For equities and equity options, a revenue trade included to calculate DARTs is a commissionable trade order placed by the customer and executed, regardless of the number of shares or contracts included in the trade order. For futures and forex, a revenue trade included to calculate DARTs is one round-turn commissionable futures contract traded, or one round-turn lot (or forex deal) traded, regardless of the number of individual orders made and executed (i.e., one futures or forex order may contain numerous contracts or deals, but each round-turn contract and deal is counted as a separate revenue trade). When viewing our DARTs, it should be taken into account that, for equities and equity options, we charge commissions based on share volume and number of contracts traded (and not by revenue trade used to calculate DARTs). For futures, we charge commissions on a per contract basis (so each futures revenue trade included to calculate DARTs represents a round-turn commissionable contract traded). It should be noted that all DARTs are not equal. The revenue we derive from each revenue trade depends on the asset in question (equities, equity options, futures, forex – each has a different per unit revenue structure), and, within each asset class, revenue per equity, contract or deal varies to the extent higher volume traders receive more favorable pricing, which they often do.

TradeStation Technologies, the company’s other operating subsidiary, owns all of our intellectual property. TradeStation Technologies also provides subscription services for TradeStation. The subscription version of TradeStation is an institutional-quality service that offers strategy trading software tools that generate real-time buy and sell alerts based upon the subscriber’s programmed strategies, but does not include order execution. Subscribers are charged a monthly subscription fee.

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We also have a United Kingdom subsidiary, TradeStation Europe Limited, which is currently in its start-up phase. In February 2006, TradeStation Europe became authorized by the United Kingdom’s FSA to act as a Securities and Futures Firm in the United Kingdom to introduce accounts to TradeStation Securities. The FSA category of authorization is “ISD Category D Arranger,” meaning that TradeStation Europe may now solicit and introduce UK clients who are active, experienced traders to its US affiliate for equities, options, futures and forex account services. In February 2007, TradeStation Europe obtained its European “passport” pursuant to which the company may use its FSA authorization to qualify to conduct similar business throughout the European Union.

Critical Accounting Policies and Estimates

Our significant accounting policies are described in Note 2 of Notes to Consolidated Financial Statements included in this report – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Brokerage Commissions and Fees and Net Interest Income. Brokerage commissions and fees and net interest income are the key components of our results of operations and are comprised mainly of: (i) brokerage commissions and fees earned from securities, futures and forex transactions and, to a lesser extent, monthly platform fees earned from brokerage customers using the TradeStation online trading platform; and (ii) net interest earned and paid from self-clearing operations (primarily interest earned on brokerage customer cash balances and interest earned from brokerage customer margin debit balances), interest revenue sharing arrangements with clearing agent firms, and interest on corporate cash and cash equivalents. Brokerage commission income and related clearing costs are recorded on a trade date basis as transactions occur. Platform fees are recorded on an accrual basis as monthly services are provided. Interest revenue and interest expense are recorded on an accrual basis as interest is earned or incurred.

Income Taxes. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes, deferred income tax assets should be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Management evaluates and determines on a periodic basis the amount of the valuation allowance required and adjusts the valuation allowance as needed. As of December 31, 2006 and 2005, we had no valuation allowance on our deferred income tax assets. In June 2004, we reversed approximately $8.4 million of the valuation allowance that was provided on our deferred income tax assets and, in December 2005, we reversed the remaining valuation allowance of $926,500. In the opinion of management, it was more likely than not that these benefits would be realized. The result of the approximately $8.4 million reversal was a reduction of $5.3 million to the 2004 income tax provision in the consolidated statement of income and a $3.1 million credit to additional paid-in capital (relating to the tax benefit of stock option exercises). The result of the $926,500 reversal was a reduction to the 2005 income tax provision recorded in the consolidated statement of income. The 2004 decision to reverse approximately $8.4 million of the valuation allowance was triggered by events which revised our expectations of the amount of future taxable income. These events included receipt of the final approval by the DTCC for TradeStation Securities to begin self-clearing for equities, the rollout of TradeStation 8 (which included integrated options execution), as well as eight consecutive quarters of income

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from operations at the end of the 2004 second quarter. The 2005 decision to reverse the remaining portion of the valuation allowance was triggered by our continued profitability and the accelerated growth of our income before income taxes during the last four years, as well as the expectation that we will continue to have income before income taxes in future years. On a periodic basis, we will continue to evaluate our remaining deferred income tax assets to determine if a valuation allowance is required.

Allowance for Potential Credit Losses. We perform periodic credit evaluations and provide allowances based upon our assessment of specifically identified unsecured receivables and other factors, including the customer’s likelihood to pay and payment history. As of December 31, 2005, we had an allowance for a potential credit loss of $226,000. There was no allowance as of December 31, 2006, since we collected $200,000 and wrote-off the balance of this receivable (mostly accrued interest) against this reserve during the first quarter of 2006. See Note 4 of Notes to Consolidated Financial Statements – RECEIVABLES FROM BROKERAGE CUSTOMERS, NET, and Note 15 – COMMITMENTS AND CONTINGENCIES – General Contingencies and Guarantees.

Uninsured Loss Reserves. We decided, as of June 1, 2002, to no longer carry errors or omissions insurance that covers third-party claims made by brokerage customers or software subscribers as a result of alleged human or system errors, failures, acts or omissions. This decision was made based upon our assessment of the potential risks and benefits, including significant increases in premium rates, deductibles and coinsurance amounts, reductions in available per occurrence and aggregate coverage amounts, and the unavailability of policies that sufficiently cover the types of risks that relate to our business. We recently reviewed this insurance with insurance agents and our view remains unchanged. Each quarter, we continue to evaluate our accruals, if any, for settlements related to claims and potential claims. Estimates of settlements for such potential claims, including related legal fees, are accrued in the consolidated financial statements, as necessary. During 2006, the Gambino case was settled and was not material to our results of operations. During 2005, we recorded approximately $300,000 of expenses primarily as a result of the final resolution of two unreserved customer claims (one an arbitration award, one a settlement) initiated in prior periods. During 2004, we reversed $569,000 of our accruals ($500,000 of accrued settlements and $69,000 of accrued legal fees) related to a third-party claim which had been inactive for over one year (and has remained inactive). See “Expenses – Other” in both “Years Ended December 31, 2006 and 2005” and “Years Ended December 31, 2005 and 2004.” We have not created any uninsured loss reserves for any of the lawsuits or arbitrations described in Item 3 – Legal Proceedings, or to which the company is otherwise subject.

Results of Operations

For the three years ended December 31, 2006, we operated in two principal business segments: (i) brokerage services; and (ii) software products and services. The brokerage services segment primarily represents the operations of TradeStation Securities and the software products and services segment represents the operations of TradeStation Technologies. We ceased marketing our legacy software products and subscription software services in 2000. As a result, our primary sources of consolidated revenue are currently generated from the brokerage services segment, and the brokerage services segment should continue to produce the majority of our revenues for the foreseeable future. For the years ended December 31, 2006, 2005 and 2004, the brokerage services segment accounted for approximately 92%, 89% and 86%, respectively, of our total consolidated net revenues. For the years ended December 31, 2006, 2005 and 2004, approximately 56%, 60% and 62%, respectively, of net revenue from the brokerage services segment was derived from equities and standardized equity option accounts. Conversely, for the years ended December 31, 2006,

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2005, and 2004, approximately 44%, 40% and 38%, respectively, of net revenue from the brokerage services segment was derived from futures and forex accounts. Given the size of the percentage of revenue from the brokerage services segment, other than our discussion and table in Note 16 – SEGMENT AND RELATED INFORMATION, we will discuss our results of operations for the overall company instead of on a segmented basis. See also Note 17 of Notes to Consolidated Financial Statements - UNAUDITED QUARTERLY FINANCIAL INFORMATION, for quarterly unaudited financial information for fiscal years 2006 and 2005. The following table summarizes our consolidated statements of income data and presentation of that data as a dollar change and percentage of change from period to period:

	For the Years Ended December 31,						2006 vs. 2005 Variance					2005 vs 2004 Variance
	2006		2005		2004		$			%		$			%
	(In thousands, except percentages)
Revenues:
Brokerage commissions and fees	$	78,829	$	65,953	$	56,506	$	12,876		20		$	9,447		17
Interest income		44,587		24,490		6,358		20,097		82			18,132		285
Brokerage interest expense		4,635		3,513		710		1,122		32			2,803		395
Net interest income		39,952		20,977		5,648		18,975		90			15,329		271
Subscription fees		8,584		8,120		8,125		464		6			(5	)	0
Other		1,181		1,949		1,989		(768	)	(39	)		(40	)	(2	)
Net revenues		128,546		96,999		72,268		31,547		33			24,731		34
Expenses:
Employee compensation and benefits		29,379		23,027		20,324		6,352		28			2,703		13
Clearing and execution		26,107		20,097		18,885		6,010		30			1,212		6
Data centers and communications		6,453		5,714		5,905		739		13			(191	)	(3	)
Advertising		4,315		3,830		2,737		485		13			1,093		40
Professional services		3,411		2,987		2,414		424		14			573		24
Occupancy and equipment		2,549		2,641		2,470		(92	)	(3	)		171		7
Depreciation and amortization		2,508		1,771		1,979		737		42			(208	)	(11	)
Other		3,854		4,415		2,741		(561	)	(13	)		1,674		61
Total expenses		78,576		64,482		57,455		14,094		22			7,027		12
Income before income taxes		49,970		32,517		14,813		17,453		54			17,704		120
Income tax provision		18,951		11,451		119		7,500		65			11,332		n.m.
Net income	$	31,019	$	21,066	$	14,694	$	9,953		47		$	6,372		43

Years Ended December 31, 2006 and 2005

Net revenues were $128.5 million for the year ended December 31, 2006, as compared to $97.0 million for the year ended December 31, 2005, an increase of $31.5 million, or 33%. The primary reasons for this growth were increased net interest income of $19.0 million, or 90%, as a result of higher interest rates, higher aggregate cash and margin balances and a full year of a more favorable interest-sharing arrangement with our futures clearing firm, and a $12.9 million, or 20%, increase in brokerage commissions and fees as a result of higher trade volume related mostly to growing our brokerage account base, partially offset by a decrease in other revenues.

Income before income taxes was $50.0 million (39% of net revenues) for the year ended December 31, 2006, as compared to $32.5 million (34% of net revenues) for the year ended December 31, 2005, an increase of $17.5 million, or 54%. Our improvement in income before income taxes was due primarily to our increased net interest income of $19.0 million and our increased brokerage commissions and fees of $12.9 million, partially offset by increased employee compensation and benefits of $6.4 million and increased clearing and execution costs of $6.0 million. The increase in our income before income taxes margin from 34% to 39% was due primarily to our increased net interest income.

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During the year ended December 31, 2006, we recorded an income tax provision of $19.0 million or 38% of our income before income taxes, as compared with $11.5 million or 35% of our income before income taxes during the year ended December 31, 2005. In 2005, our effective income tax rate of approximately 38% was partially offset by the reversal of the remaining $926,500 of our valuation allowance on our deferred income tax assets. See “Income Taxes” below.

Net income was approximately $31.0 million for the year ended December 31, 2006, as compared to approximately $21.0 million for the year ended December 31, 2005, an increase of approximately $10.0 million, or 47%, due primarily to our 33% year-over-year increase in net revenues and the increase of our income before income taxes margin from 34% to 39%, partially offset by a higher effective tax rate in 2006.

Revenues

Brokerage Commissions and Fees – Brokerage commissions and fees are comprised mainly of commissions for securities, futures and forex transactions and, to a lesser extent, monthly platform and other fees earned from brokerage customers using the TradeStation online trading platform. For the year ended December 31, 2006, brokerage commissions and fees were approximately $78.8 million, as compared to approximately $66.0 million for the year ended December 31, 2005. This $12.9 million, or 20%, increase was due primarily to increased brokerage commissions of $14.2 million from higher trading volume related mostly to growing our brokerage customer account base, partially offset by reduced futures commission pricing, and by a decrease in platform and other fees of $1.3 million as a result of reduced trading activity thresholds required to qualify for a waiver of our monthly platform fee, which was discussed in more detail in the “Overview” portion of this discussion. The industry has been experiencing price pressure and some of our competitors continue to reduce their online brokerage commissions and fees. One of our competitors recently launched a commission-free plan to a certain segment of its accounts. We continuously review and assess our pricing – both commissions and platform fees. Our most recent marketing initiative, effective November 1, 2006, to reduce further the trading activity threshold required to qualify for a waiver of the monthly platform fee, assuming no benefits from additional account growth or trading, was a decrease in monthly revenues of approximately $100,000 and monthly net income by approximately $62,000. No assurances can be given that material offsetting benefits have been or will be achieved.

Interest Income – Interest income is comprised of interest earned from self-clearing operations (primarily interest earned on brokerage customer cash balances and interest earned from brokerage customer margin debit balances), interest revenue-sharing arrangements with clearing agent firms, and interest on corporate cash and cash equivalents and marketable securities. For the year ended December 31, 2006, interest income was $44.6 million as compared to $24.5 million for the year ended December 31, 2005. This $20.1 million, or 82%, increase was due primarily to increased interest rates, a full year of a more favorable interest income-sharing arrangement with our futures clearing agent and increased base margin debit interest rates and increased balances from account growth. During 2005, the federal funds target rate of interest was increased eight times, from 2.25% to 4.25%. During the first half of 2006, the federal funds target rate of interest was increased by 25 basis points four times, from 4.25% to 5.25% (where it remains as of December 31, 2006 and through the date of this report). These increases resulted in increases in the amounts we earned

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on our clients’ cash account balances and the amounts we charged our customers for margin lending. During the year ended December 31, 2006, the weighted average federal funds target rate of interest was approximately 4.96%, an increase of 177 basis points, or 55%, as compared with the weighted average rate of 3.19% for the same period in 2005. Also, during the year ended December 31, 2006, the weighted average interest rate from income-sharing revenue earned from our futures clients was approximately 4.71%, an increase of 245 basis points, or 108%, as compared with the weighted average rate of 2.26% for the same period in 2005. During the year ended December 31, 2006, the weighted average base margin debit rate that we charged our customers was 8.19%, which was 79 basis points, or 11% higher than the weighted average rate of 7.40% that we charged to our customers during the same period of 2005. Interest income for future periods may be materially affected by further increases, “no actions” or decreases regarding the federal funds target rate and the extent, if any, by which our customer cash account balances increase or decrease, as well as any decisions we may make to provide more or less favorable debit or credit interest rates to our customers.

Brokerage Interest Expense – Brokerage interest expense consists of amounts paid or payable to brokerage customers based on credit balances maintained in brokerage accounts and other brokerage-related interest expense. Brokerage interest expense does not include interest on company borrowings, which, if any, would be included in Expenses – Other Expenses below. For the year ended December 31, 2006, brokerage interest expense was $4.6 million, as compared to $3.5 million for the year ended December 31, 2005. This $1.1 million, or 32%, increase was due primarily to account growth and increased interest rates. During 2006, the average annual credit interest rate paid to our customers was approximately 1.19%, as compared to 1.00% during 2005. As of December 31, 2006 and through the date of this report, our equities customers earn interest at the rate of 1.25% per annum on the portion, if any, of their cash balances in excess of $10,000, and futures and forex customers earn no interest on their cash balances. Factors that will affect brokerage interest expense in the future include: the growth and mix of growth of our brokerage customer base in equities, futures and forex; average assets per account and the portion of account assets held in cash; and future decisions concerning credit or debit interest rates offered to our equities, futures and forex customers.

Subscription Fees – Subscription fees are primarily comprised of monthly fees earned for providing streaming real-time, Internet-based trading analysis software tools and data services to non-brokerage customers. Subscription fees were approximately $8.6 million for the year ended December 31, 2006, as compared to approximately $8.1 million for the year ended December 31, 2005, an increase of $464,000 or 6%. This increase in subscription fees was due to a monthly price increase, effective May 1, 2006, of approximately $50. The increase in price was partially offset by a decrease in the number of subscribers. The continued impact, if any, of this price increase will depend upon how many customers terminate their subscription service or do not buy new subscriptions as a result of the price increase, and how many (if any) decide to become brokerage customers instead of continuing their subscriptions.

Other – Other revenues consist primarily of royalties and commissions received from third parties whose customers use our legacy software products and, to a lesser extent, fees for our training workshops that help customers take full advantage of the state-of-the-art features of the TradeStation electronic trading platform, direct sales of our legacy customer software products and revenues from user conferences that highlights strategy testing. Other revenues were approximately $1.2 million for the year ended December 31, 2006, as compared to approximately $1.9 million for the year ended December 31, 2005, a decrease of $768,000, or

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39%. This decrease was due primarily to a $539,000 decrease in royalties and commissions received from third parties and a $312,000 decrease in revenue from our 2005 users conference (not held in 2006), partially offset by increased revenues from training workshops. The decrease in royalties is the result of not having marketed legacy customer software products since 2000. We expect royalties and commissions from third parties to continue to decrease and to reach a de minimus amount in 2007.

Expenses

Employee Compensation and Benefits – Employee compensation and benefits expenses are comprised primarily of employee salaries, sales commissions and bonuses (and, beginning in 2006, stock-based compensation) and, to a lesser extent, payroll taxes, employee benefits (including group health insurance and employer contributions to benefit programs), recruitment, temporary employee services and other related employee costs. Employee compensation and benefits expenses were $29.4 million for the year ended December 31, 2006, as compared to $23.0 million for the year ended December 31, 2005, an increase of $6.4 million, or 28%. This increase was due primarily to increases in wages paid to employees of $2.5 million, stock-based compensation of $1.8 million, sales commissions of $852,000, accrued bonus of $400,000, and, to a lesser extent, increases in employee benefits, recruitment and related expenses, and payroll taxes. The increase in wages was due primarily to our annual salary merit increases (effective January 2006) and increased headcount. During the year ended December 31, 2006, there was an average of 284 full-time equivalent employees as compared to 263 full-time equivalent employees during the year ended December 31, 2005. At December 31, 2006, there were 302 full-time equivalent employees as compared to 266 full-time equivalent employees at December 31, 2005. Employee compensation and benefits expenses are anticipated to increase during 2007 due to annual merit increases and planned additions to employee headcount to support the anticipated growth of our business. For further discussion of stock-based compensation expense, see Recently Issued Accounting Standards below.

Clearing and Execution – Clearing and execution expenses include the costs associated with executing and clearing customer trades, including, fees paid to clearing agents and clearing organizations, exchanges and other market centers, fees and royalties paid for the licensing of self-clearing, back-office software systems and related services, and commissions paid to third-party broker-dealers. Clearing and execution expenses were approximately $26.1 million for the year ended December 31, 2006, as compared to $20.1 million for the year ended December 31, 2005, an increase of $6.0 million or 30%, as a result of higher trade volume. Clearing and execution costs as a percentage of brokerage commissions and fees increased to 33% during 2006, as compared to 30% during 2005. This increase in clearing and execution expenses, as a percentage of brokerage commissions and fees, was due primarily to lower platform fees as a result of reduced trading activity thresholds that needed to be met to qualify for a waiver of the monthly platform fee, a new futures brokerage commission structure that rewards more active traders with lower pricing, and a change in mix (i.e., futures versus equities) to lower margin trades, partially offset by the benefits received from self-clearing of equity option trades for the entire twelve-month period in 2006 (as opposed to three quarters in the same period of 2005) and the continued benefits of equities self-clearing and reduced clearing fee rates for futures.

Data Centers and Communications – Data centers and communications expenses are comprised of: (i) data communications costs necessary to connect our server farms directly to electronic marketplaces, data sources and to each other; (ii) data communications costs and rack space at our facilities where the data server farms are located; (iii) data distribution and exchange fees; and (iv) telephone, internet and other communications costs. Data centers and communications expenses were approximately

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$6.5 million for the year ended December 31, 2006, as compared to $5.7 million for the year ended December 31, 2005, an increase of $739,000, or 13%. This increase is due primarily to increased bandwidth charges and rack space at our server farms of $370,000, increased server maintenance related to our data server upgrades of $201,000, and, to a lesser extent, increased circuits to connect our data farms to data providers and electronic marketplaces and other communications costs. We anticipate data centers and communications to increase during 2007 due to the recent expanded capacity at our data server farms.

Advertising – Advertising expenses are comprised of marketing programs, primarily: advertising in various media, including direct mail, television and print media; account opening kits, including postage; brochures; and other promotional items, including exhibit costs for industry events. Advertising expenses for the year ended December 31, 2006 were $4.3 million, as compared to $3.8 million for the year ended December 31, 2005, an increase of $485,000, or 13%, due primarily to increased media placement during 2006. The quality and success of, and potential continuous changes in, sales or marketing strategies (which continue to evolve) are factors that may impact the level of advertising in the future.

Professional Services – Professional services expenses are comprised of fees for legal, accounting, tax, and other professional and consulting services. Professional services expenses were $3.4 million for the year ended December 31, 2006, as compared to $3.0 million for the year ended December 31, 2005, an increase of $424,000, or 14%, due primarily to increased legal fees, accounting fees and increased use of consultants.

Occupancy and Equipment – Occupancy and equipment expenses include rent, utilities, property taxes, repairs, maintenance and other expenses pertaining to our office space. Occupancy and equipment expenses were $2.5 million for the year ended December 31, 2006, as compared to $2.6 million for the year ended December 31, 2005, a decrease of $92,000, or 3%, due primarily to the reversal of most of the allowance established for a sub-tenant in default and partially offset by the increase in rent due primarily to our new offices in Chicago and London.

Depreciation and Amortization – Depreciation and amortization expenses consist primarily of depreciation on property and equipment and, to a lesser extent, amortization of intangible assets. Depreciation and amortization expenses were $2.5 million for the year ended December 31, 2006, as compared to $1.8 million for the year ended December 31, 2005, an increase of $737,000, or 42%. This increase was due primarily to higher depreciation of fixed assets related to an increase in the amount of capital expenditures in 2006. During 2006, we had capital expenditures of $8.1 million, as compared to $1.9 million in 2005. The 2006 capital expenditures were mostly computer hardware to support the growth of our data server farms and, to a lesser extent, fixed assets and leasehold improvements related to our Chicago office and an upgrade to our telephone and recording systems. We anticipate depreciation expense to continue to increase during 2007 due to recent hardware and software purchases (many of which were put into service during the fourth quarter of 2006) for our data server farms – which we deem necessary to support the growth in our business and to enhance and improve the quality and reliability of our brokerage services.

Other – Other expenses include insurance, regulatory fees and related costs, employee travel and entertainment, settlements for legal matters, costs related to our users conference and training workshops, software maintenance, public company expenses, supplies, postage, exchange memberships, customer debits and errors, bank charges and other administrative expenses. Other expenses were

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$3.9 million for the year ended December 31, 2006, as compared to $4.4 million for the year ended December 31, 2005, a decrease of $561,000, or 13%. This decrease was due primarily to $343,000 of expenses from our user conference held in 2005 (not held in 2006), decrease of $232,000 related to settlements, decreased customer debits and errors of $209,000, and a decrease in insurance of $145,000, partially offset by increases in software maintenance of $157,000, travel and entertainment of $134,000, and a gain from an exchange membership (recorded in 2005). The decrease in customer debits and errors was due primarily to the collection, in 2006, of $200,000 of a receivable from a brokerage customer, previously considered uncollectible and fully reserved. The decrease in settlements was primarily related to expenses recorded in 2005 for the final resolution of two unreserved customer claims (one an arbitration award, one a settlement) initiated in prior periods.

Years Ended December 31, 2005 and 2004

Net revenues were $97.0 million for the year ended December 31, 2005, as compared to $72.3 million for the year ended December 31, 2004, an increase of $24.7 million, or 34%, due to increases in net interest income of $15.3 million, or 271%, and increases in brokerage commissions and fees of approximately $9.5 million, or 17%, partially offset by slight decreases in subscription fees and other revenues.

Income before income taxes was $32.5 million (34% of net revenues) for the year ended December 31, 2005, as compared to $14.8 million (20% of net revenues) for the year ended December 31, 2004, an increase of $17.7 million, or 120%. This improvement was due primarily to increased net revenues (primarily net interest income and brokerage commissions and fees) and improved margins related to the self-clearing of equities and options, partially offset by increases in employee compensation and benefits, advertising, professional services and other expenses.

During the year ended December 31, 2005, we recorded an income tax provision of $11.5 million as compared to approximately $119,000 for the year ended December 31, 2004. In 2005, our effective income tax rate of 38% was partially offset by the reversal of the remaining $926,500 of our valuation allowance on our deferred income tax assets. In 2004, our effective income tax rate of approximately 38% was mostly offset by the reversal of a significant portion of our valuation allowance on our deferred income tax assets. Given that in 2005 our effective income tax rate was approximately 35.2%, as compared to an effective rate of less than 1% in 2004, we believe that income before income taxes is a more meaningful year-over-year comparison. See “Income Taxes” below.

Revenues

Brokerage Commissions and Fees – Brokerage commissions and fees were approximately $66.0 million for the year ended December 31, 2005, as compared to $56.5 million for the year ended December 31, 2004. This approximate $9.5 million, or 17%, increase was due primarily to brokerage customer account growth and the related increase in trading activity.

Interest Income – Interest income was $24.5 million for the year ended December 31, 2005 as compared to $6.4 million for the year ended December 31, 2004. This $18.1 million, or 285%, increase was due primarily to the self-clearing of equities for our active trader client base (which commenced in September 2004), account growth and increased interest rates. During 2005, the federal funds target rate of interest was increased by 25 basis points eight times, from 2.25% to 4.25%. These increases resulted in increases in the amounts we earned on our client’s cash account balances (net of the amount, if any, of interest paid to the clients on such balances). Also, during 2005 we increased the base margin debit interest rate that we charge our customers from 6.375% in January 2005 to 8.125% by August 2005.

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Brokerage Interest Expense – Brokerage interest expense was $3.5 million for the year ended December 31, 2005, as compared to $710,000 for the year ended December 31, 2004. This $2.8 million, or 395%, increase was due primarily to a full year of brokerage interest expense related to the self-clearing of equities (which commenced in September 2004), account growth and increased interest rates. During 2005, the average credit annual interest rate paid to our customers was approximately 1.00%, as compared to 0.75% during 2004. As of December 31, 2005, our equities customers earn interest at the rate of 1.125% per annum on the portion, if any, of their cash balances in excess of $10,000, and futures and forex customers earn no interest on their cash balances.

Subscription Fees – Subscription fees were approximately $8.1 million during both the year ended December 31, 2005 and 2004. Subscription services have not been actively marketed since December 2000.

Other – Other revenues were approximately $1.9 million for the year ended December 31, 2005, as compared to approximately $2.0 million for the year ended December 31, 2004, a decrease of $40,000, or 2%. This decrease was due primarily to lower royalties of $140,000, partially offset by increases in fees earned from training workshops and a user conference. The expected decrease in royalties is the result of not having marketed legacy customer software products since May 2000 and not having offered those products domestically since September 2001.

Expenses

Employee Compensation and Benefits – Employee compensation and benefits expenses were $23.0 million for the year ended December 31, 2005, as compared to $20.3 million for the year ended December 31, 2004, an increase of $2.7 million, or 13%. This increase was due primarily to increased wages to employees and commissions paid to sales representatives, and a higher number of employees in 2005. During the year ended December 31, 2005, there was an average of 263 full-time equivalent employees as compared to 247 full-time equivalent employees during the year ended December 31, 2004.

Clearing and Execution – Clearing and execution expenses were approximately $20.1 million for the year ended December 31, 2005, as compared to $18.9 million for the year ended December 31, 2004, an increase of $1.2 million or 6%. Clearing and execution costs as a percentage of brokerage commissions and fees improved to 30% during 2005, as compared to 33% during 2004. This improvement in clearing and execution expenses, as a percentage of brokerage commissions and fees, was due primarily to the benefits received from self-clearing of equities trades for our active trader client base during all of 2005, as compared to only the last four months of 2004, and reduced clearing fee rates for futures, partially offset by a change in mix to a higher percentage of lower-margin trades.

Data Centers and Communications – Data centers and communications expenses were $5.7 million for the year ended December 31, 2005, as compared to $5.9 million for the year ended December 31, 2004, a decrease of $191,000, or 3%. This decrease is due primarily to $308,000 of lower rent and bandwidth charges at our server farms, and $284,000 of lower data distribution and exchange fees, partially offset by $388,000 of increased circuits to connect our data farms to data providers and electronic marketplaces.

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Advertising – Advertising expenses were $3.8 million for the year ended December 31, 2005, as compared to $2.7 million for the year ended December 31, 2004, an increase of $1.1 million, or 40%, due primarily to increased media placement during 2005.

Professional Services – Professional services expenses were $3.0 million for the year ended December 31, 2005, as compared to $2.4 million for the year ended December 31, 2004, an increase of $573,000, or 24%, due primarily to increased legal fees.

Occupancy and Equipment – Occupancy and equipment expenses were $2.6 million for the year ended December 31, 2005, as compared to $2.5 million for the year ended December 31, 2004, an increase of $171,000, or 7%, due primarily to increased rent and related operating expenses.

Depreciation and Amortization – Depreciation and amortization expenses were $1.8 million for the year ended December 31, 2005, as compared to $2.0 million for the year ended December 31, 2004, a decrease of $208,000, or 11%. This decrease was due primarily to lower depreciation of fixed assets and amortization of intangible assets.

Other – Other expenses were $4.4 million for the year ended December 31, 2005, as compared to $2.7 million for the year ended December 31, 2004, an increase of $1.7 million, or 61%. This increase was due primarily to a $670,000 increase in expenses related to dispute resolutions (other than legal fees), increased customer debits and errors of $236,000, increased taxes - - other than income taxes of $235,000, increased insurance of $229,000, increased exchange memberships of $134,000, increased bank charges of $99,000, and net increases in other expenses of $71,000. The increase in expenses related to dispute resolutions was due primarily to a 2004 reversal of an uninsured loss provision of $500,000 for a third party-claim which was inactive for over one year (and has remained inactive) and an increase of $170,000 in dispute resolution expenses (other than legal fees) during the year ended December 31, 2005. The increases in insurance, exchange memberships and bank charges are all related to having in 2005, as compared to 2004, a full year of self-clearing operations for our active trader client base. The increase in taxes - other than income taxes was due primarily to a 2004 reduction in expenses related to a favorable outcome of an audit of prior years’ state sales taxes.

Income Taxes

During the year ended December 31, 2006, we recorded an income tax provision of $19.0 million or 38% of our income before income taxes, as compared with $11.5 million or 35% of our income before income taxes during the year ended December 31, 2005. In 2005, our effective income tax rate of approximately 38% was partially offset by the reversal of the remaining $926,500 of our valuation allowance on our deferred income tax assets. During the year ended December 31, 2004, we recorded an income tax provision of $119,000. In 2004, our effective income tax rate of approximately 38% was mostly offset by the reversal of a significant portion of our valuation allowance on our deferred income tax assets.

In June 2004, we reversed approximately $8.4 million of the valuation allowance that was provided on our deferred income tax assets and, in December 2005, reversed the remaining valuation allowance of $926,500. In the opinion of management, it was more likely than not that these benefits would be realized. In accordance with SFAS No. 109, deferred income tax assets should be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred income tax assets will not be realized. On a periodic basis, management evaluates and determines the amount of the valuation allowance required and adjusts such valuation allowance accordingly. The result of the approximately $8.4 million reversal was a reduction of $5.3 million to the 2004 income

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tax provision in the consolidated statement of income and a $3.1 million credit to additional paid-in capital (relating to the tax benefit of stock option exercises). The result of the $926,500 reversal was a reduction to the 2005 income tax provision recorded in the consolidated statement of income. The 2004 decision to reverse approximately $8.4 million of the valuation allowance was triggered by events which revised our expectations of the amount of future taxable income. These events included receipt of the final approval by the DTCC for TradeStation Securities to begin self-clearing for equities, the rollout of TradeStation 8 (which included integrated options execution), as well as eight consecutive quarters of income from operations. The 2005 decision to reverse the remaining $926,500 of the valuation allowance was triggered by our continued profitability and the accelerated growth of our income before income taxes during the last four years, as well as the expectation that we will continue to have income before income taxes in future years. On a periodic basis, we will continue to evaluate our remaining deferred income tax assets to determine if a valuation allowance is required.

As of December 31, 2006, for financial reporting purposes, the company had available for federal income tax purposes total net operating loss carryforwards and income tax credit carryforwards of approximately $2.5 million and $124,000, respectively. The net operating loss carryforwards expire in 2019 and the tax credits expire between 2010 and 2019. These amounts are subject to annual usage limitations of approximately $545,000. These limitations are cumulative to the extent they are not utilized in any year.

In September 2006, a letter from the Internal Revenue Service was received notifying us that our federal income tax return for the year ended December 31, 2004 has been selected for examination. We believe this examination, which is currently in progress, to be routine. While no assurances can be given, we believe that the results of this examination will not have a material impact on our consolidated financial position, results of operations or cash flows.

See Note 11 of Notes to Consolidated Financial Statements – INCOME TAXES.

Variability of Results

The operating results for any quarter are not necessarily indicative of results for any future period or for the full year. Our quarterly revenues and operating results have varied in the past, and are likely to vary in the future. Such fluctuations are likely to result in volatility in the price of our common stock. See Item 1A. Risk Factors, and Note 17 of Notes to Consolidated Financial Statements – UNAUDITED QUARTERLY FINANCIAL INFORMATION.

Liquidity and Capital Resources

As of December 31, 2006, we had cash and cash equivalents of approximately $74.5 million, of which $1.4 million was restricted, supporting a facility lease. On January 3, 2007, as a result of TradeStation Securities’ December 31, 2006 month-end calculation under Rule 15c3-3 of the Securities Exchange Act of 1934 (see below), $7.6 million of the $417.5 million of cash segregated in compliance with federal regulations shown on our consolidated balance sheet at December 31, 2006 was transferred to cash and cash equivalents. We have marketable securities of approximately $9.3 million at December 31, 2006, the majority of which can be tendered for sale upon notice (generally no longer than seven days) to the remarketing agent. See Note 2 of Notes to Consolidated Financial Statements – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Marketable Securities.

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As of December 31, 2006, TradeStation Securities had: $417.5 million of cash segregated in compliance with federal regulations in special reserve bank accounts for the exclusive benefit of customers under Rule 15c3-3 of the Securities Exchange Act of 1934 and other regulations; receivables from brokerage customers of $77.0 million; and receivables from brokers, dealers, clearing organizations and clearing agents of $34.9 million. Client margin loans are demand loan obligations secured in part by cash and/or readily marketable securities. Receivables from and payables to brokers, dealers, clearing organizations and clearing agents represent primarily current open transactions, which usually settle, or can be closed out, within a few business days.

Liquidity needs relating to client trading and margin borrowing activities are met primarily through cash balances in brokerage client accounts, which were $516.4 million at December 31, 2006. Management believes that brokerage cash balances and operating earnings will continue to be the primary source of liquidity for TradeStation Securities in the future.

TradeStation Securities is subject to the net capital requirements of the SEC’s Uniform Net Capital Rule (Rule 15c3-1) and the CFTC’s financial requirement (Regulation 1.17). TradeStation Securities calculates net capital requirements using the “alternative method,” which requires the maintenance of minimum net capital, as defined by the rules, equal to the greater of (i) $250,000 and (ii) 2.0% of aggregate customer debit balances. Customer debit items are a function of customer margin receivables and may fluctuate significantly, resulting in a significant fluctuation in our net capital requirements. At December 31, 2006, TradeStation Securities had net capital of approximately $56.1 million (47.4% of aggregate debit items), which was approximately $53.7 million in excess of its required net capital of approximately $2.4 million.

In addition to net capital requirements, as a self-clearing broker-dealer TradeStation Securities is subject to DTCC, OCC, and other cash deposit requirements, which are and may continue to be large in relation to TradeStation Group’s total liquid assets, and which may fluctuate significantly from time to time based upon the nature and size of TradeStation Securities’ active trader clients’ securities trading activity. As of December 31, 2006, we had interest-bearing security deposits and short-term treasury bills totaling $20.2 million with clearing organizations for the self-clearing of equities and standardized equity option trades.

As of December 31, 2006, we have no long-term debt obligations or capital lease obligations. A summary of our operating lease obligations (net of subleases) and minimum purchase obligations (related to back-office systems and telecommunications services) is as follows:

	Payments Due By Period
			Less Than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Contractual Obligations	Total		2007		2008-2009		2010-2011		After 2011
Operating lease obligations	$	12,912,355	$	2,605,609	$	4,438,797	$	4,447,135	$	1,420,814
Purchase obligations		3,718,820		2,500,577		1,141,833		76,410		—
Total	$	16,631,175	$	5,106,186	$	5,580,630	$	4,523,545	$	1,420,814

In addition to the purchase obligations set forth in the table above, we currently anticipate, in order to provide for additional growth of our brokerage business (there being no assurance additional growth will occur), capital expenditures of up to $3.5 million in 2007 (primarily for the purchase of computer hardware and software to support the growth of our data server farms and back-office systems to support our business). These expenditures are expected to be funded through operating cash flows, capital leases, or a combination of the two.

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In October 2006, our board of directors authorized, and we announced, the use of up to $60 million of our available and unrestricted cash, over a four-year period, to repurchase shares of our common stock in the open market or through privately-negotiated transactions. The stock repurchases are authorized to be made pursuant to a Rule 10b5-1 plan. The four-year period commenced on November 13, 2006 and ends on November 12, 2010. Pursuant to the buy back plan, $1,250,000 of company cash during each full calendar month (and prorated amount during the first and last months) of the four-year period (i.e., $15 million per 12-month period and $60 million for the four-year period) has been authorized to be used to purchase company shares at prevailing prices, subject to compliance with applicable securities laws, rules and regulations, including Rules 10b5-1 and 10b-18. The buy back plan does not obligate us to acquire any specific number of shares in any period, and may be modified, suspended, extended or discontinued at any time without prior notice.

During the year ended December 31, 2006, we used approximately $2.0 million to purchase 139,400 shares of our common stock at an average price of $14.34 per share. All shares purchased have been retired. See Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES – Share Repurchases.

We anticipate that our available cash resources and cash flows from operations will be sufficient to meet our presently anticipated working capital and capital expenditure requirements through at least the next twelve months.

Cash provided by operating activities totaled approximately $13.9 million, $37.9 million and $515,000 during the years ended December 31, 2006, 2005 and 2004, respectively. During the year ended December 31, 2006, net cash provided by operating activities of $13.9 million was due primarily to net income and adjustments for non-cash items, partially offset by timing differences related to an increase in net brokerage customer assets and liabilities (excluding deposits with clearing organizations) including timing differences related to funding cash segregated in compliance with federal regulations (on January 3, 2007, $7.6 million was transferred to Cash and cash equivalents from Cash segregated in compliance with federal regulations), and increases in deposits with clearing organizations. During 2005, net cash provided by operating activities of $37.9 million came primarily from net income as adjusted for non-cash items and, to a lesser extent, a decrease in net brokerage customer assets and liabilities (excluding deposits with clearing organizations) including timing differences related to funding cash segregated in compliance with federal regulations (on January 4, 2006, $9.5 million was transferred from Cash and cash equivalents to Cash segregated in compliance with federal regulations), a decrease in deposits with clearing organizations, and an increase in accrued expenses and accounts payable. During 2004, net cash provided by operating activities came primarily from net income, as adjusted for non-cash items, partially offset by net cash outflows associated with the commencement of self-clearing operations during September 2004, including $14.5 million of deposits paid to clearing organizations.

Investing activities used cash of $17.2 million and $1.5 million during the years ended December 31, 2006 and 2005, respectively, and provided cash of $450,000 during the year ended December 31, 2004. During the year ended December 31, 2006, investing activities were primarily for the purchase of marketable securities of $10.3 million and for capital expenditures (mostly

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computer hardware to support the growth of our data server farms and, to a lesser extent, fixed assets and leasehold improvements related to our Chicago office and an upgrade to our telephone and recording systems) of $8.1 million, partially offset by proceeds from the redemption of marketable securities of $1.0 million and to a lesser extent, a decrease in restricted cash. During 2005, investing activities used cash of $1.5 million primarily for capital expenditures (mostly computer hardware to support the growth of our data server farms) of $1.9 million, partially offset by $148,000 of proceeds from an exchange membership transaction and a $239,000 decrease in restricted cash. During 2004, investing activities provided cash of $450,000 due to $2.0 million of proceeds from the maturity of marketable securities and a $239,000 decrease in restricted cash, partially offset by capital expenditures of $1.4 million (mostly computer hardware and software for our data server farms and our back-office systems to support the growth of our business) and $415,000 paid for the acquisition of exchange membership seats.

Financing activities provided cash of $2.9 million, $6.8 million and $900,000 during the years ended December 31, 2006, 2005 and 2004, respectively. Proceeds from the issuance of common stock related to the exercise of stock options from our incentive stock plan, and purchases under our employee stock purchase plan, provided cash of $2.5 million, $6.8 million and $1.1 million during 2005, 2004 and 2003, respectively. During 2006, excess tax benefits from stock-based compensation provided cash of $2.3 million and the repurchase and retirement of common stock used cash of $2.0 million during 2006. During 2005 and 2004, repayments of capital lease obligations were $3,000 and $186,000, respectively.

Off-Balance Sheet Arrangements

In the ordinary course of business, there are various contingencies which are not reflected in the consolidated financial statements. These include customer activities involving the execution, settlement and financing of various customer securities and futures transactions. These activities may expose the company to off-balance sheet credit risk in the event the customers are unable to fulfill their contractual obligations.

Nearly all TradeStation Securities customer accounts are margin accounts. In margin transactions, TradeStation Securities may be obligated for credit extended to its customers by its clearing agents that are collateralized by cash and securities in the customers’ accounts with those clearing agents. In connection with securities activities, TradeStation Securities also executes customer transactions involving the sale of securities not yet purchased (“short sales”), all of which are transacted on a margin basis subject to federal, self-regulatory organization and individual exchange regulations and TradeStation Securities’ and its clearing agents’ internal policies. Additionally, TradeStation Securities may be obligated for credit extended to its customers by its clearing agents for futures transactions that are collateralized by cash and futures positions in the customers’ accounts with those clearing agents. In all cases, such transactions may expose TradeStation Securities to significant off-balance sheet credit risk in the event customer collateral is not sufficient to fully cover losses that customers may incur. In the event customers fail to satisfy their obligations, TradeStation Securities may be required to purchase or sell financial instruments at prevailing market prices to fulfill the customers’ obligations.

TradeStation Securities seeks to manage the risks associated with its customers’ activities by requiring customers to maintain collateral in their margin accounts in compliance with various regulatory requirements, internal requirements, and the requirements of clearing agents. TradeStation Securities and its clearing agents monitor required margin levels on an intra-day basis and, pursuant to such guidelines, require the customers to timely deposit additional collateral or to reduce positions when necessary.

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TradeStation Securities provides guarantees to its clearing organization and exchanges under their standard membership agreements, which require members to guarantee the performance of other members. Under the agreements, if another member becomes unable to satisfy its obligations to the clearing organization and exchanges, other members would be required to meet shortfalls. TradeStation Securities’ liability under these arrangements is not quantifiable and may exceed the cash and securities it has posted as collateral. However, the possibility of the company being required to make payments under these arrangements is remote. Accordingly, no liability has been recorded for these potential events.

Recently Issued Accounting Standards

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also prescribes guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The cumulative effect of adopting FIN 48 is required to be reported as an adjustment to the opening balance of retained earnings (or other appropriate components of equity) in the year of adoption. We believe that the adoption of FIN 48, effective January 1, 2007, will not have a material impact on our consolidated financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement addresses how to calculate fair value measurements required or permitted under other accounting pronouncements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim statements within those years. We believe that the adoption of SFAS No. 157 will not have a material impact on our consolidated financial position, results of operations or cash flows.

We adopted SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”), effective January 1, 2006. SFAS 123R, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation, supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of income based on their fair values. Pro forma disclosure is no longer an alternative. We have adopted the fair value provisions of SFAS 123R using the modified-prospective-transition method. Under the modified-prospective-transition method of adoption, compensation cost is recognized for all stock-based awards issued after the effective date, and for the portion of outstanding awards for which the requisite service has not yet been rendered (i.e., stock-based awards granted prior to the effective date, but not yet vested as of the effective date). Under this method of transition, results for prior periods are not restated. As a result of adopting SFAS 123R, the charge to income before income taxes for the year ended December 31, 2006 was $1.8 million of stock-based compensation included in employee compensation and benefits in our consolidated statement of income. The impact of adopting SFAS 123R was a reduction to net income for the year ended December 31, 2006 of $1.4 million. The impact of adopting SFAS 123R on both basic and diluted earnings per share for the year ended December 31, 2006 was a reduction of $0.03 per share.

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SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation costs to be reported as a financing cash flow, rather than as an operating cash flow as required under the previous literature. This requirement reduced net operating cash flows and increased net financing cash flows by approximately $2.3 million during the year ended December 31, 2006. See Note 9 of Notes to Consolidated Financial Statements – STOCK-BASED COMPENSATION for further information regarding our stock-based compensation assumptions and expenses.

We adopted SFAS No. 154, Accounting Changes and Error Corrections, effective January 1, 2006. SFAS No. 154, which is a replacement of APB Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements, provides guidance on accounting for, and reporting of, accounting changes and error corrections. It requires a voluntary change in accounting principle to be applied retrospectively to all prior periods’ financial statements as if the principle had always been applied. Previously, voluntary changes in accounting principles were required to be recognized by including the cumulative effect of changing to the new accounting principle in net income during the period of change. The adoption of SFAS No. 154 did not have any impact on our consolidated financial position, results of operations or cash flows.

We adopted the guidance of SEC Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements as of December 31, 2006. SAB No. 108 addresses the diversity in practice by registrants when quantifying the effect of an error on the financial statements. SAB No. 108 provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements by requiring public companies to utilize a “dual-approach” when assessing the quantitative effects of financial misstatements. This dual approach includes both an income-statement-focused assessment and a balance-sheet-focused assessment. The adoption of the guidance in SAB No. 108 did not have a material impact on our consolidated financial position, results of operations or cash flows.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk generally represents the risk of loss that may result from the potential change in the value of a financial instrument as a result of fluctuations in interest rates or market prices. We have established policies, procedures and internal processes governing our management of market risks in the normal course of our business operations. We do not hold any market risk sensitive instruments for trading purposes.

TradeStation Securities seeks to manage the risks associated with our customers’ activities by requiring customers to maintain margin collateral and reduce concentrated positions in compliance with regulatory and internal guidelines. TradeStation Securities monitors required margin levels on an intra-day basis and, pursuant to such guidelines, requires customers to deposit additional collateral, or to reduce positions, when necessary.

As a self-clearing broker-dealer, TradeStation Securities holds interest-earning assets, mainly customer funds required to be segregated in compliance with federal regulations. These funds totaled $417.5 million at December 31, 2006. Interest-earning assets are financed primarily by short-term interest-bearing liabilities, which totaled $516.4 million at December 31, 2006, in the form of customer cash balances. In addition to earning interest on the customer funds segregated in compliance with federal regulations, TradeStation Securities earns a net interest spread on the difference between amounts earned on customer margin loans and amounts

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paid on customer cash balances. Since TradeStation Securities establishes the rate paid on customer cash balances and the rate charged on customer margin loans, a substantial portion of our interest rate risk is under our direct management. TradeStation Securities also earns interest from interest revenue-sharing arrangements with its clearing agents. We estimate that, based upon our brokerage customer balances at December 31, 2006, for each basis point increase or decrease in interest rates retained by the company there is an annual impact of approximately $44,000 to our net income.

Changes in interest rates also affect the interest earned on our cash and cash equivalents, marketable securities and security deposits. To reduce this interest rate risk, we are currently invested in investments with short maturities or investments that can be tendered for sale upon notice of no longer than seven days. As of December 31, 2006, our cash and cash equivalents consisted primarily of interest-bearing cash deposits and money market funds, our marketable securities consisted primarily of Federal tax-exempt variable rate demand note securities (see Note 2 of Notes to Consolidated Financial Statements – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Marketable Securities), and our security deposits consisted primarily of treasury bills and interest-bearing cash deposits. We estimate that, based upon the balances of our cash and cash equivalents, marketable securities and security deposits as of December 31, 2006, each basis point increase or decrease in interest rates, results in an annual impact of approximately $6,000 to our net income.

TradeStation Securities seeks to manage risks associated with its securities borrowing activities by requiring credit approvals for counterparties, by monitoring the collateral values for securities borrowed on a daily basis and by obtaining additional collateral as needed. See Note 15 of Notes to Consolidated Financial Statements – COMMITMENTS AND CONTINGENCIES – General Contingencies and Guarantees.

Our revenues and financial instruments are denominated in U.S. dollars, and we do not invest in derivative financial instruments.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements and notes thereto and the reports of the independent registered public accounting firm set forth on pages F-1 through F-34 are filed as part of this report and incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, an evaluation of the effectiveness of the design and operation of the company’s disclosure controls and procedures was made under the supervision and with the participation of the company’s management, including the Chief Executive Officer and the Chief Financial Officer. Based on that evaluation, the company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the company’s disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this report. A system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

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See pages F-2 through F-4 of the Consolidated Financial Statements for Management’s Report on Internal Control Over Financial Reporting and the related Report of Independent Registered Public Accounting Firm, each of which are filed as part of this report and incorporated herein by reference.

There have been no changes in the company’s internal control over financial reporting that occurred during the fourth quarter of 2006 that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

Not applicable.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information about Directors and Executive Officers required to be furnished pursuant to this item is incorporated by reference from our definitive proxy statement for our 2007 annual meeting of stockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2006 (“2007 Proxy Statement”).

We have a Code of Ethics and Business Conduct that applies to all directors, officers and employees, including our principal executive officers, our principal financial and accounting officer, and our corporate controller. You can find our Code of Ethics and Business Conduct in the “Investor Relations” section of www.tradestation.com. We will post any amendments to the Code of Ethics and Business Conduct, and any waivers that are required to be disclosed by the rules of the SEC or any other regulatory agency, on that Web site.

ITEM 11. EXECUTIVE COMPENSATION

The information required to be furnished pursuant to this item is incorporated by reference from our 2007 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required to be furnished pursuant to this item, with the exception of the equity compensation plan information presented below, is incorporated by reference from our 2007 Proxy Statement.

Equity Compensation Plan Information

The following sets forth information as of December 31, 2006 with respect to compensation plans under which the Company’s Common Stock is authorized for issuance:

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	(1) 2,702,564	$    6.58	(2) 5,106,662
Equity compensation plans not approved by security holders	—	—	—
Total (1)	2,702,564	$    6.58	5,106,662

(1) Includes outstanding options to purchase 3,267 shares of common stock at a weighted-average exercise price of $8.06 assumed in the 1999 acquisition of Window On Wall Street and options to purchase 79,096 shares of common stock at a weighted-average exercise price of $7.44 assumed in the 2000 acquisition of TradeStation Securities.

50

(2) Includes 4,783,023, 88,000, and 235,639 shares of common stock available for issuance under the Incentive Stock Plan, Nonemployee Director Stock Option Plan and Employee Stock Purchase Plan, respectively.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required to be furnished pursuant to this item is incorporated by reference from our 2007 Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required to be furnished pursuant to this item is incorporated by reference from our 2007 Proxy Statement.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Documents filed as part of this report.

1. Financial Statements. The Financial Statements and notes thereto and the reports of the independent registered public accounting firm thereon set forth on pages F-1 through F-34 herein are filed as part of this report and incorporated herein by reference.

2. Exhibits.

Exhibit Number	Description
3.1	TradeStation Group’s Articles of Incorporation, as amended **
3.2	TradeStation Group’s Bylaws **
4.1	Form of Specimen Certificate for TradeStation Group’s Common Stock (incorporated by reference to Exhibit 4.1 to OnlineTrading.com Group, Inc.’s Amendment No. 3 to Registration Statement No. 333-34922 on Form S-4 filed with the Commission on November 21, 2000)
10.1	onlinetradinginc.com corp. 1999 Stock Option Plan***#
10.2	Window On WallStreet Inc. 1997 Long Term Incentive Plan***#
10.3	TradeStation Group, Inc. Employee Stock Purchase Plan***#
10.4	Amendment to TradeStation Group, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.4 to TradeStation Group’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005) #
10.5	TradeStation Group, Inc. Amended and Restated Incentive Stock Plan (incorporated by reference to Exhibit “B” to TradeStation Group’s Annual Proxy Statement dated April 28, 2006) #
10.6	First Amendment to TradeStation Group, Inc. Incentive Stock Plan (filed herewith) #
10.7	TradeStation Group, Inc. Amended and Restated Nonemployee Director Stock Option Plan (incorporated by reference to Exhibit 10.5 to TradeStation Group’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001) #
10.8	TradeStation Group, Inc. Amended and Restated Nonemployee Director Stock Option Plan effective as of March 8, 2007 (filed herewith) #
10.9	Form of Executive Officer Stock Option Agreement (filed herewith) #
10.10	Restricted Stock Agreement, dated as of February 20, 2007, between TradeStation Group, Inc. and Salomon Sredni (filed herewith) #

52

10.11	Form of management continuity agreement, dated December 9, 2005, between TradeStation Group and each of the following executive officers: David H. Fleischman, Marc J. Stone, and Joseph Nikolson (incorporated by reference to Exhibit 1 to TradeStation Group’s Current Report on Form 8-K filed with the Commission on December 12, 2005) #
10.12	Lease Agreement, dated November 13, 2001, between Crossroads Business Park Associates LLP and TradeStation Group, Inc. (without exhibits and schedules) (incorporated by reference to Exhibit 10.27 to TradeStation Group’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001)
10.13	Lease Agreement, dated as of March 23, 2006, between The Goldman Sachs Group, Inc., Sublandlord, and TradeStation Group, Inc., Subtenant (without exhibits and schedules) (filed herewith)
10.14	Office/Showroom/Warehouse Lease Agreement dated June 12, 1996 between Springcreek Place Ltd. and Window On WallStreet Inc. (then named MarketArts, Inc.), as amended by Addendum to Lease dated October 12, 1998, and as further amended by Addendum to Lease dated May 28, 1999 (incorporated by reference to Exhibit 10.13 to Omega Research, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999)
10.15	Modification and Ratification of Lease Agreement, dated July 25, 2002, between Springcreek Place Ltd. and TradeStation Technologies, Inc. (incorporated by reference to Exhibit 10.14 to TradeStation Group’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002)
10.16	Rule 10b5-1 agreement, dated November 9, 2006, between TradeStation Group, Inc. and Sandler O’Neil & Partners L.P. (incorporated by reference to Exhibit 10.1 to TradeStation Group’s Current Report on Form 8-K filed with the Commission on November 9, 2006)
10.17	Form of Non-Competition and Non-Disclosure Agreement*
10.18	Form of Non-Competition Agreement +
10.19	Remote Processing Agreement, dated June 10, 2003, with SunGard Financial Systems, Inc. to provide the SunGard Phase3 System for the processing, clearing and settlement of trades (pricing schedules omitted) (incorporated by reference to Exhibit 10.1 to TradeStation Group’s Report on Form 10-Q for the quarter ended June 30, 2003)
10.20	Clearing Agreement with Bear, Stearns Securities Corp. ++
10.21	Stock Purchase Agreement, dated as of August 8, 2002, between Benedict Gambino and TradeStation Group, Inc. (incorporated by reference to Exhibit 10.23 to TradeStation Group’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002)

53

10.22	Stock Purchase Agreement, dated as of October 18, 2002, between Benedict S. Gambino and TradeStation Group, Inc. (incorporated by reference to Exhibit 10.24 to TradeStation Group’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002)
10.23	Stock Purchase Agreement, dated as of November 26, 2002, between Andrew A. Allen Family Limited Partnership and TradeStation Group, Inc. (incorporated by reference to Exhibit 10.25 to TradeStation Group’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002)
10.24	Form of Indemnification Agreement +
10.25	Office Lease dated August 13, 1998 between onlinetradinginc.com corp. and Highwood/Florida Holdings, L.P. ++
10.26	Sublease Agreement, dated June 21, 2002, between TradeStation Securities, Inc. and Steflind, Inc. (incorporated by reference to Exhibit 10.21 to TradeStation Group’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002)
10.27	Sublease Agreement, dated January 6, 2004, between TradeStation Securities, Inc. and JVB Financial, Inc. (incorporated by reference to Exhibit 10.10 to TradeStation Group’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003)
21.1	List of Subsidiaries (filed herewith)
23.1	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm, with respect to TradeStation Group, Inc.’s consolidated financial statements, management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting (filed herewith)
31.1	Certifications of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith)
31.2	Certifications of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith)
32.1	Certification of Chief Executive Officer under 18 U.S.C. §1350 (filed herewith)
32.2	Certification of Chief Financial Officer under 18 U.S.C. §1350 (filed herewith)

* Previously filed as part of the Rule 424(b)(1) Proxy Statement/Prospectus of TradeStation Group filed with the Securities and Exchange Commission (the “Commission”) on December 12, 2000.

** Previously filed as part of Registration Statement No. 333-34922 on Form S-4 of OnlineTrading.com Group, Inc. filed with the Commission on April 17, 2000.

54

*** Previously filed as part of Registration Statement No. 333-53222 on Form S-8 of TradeStation Group, Inc. filed with the Commission on January 5, 2001.

+ Previously filed as part of Registration Statement No. 333-32077 on Form S-1 of Omega Research, Inc. filed with the Commission on July 25, 1997.

++ Previously filed as part of Registration Statement No. 333-75119 of Form SB-2 of onlinetradinginc.com corp. filed with the Commission on March 26, 1999.

# Indicates a management contract or compensatory plan or arrangement.

55

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: March 9, 2007	TradeStation Group, Inc.
	By:	/s/ Salomon Sredni
		Salomon Sredni
		Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

/s/ Salomon Sredni Salomon Sredni	Chief Executive Officer, President and Director (Principal Executive Officer)	March 9, 2007
/s/ David H. Fleischman David H. Fleischman	Chief Financial Officer, Vice President of Finance and Treasurer (Principal Financial Officer)	March 9, 2007
/s/ Mark Glassman Mark Glassman	Chief Accounting Officer and Corporate Controller (Principal Accounting Officer)	March 9, 2007
/s/ William R. Cruz William R. Cruz	Director	March 9, 2007
/s/ Ralph L. Cruz Ralph L. Cruz	Director	March 9, 2007
/s/ Denise E. Dickins Denise E. Dickins	Director	March 9, 2007
/s/ Michael W. Fipps Michael W. Fipps	Director	March 9, 2007
/s/ Stephen C. Richards Stephen C. Richards	Director	March 9, 2007
/s/ Charles F. Wright Charles F. Wright	Director	March 9, 2007

56

TRADESTATION GROUP, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Management’s Report on Internal Control over Financial Reporting	F-2
Reports of Independent Registered Public Accounting Firm	F-3
Consolidated Balance Sheets as of December 31, 2006 and 2005	F-6
Consolidated Statements of Income for the Years Ended December 31, 2006, 2005 and 2004	F-7
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2006, 2005 and 2004	F-8
Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004	F-9
Notes to Consolidated Financial Statements	F-11

F-1

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of TradeStation Group, Inc. and its subsidiaries (collectively, the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment, at the reasonable assurance level, of the effectiveness of internal control over financial reporting as of December 31, 2006. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s system of internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Our management performed an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based upon the criteria in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment in accordance with the criteria in Internal Control-Integrated Framework issued by COSO, our management has concluded that the Company’s internal control over financial reporting was effective at the reasonable assurance level as of December 31, 2006.

Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006, has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report which is included in these financial statements.

March 8, 2007

/s/ Salomon Sredni

Salomon Sredni

Chief Executive Officer

/s/ David H. Fleischman

David H. Fleischman

Chief Financial Officer

Vice President of Finance and Treasurer

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of TradeStation Group, Inc.

We have audited management’s assessment, included in the accompanying Management’s Report On Internal Control Over Financial Reporting, that TradeStation Group, Inc. and subsidiaries (collectively, “TradeStation Group”) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). TradeStation Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that TradeStation Group maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, TradeStation Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the COSO criteria.

F-3

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of TradeStation Group as of December 31, 2006 and 2005, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2006 and our report dated March 8, 2007 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Certified Public Accountants

Fort Lauderdale, Florida

    March 8, 2007.

F-4

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of TradeStation Group, Inc.

We have audited the accompanying consolidated balance sheets of TradeStation Group, Inc. and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of TradeStation Group, Inc. and subsidiaries as of December 31, 2006 and 2005, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 9 to the consolidated financial statements, in 2006 the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of TradeStation Group, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 8, 2007 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Certified Public Accountants

Fort Lauderdale, Florida

    March 8, 2007.

F-5

TRADESTATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
	2006		2005
ASSETS:
Cash and cash equivalents, including restricted cash of $1,433,569 and $1,672,497 at December 31, 2006 and 2005, respectively	$	74,539,256	$	75,101,842
Cash segregated in compliance with federal regulations		417,501,417		426,061,999
Marketable securities		9,322,297		—
Receivables from brokers, dealers, clearing organizations and clearing agents		34,866,825		36,033,229
Receivables from brokerage customers, net		77,021,893		58,132,743
Property and equipment, net		8,734,890		3,212,019
Deferred income taxes, net		1,970,047		2,150,218
Deposits with clearing organizations		20,180,361		11,243,184
Other assets		4,950,427		3,198,711
Total assets	$	649,087,413	$	615,133,945
LIABILITIES AND SHAREHOLDERS’ EQUITY:
LIABILITIES:
Payables to brokers, dealers and clearing organizations	$	4,444,956	$	789,824
Payables to brokerage customers		516,355,890		523,895,972
Accounts payable		2,846,669		2,416,272
Accrued expenses		7,235,023		5,511,153
Total liabilities		530,882,538		532,613,221
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Preferred stock, $.01 par value; 25,000,000 shares authorized, none issued and outstanding		—		—
Common stock, $.01 par value; 200,000,000 shares authorized, 44,680,397 and 44,179,936 issued and outstanding at December 31, 2006 and 2005, respectively		446,804		441,799
Additional paid-in capital		72,188,245		67,524,908
Retained earnings		45,569,826		14,550,950
Accumulated other comprehensive income		—		3,067
Total shareholders’ equity		118,204,875		82,520,724
Total liabilities and shareholders’ equity	$	649,087,413	$	615,133,945

See accompanying notes.

F-6

TRADESTATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	For the Years Ended December 31,
	2006		2005		2004
REVENUES:
Brokerage commissions and fees	$	78,828,740	$	65,953,165	$	56,505,854
Interest income		44,586,720		24,489,696		6,357,973
Brokerage interest expense		4,634,946		3,512,606		710,047
Net interest income		39,951,774		20,977,090		5,647,926
Subscription fees		8,583,761		8,120,296		8,124,944
Other		1,180,930		1,948,418		1,989,194
Net revenues		128,545,205		96,998,969		72,267,918
EXPENSES:
Employee compensation and benefits		29,379,209		23,027,397		20,323,877
Clearing and execution		26,107,369		20,096,813		18,884,635
Data centers and communications		6,452,997		5,713,811		5,905,127
Advertising		4,314,691		3,829,972		2,736,983
Professional services		3,410,888		2,987,593		2,414,201
Occupancy and equipment		2,548,575		2,641,146		2,470,038
Depreciation and amortization		2,507,916		1,770,930		1,979,456
Other		3,853,965		4,414,641		2,740,809
Total expenses		78,575,610		64,482,303		57,455,126
Income before income taxes		49,969,595		32,516,666		14,812,792
INCOME TAX PROVISION		18,950,719		11,451,096		118,344
Net income	$	31,018,876	$	21,065,570	$	14,694,448
EARNINGS PER SHARE:
Basic	$	0.70	$	0.49	$	0.35
Diluted	$	0.67	$	0.48	$	0.33
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		44,591,437		42,728,461		41,657,981
Diluted		45,971,729		44,176,690		44,316,867

See accompanying notes.

F-7

TRADESTATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

	Preferred Stock	Common Stock					Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss)			Total
		Shares		Amount
BALANCE, December 31, 2003	—	41,446,436		$	414,464		$	50,540,630		$	(21,209,068	)	$	—		$	29,746,026
Issuance of common stock from exercise of stock options, warrants and purchase plan	—	411,218			4,113			1,082,519			—			—			1,086,632
Tax benefit from stock option exercises	—	—			—			3,798,134			—			—			3,798,134
Net income	—	—			—			—			14,694,448			—			14,694,448
BALANCE, December 31, 2004	—	41,857,654			418,577			55,421,283			(6,514,620	)		—			49,325,240
Issuance of common stock from exercise of stock options and purchase plan	—	2,322,282			23,222			6,822,861			—			—			6,846,083
Tax benefit from stock option exercises	—	—			—			5,280,764			—			—			5,280,764
Other	—	—			—			—			—			3,067			3,067
Net income	—	—			—			—			21,065,570			—			21,065,570
BALANCE, December 31, 2005	—	44,179,936			441,799			67,524,908			14,550,950			3,067			82,520,724
Issuance of common stock from exercise of stock options and purchase plan	—	639,861			6,399			2,540,217			—			—			2,546,616
Stock-based compensation	—	—			—			1,803,381			—			—			1,803,381
Excess tax benefit from stock option exercises	—	—			—			2,317,489			—			—			2,317,489
Repurchase and retirement of common stock	—	(139,400	)		(1,394	)		(1,997,750	)		—			—			(1,999,144	)
Other	—	—			—			—			—			(3,067	)		(3,067	)
Net income	—	—			—			—			31,018,876			—			31,018,876
BALANCE, December 31, 2006	—	44,680,397		$	446,804		$	72,188,245		$	45,569,826		$	—		$	118,204,875

See accompanying notes.

F-8

TRADESTATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended December 31,
	2006			2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	31,018,876		$	21,065,570		$	14,694,448
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,507,916			1,770,930			1,979,456
Stock-based compensation expense		1,803,381			—			—
Tax benefit from stock option exercises		—			5,280,764			3,798,134
Deferred income tax provision (benefit)		180,171			689,782			(148,461	)
Recovery of credit losses		(200,000	)		—			—
Foreign currency exchange gain		(90,379	)		—			—
Loss from disposal of fixed assets		64,612			—			—
Gain on investments in stock exchanges		(22,094	)		(123,320	)		—
(Increase) decrease in:
Cash segregated in compliance with federal regulations		8,560,582			(78,967,402	)		(346,562,324	)
Receivables from brokers, dealers, clearing organizations and clearing agents		1,166,404			(16,629,127	)		(18,877,270	)
Receivables from brokerage customers		(18,663,562	)		(1,148,121	)		(56,984,622	)
Deposits with clearing organizations		(8,937,177	)		3,255,191			(14,498,375	)
Other assets		(1,777,304	)		(530,493	)		(5,303,723	)
Increase (decrease) in:
Payables to brokers, dealers and clearing organizations		3,655,132			(2,300,126	)		2,531,170
Payables to brokerage customers		(7,540,082	)		103,186,799			420,190,474
Accounts payable		430,397			211,427			157,513
Accrued expenses		1,723,870			2,139,301			(461,732	)
Net cash provided by operating activities		13,880,743			37,901,175			514,688
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(8,095,399	)		(1,904,985	)		(1,370,891	)
Decrease in restricted cash		238,928			238,929			238,928
Purchase of marketable securities		(10,300,000	)		—			—
Proceeds from sale/maturity of marketable securities		1,000,000			—			1,997,060
Proceeds from exchange membership transactions		41,294			148,320			—
Purchase of investments in clearing organizations and stock exchanges		(41,497	)		—			(415,000	)
Net cash (used in) provided by investing activities		(17,156,674	)		(1,517,736	)		450,097
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		2,546,616			6,846,083			1,086,632
Excess tax benefit from stock option exercises		2,317,489			—			—
Repurchase and retirement of common stock		(1,999,144	)		—			—
Repayment of capital lease obligations		—			(3,053	)		(186,483	)
Net cash provided by financing activities		2,864,961			6,843,030			900,149
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS		87,312			3,067			—
NET (DECREASE) INCREASE IN UNRESTRICTED CASH AND CASH EQUIVALENTS		(323,658	)		43,229,536			1,864,934
UNRESTRICTED CASH AND CASH EQUIVALENTS, beginning of year		73,429,345			30,199,809			28,334,875
UNRESTRICTED CASH AND CASH EQUIVALENTS, end of year	$	73,105,687		$	73,429,345		$	30,199,809

F-9

TRADESTATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(continued)

	For the Years Ended December 31,
	2006		2005		2004
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest	$	4,634,946	$	3,512,776	$	718,536
Cash paid for income taxes	$	16,668,670	$	3,963,868	$	108,960

See accompanying notes.

F-10

TRADESTATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) DESCRIPTION OF BUSINESS

TradeStation Group, Inc. (the “Company”), a Florida corporation formed in 2000, is the successor to a publicly-held trading software company that was formed in 1982. TradeStation Group is listed on The NASDAQ Global Select Market under the symbol “TRAD.” TradeStation Securities, Inc., an online securities broker-dealer and futures commission merchant, and TradeStation Technologies, Inc., a trading technology company, are the Company’s two operating subsidiaries. The Company’s other subsidiary, TradeStation Europe Limited, a United Kingdom private company, authorized and regulated by the UK Financial Services Authority (“FSA”) as an introducing broker, is in its start-up phase.

TradeStation Securities offers TradeStation to the active trader and certain institutional trader markets. TradeStation is a direct market access (DMA) electronic trading platform that enables customers to design, test and monitor their own custom trading strategies and then automate them with direct-access order execution. The trading platform currently offers streaming real-time equities, equity options, futures and forex market data, manual or automated direct-access execution of equities, options and futures trades, and manual execution of forex trades through a third-party platform.

Beginning in September 2004, TradeStation Securities commenced equities self-clearing operations for its active trader client base and commenced omnibus clearing of its standardized equity option trades through Broadcort, a division of Merrill Lynch. Beginning in March 29, 2005, following issuance of its membership in the Options Clearing Corporation (“OCC”), TradeStation Securities commenced full self-clearing of its standardized equity options trades for its active trader client base. Clearing operations include the confirmation, settlement, delivery and receipt of securities and funds and record-keeping functions involved in the processing of securities transactions. As the clearing broker for its equities active trader client base, TradeStation Securities maintains custody and control over the assets in those clients’ accounts and provides the following back office functions: maintaining customer accounts; extending credit in a margin account to the customer; settling stock transactions with the National Securities Clearing Corporation (and, for options, with the OCC); settling commissions and clearing fees; preparing customer trade confirmations and statements; performing designated cashier functions, including the delivery and receipt of funds and securities to or from the customer; possession or control of customer securities, safeguarding customer funds, transmitting tax accounting information to the customer and to the applicable tax authorities; and forwarding prospectuses, proxies and other shareholder information to customers.

Prior to September 2004, all securities trades were cleared through Bear, Stearns Securities Corp. TradeStation Securities continues to clear institutional account trades through Bear, Stearns Securities Corp. on a fully-disclosed basis, or provides order execution services on a DVP/RVP basis with the orders cleared and settled by the client’s prime brokerage firm. Futures trades are cleared through R.J. O’Brien & Associates on a fully-disclosed basis, and for certain institutional futures accounts, order execution services are provided on a “give-up” basis with the orders cleared and settled by the client’s prime brokerage firm. Forex trades, through July 15, 2005, were cleared through R.J. O’Brien Foreign Exchange, and subsequent to July 15, 2005, through Gain Capital Group, Inc., each on a fully-disclosed basis. Subsequent to July 15, 2005, forex trades have been cleared through Gain Capital Group, Inc. on a fully-disclosed basis (Bear, Stearns Securities Corp., Broadcort, R.J. O’Brien & Associates, R.J. O’Brien Foreign Exchange, and Gain Capital Group, Inc. are collectively referred to as “clearing agents” or “clearing agent firms”).

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TradeStation Securities is a member and subject to the rules and requirements of the NASD, New York Stock Exchange, Securities Investor Protection Corporation, National Futures Association, the National Securities Clearing Corporation and Depository Trust Company (together, the Depository Trust & Clearing Corporation or “DTCC”), OCC, American Stock Exchange, Boston Options Exchange, Chicago Board Options Exchange, Chicago Stock Exchange, International Securities Exchange, NYSE ARCA and Philadelphia Stock Exchange. TradeStation Securities’ business is also subject to rules and requirements of the Securities and Exchange Commission, Commodity Futures Trading Commission and state regulatory authorities (the firm is registered to conduct its brokerage business in all 50 states and the District of Columbia). The DTCC and the OCC, together with other organizations, if any, that perform similar clearing or depository roles for their members, are collectively referred to in this report as “clearing organizations.”

TradeStation Technologies develops and offers strategy trading software tools and subscription services. TradeStation Europe Limited introduces United Kingdom and other European accounts to TradeStation Securities.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies adhered to in the preparation of these consolidated financial statements:

Principles of Consolidation – The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents – The Company classifies all highly-liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist primarily of cash and money market funds held primarily at three major financial institutions. Cash and cash equivalents at December 31, 2006 and 2005 include restricted cash of $1.4 million and $1.7 million, respectively, supporting the lease on the Company’s corporate headquarters. Based upon the year-end calculation of cash segregated in compliance with federal regulations (see below), the cash and cash equivalents balance may increase or decrease on the second business day subsequent to year end. On January 3, 2007, Cash and cash equivalents increased by $7.6 million and on January 4, 2006, Cash and cash equivalents decreased by $9.5 million. See Cash Segregated In Compliance With Federal Regulations below, and Note 15 – COMMITMENTS AND CONTINGENCIES – Restricted Cash.

Cash Segregated In Compliance With Federal Regulations – Cash segregated in compliance with federal regulations, consisting primarily of interest-bearing cash deposits of $417.5 million and $426.1 million as of December 31, 2006 and 2005, respectively, has been segregated in special reserve bank accounts at JPMorgan Chase Bank, N.A. or one of its banking affiliates for the exclusive benefit of customers under Rule 15c3-3 of the Securities Exchange Act of 1934 and other regulations. On the second business day of each month, if required, this amount is adjusted based upon the month-end calculation. On January 3, 2007, Cash

F-12

segregated in compliance with federal regulations decreased by $7.6 million, from $417.5 million (the balance as of December 31, 2006) to $409.9 million. On January 4, 2006, Cash segregated in compliance with federal regulations increased by $9.5 million, from $426.1 million (the balance as of December 31, 2005) to $435.6 million.

Marketable Securities – Marketable securities of $9.3 million as of December 31, 2006, consist primarily of variable rate demand note (“VRDN”) securities issued by various state agencies throughout Florida. The Company’s VRDN investments are federal tax-exempt instruments of high credit quality, secured by direct-pay letters of credit from a major financial institution. These investments have variable rates tied to short-term interest rates. Interest rates are reset weekly and these VRDN securities can be tendered for sale upon notice (generally no longer than seven days) to the remarketing agent. Although the Company’s VRDN securities are issued and rated as long-term securities (with maturities ranging from 2021 through 2023), they are priced and traded as short-term instruments. The Company classifies these short-term investments as available-for-sale in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 115, Accounting for Certain Instruments in Debt and Equity Securities. The investments are carried at cost or par value, which approximates the fair market value. As of December 31, 2006, there were no realized or unrealized gains or losses related to the Company’s marketable securities.

Receivables from Brokers, Dealers, Clearing Organizations and Clearing Agents – Receivables from brokers, dealers, clearing organizations and clearing agents consist primarily of securities borrowed from broker-dealers (see Securities Borrowed and Loaned below). In addition, the Company services some of its securities customer accounts through Bear, Stearns Securities Corp. and its futures and forex customer accounts through R.J. O’Brien & Associates and Gain Capital, Inc., respectively, on a fully-disclosed basis. These clearing agents provide services, handle TradeStation Securities’ customers’ funds, hold securities, futures and forex positions, and remit monthly activity statements to the customers on behalf of TradeStation Securities. The receivables from these clearing agents relate primarily to commissions earned by TradeStation Securities for trades executed and/or cleared by the clearing agents on behalf of TradeStation Securities. See Brokerage Commissions and Fees below, and Note 3 – RECEIVABLES FROM BROKERS, DEALERS, CLEARING ORGANIZATIONS AND CLEARING AGENTS.

Securities Borrowed and Loaned – Securities borrowed transactions are recorded at the amount of cash collateral advanced to the lender and require TradeStation Securities to provide the counterparty with collateral in the form of cash. TradeStation Securities monitors the market value of securities borrowed on a daily basis, and collateral is adjusted as necessary based upon market prices. As of December 31, 2006 and 2005, securities borrowed are carried at market value and are included in receivables from brokers, dealers, clearing organizations and clearing agents. TradeStation Securities does not lend securities to other broker-dealers. See Note 3 – RECEIVABLES FROM BROKERS, DEALERS, CLEARING ORGANIZATIONS AND CLEARING AGENTS.

Receivables from Brokerage Customers, Net – TradeStation Securities performs periodic credit evaluations and provides allowances for potential credit losses based upon their assessment of specifically identified unsecured receivables and other factors. See Note 4 – RECEIVABLES FROM BROKERAGE CUSTOMERS, NET.

Property and Equipment – Property and equipment are stated at cost less accumulated depreciation and amortization. Property and equipment are depreciated or amortized using the straight-line method over the estimated useful lives of the assets. Maintenance and repairs are charged to expense when incurred; betterments are capitalized and amortized over the lesser of their useful life

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or the remaining initial term of the lease. Upon the sale or retirement of assets, the cost and accumulated depreciation are removed from the accounts, and any gain or loss is recognized currently. See Note 5 - PROPERTY AND EQUIPMENT, NET.

Exchange Memberships – Exchange memberships, included in other assets, are recorded at cost and evaluated for impairment as circumstances may warrant. See Impairment of Long-Lived Assets below.

Impairment of Long-Lived Assets – The Company evaluates long-lived assets for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment losses are recognized if the carrying amount exceeds the sum of the undiscounted cash flows estimated to be generated by those assets. The amount of impairment loss is calculated as the amount by which the carrying value exceeds fair value. No impairment occurred during the years ended December 31, 2006, 2005 or 2004.

Related-Party Loans – Certain directors and executive officers of the Company maintain margin accounts with TradeStation Securities. There were no margin loans to directors or executive officers outstanding as of December 31, 2006 or 2005. Any margin loans made in these accounts are in the ordinary course of TradeStation Securities’ business on terms no more favorable than those available for comparable transactions in other brokerage accounts.

Software Development Costs – In accordance with SFAS No. 86, Accounting for the Cost of Capitalized Software to be Sold, Leased or Otherwise Marketed, the Company examines its software development costs after technological feasibility has been established to determine the amount of capitalization that is required. Based on the Company’s technology development process, technological feasibility is established upon completion of a working model. The costs that are capitalized are amortized over the period of benefit of the related products. For the periods presented, the technological feasibility of the Company’s products and the general release of such software generally coincide, and, as a result, capitalized software development costs were not significant as of December 31, 2006 or 2005. During 2006, 2005 and 2004, software development costs incurred prior to reaching technological feasibility (comprised primarily of employee compensation and benefits) were approximately $5.2 million, $4.5 million and $4.4 million, respectively.

Fair Value of Financial Instruments – The carrying amounts of cash and cash equivalents; cash segregated in compliance with federal regulations; marketable securities; receivables from brokers, dealers, clearing organizations and clearing agents; receivables from brokerage customers; payables to brokers, dealers and clearing organizations; payables to brokerage customers and accounts payable approximate fair value as of December 31, 2006 and 2005 due to the short-term nature of these instruments.

Securities and Futures Transactions – Customer securities transactions are recorded on a settlement date basis with such transactions generally settling three business days after the trade date. The Company records revenues and expenses related to customer securities transactions on a trade date basis (see Brokerage Commissions and Fees below). Securities owned by customers, including those that collateralize margin loans or similar transactions, are not reflected in the Company’s consolidated financial statements.

Customer futures and forex transactions and related revenues and expenses are recorded on a trade date basis (see Brokerage Commissions and Fees below). Futures and forex positions owned by customers are not reflected in the Company’s consolidated financial statements.

F-14

Brokerage Commissions and Fees – Brokerage commissions and related clearing costs are recorded on a trade date basis as transactions occur. Brokerage fees are recorded on an accrual basis when services are provided.

Net Interest Income – Interest income and brokerage interest expense are recorded on an accrual basis as interest is earned or incurred.

Subscription Fees – The Company provides investment analysis trading tools, including streaming real-time market information, to non-brokerage customers via the Internet in exchange for monthly subscription fee payments. In addition to these services, payment of subscription fees give customers access to certain customer support services such as telephone, electronic mail and web-site support. Revenues are recognized on a monthly basis as the service is provided. Payments received in advance of service are deferred and recognized on a monthly basis as service is provided.

Other Revenues – Other revenues are comprised mainly of royalties. In connection with its customer software products, the Company has entered into certain agreements with entities that market and sell financial market data subscriptions. Monthly payments are received pursuant to contracts with market data vendors under which the Company had agreed to enable its trading software products to be technically compatible with the vendors’ data services. The Company records these revenues monthly as they are earned, in accordance with the terms of the applicable contracts.

Advertising – Advertising is expensed when the initial advertisement takes place. There were no advertising costs capitalized as of December 31, 2006 and 2005.

Operating Leases – Rental payments, free rent, and leasehold and other incentives are generally recognized on a straight-line basis over the life of a lease. Leasehold improvements are amortized over the shorter of their economic life and the initial lease term. See Note 15 – COMMITMENTS AND CONTINGENCIES – Operating Leases.

Stock-Based Compensation – As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, prior to January 1, 2006 the Company accounted for its stock-based payments to employees using the intrinsic value method in accordance with the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees. During the years ended December 31, 2005 and 2004, the Company recognized no compensation cost for employee stock options because options granted under the Company’s plans had an exercise price equal to the fair value of the underlying common stock on the date of grant. See Note 9 – STOCK-BASED COMPENSATION for the pro forma effect on net income and earnings per share for the years ended December 31, 2005 and 2004, as if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee transactions.

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”) using the modified-prospective-transition method. Under the modified-prospective-transition method of adoption, compensation cost is recognized for all stock-based awards issued after the effective date of adoption, and for the portion of outstanding awards for which the requisite service has not yet been rendered (i.e., the portion of stock-based awards granted prior to the effective date of adoption that were not vested as of the effective date). Under this method of transition, results for prior periods are not restated. See Recently Issued Accounting Standards below, and Note 9 – STOCK-BASED COMPENSATION.

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Income Taxes – The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 requires that deferred income tax balances be recognized based on the differences between the financial statement and income tax bases of assets and liabilities using the enacted tax rates. See Note 11 - INCOME TAXES.

Earnings Per Share – Earnings per share is calculated in accordance with SFAS No. 128, Earnings per Share, which requires presentation of basic and diluted earnings per share. Basic earnings per share is computed by dividing the net income available to common shareholders by the weighted average shares of outstanding common stock during the period. The calculation of diluted earnings per share is similar to basic earnings per share except that the denominator includes dilutive common stock equivalents such as stock options and warrants. See Note 12 – EARNINGS PER SHARE.

Comprehensive Income – Comprehensive income is defined as the change in a business enterprise’s equity during a period arising from transactions, events or circumstances relating to non-owner sources, such as unrealized holding gains or losses on available-for-sale securities and foreign currency translation adjustments. It includes all changes in equity during a period except those resulting from investments by, or distributions to, owners. See Note 13 – COMPREHENSIVE INCOME.

Segment Information – Segment information is required to be presented in accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 requires segmentation if warranted by management’s approach to the Company’s business and the Company’s internal organization and disclosure of revenue and operating income based upon internal accounting methods. During each of the three years in the period ended December 31, 2006, management evaluated and operated its business as two segments: (i) brokerage services and (ii) software products and services. See Note 16—SEGMENT AND RELATED INFORMATION.

Foreign Currency Translation — Management has determined that the functional currency of the United Kingdom subsidiary is the U.S. dollar. Accordingly, monetary accounts maintained in currencies other than the dollar are re-measured into dollars in accordance with SFAS No. 52, Foreign Currency Translation. Therefore the effects of foreign currency translation adjustments arising from differences in exchange rates from period to period are included in net income.

Recently Issued Accounting Standards

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also prescribes guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The cumulative effect of adopting FIN 48 is required to be reported as an adjustment to the opening balance of retained earnings (or other appropriate components of equity) in the year of adoption. The Company believes that the adoption of FIN 48, effective January 1, 2007, will not have a material impact on its consolidated financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement addresses how to calculate fair value measurements required or permitted under other accounting

F-16

pronouncements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim statements within those years. The Company believes that the adoption of SFAS No. 157 will not have a material impact on its consolidated financial position, results of operations or cash flows.

The Company adopted SFAS 123R, effective January 1, 2006. SFAS 123R, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation, supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of income based on their fair values. Pro forma disclosure is no longer an alternative. The Company has adopted the fair value provisions of SFAS 123R using the modified-prospective-transition method. Under the modified-prospective-transition method of adoption, compensation cost is recognized for all stock-based awards issued after the effective date, and for the portion of outstanding awards for which the requisite service has not yet been rendered (i.e., stock-based awards granted prior to the effective date, but not yet vested as of the effective date). Under this method of transition, results for prior periods are not restated. As a result of adopting SFAS 123R, the charge to income before income taxes for the year ended December 31, 2006 was $1.8 million of stock-based compensation included in employee compensation and benefits in the Company’s consolidated statement of income. The impact of adopting SFAS 123R was a reduction to net income for the year ended December 31, 2006 of $1.4 million. The impact of adopting SFAS 123R on both basic and diluted earnings per share for the year ended December 31, 2006 was a reduction of $0.03 per share.

SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation costs to be reported as a financing cash flow, rather than as an operating cash flow as required under the previous literature. This requirement reduced net operating cash flows and increased net financing cash flows by approximately $2.3 million during the year ended December 31, 2006. See Note 9 – STOCK-BASED COMPENSATION for further information regarding the Company’s stock-based compensation assumptions and expenses.

The Company adopted SFAS No. 154, Accounting Changes and Error Corrections, effective January 1, 2006. SFAS No. 154, which is a replacement of APB Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements, provides guidance on accounting for, and reporting of, accounting changes and error corrections. It requires a voluntary change in accounting principle to be applied retrospectively to all prior periods’ financial statements as if the principle had always been applied. Previously, voluntary changes in accounting principles were required to be recognized by including the cumulative effect of changing to the new accounting principle in net income during the period of change. The adoption of SFAS No. 154 did not have any impact on the Company’s consolidated financial position, results of operations or cash flows.

The Company adopted the guidance of SEC Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements as of December 31, 2006. SAB No. 108 addresses the diversity in practice by registrants when quantifying the effect of an error on the financial statements. SAB No. 108 provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements by requiring public companies to utilize a “dual-approach” when assessing the quantitative effects of financial misstatements. This dual approach includes both an income-statement-focused assessment and a balance-sheet-focused assessment. The adoption of the guidance in SAB No.108 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

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(3) RECEIVABLES FROM BROKERS, DEALERS, CLEARING ORGANIZATIONS AND CLEARING AGENTS

Amounts receivable from brokers, dealers, clearing organizations and clearing agents consist of the following as of December 31, 2006 and 2005:

	2006		2005
Securities borrowed from broker-dealers	$	33,275,834	$	35,005,845
Fees and commissions receivable from clearing agents		1,505,136		988,688
Securities failed to deliver to broker-dealers and other		85,855		38,696
	$	34,866,825	$	36,033,229

(4) RECEIVABLES FROM BROKERAGE CUSTOMERS, NET

Receivables from brokerage customers, net, consist primarily of margin loans to TradeStation Securities’ brokerage customers of approximately $77.0 million at December 31, 2006 and approximately $58.1 million (net of a $226,000 allowance for a potential credit loss) at December 31, 2005. During the first quarter of 2006, the Company collected $200,000 of a previously fully-reserved receivable (relating to the $226,000 allowance referred to in the previous sentence). Securities owned by brokerage customers are held as collateral for margin loans. Such collateral is not reflected in the consolidated financial statements. At December 31, 2006 and 2005, TradeStation Securities was charging a base margin debit interest rate of 8.25% and 8.125% per annum, respectively, on debit balances in brokerage customer accounts.

“Margin” requirements determine the amount of equity required to be held in an account for the purchase of equities on credit. Margin lending is subject to the margin rules of the Board of Governors of the Federal Reserve System, the margin requirements of the NASD, limits imposed by clearing agent firms, and TradeStation Securities’ own internal policies. By permitting customers to purchase and maintain securities positions on margin, TradeStation Securities takes the risk that a market decline will reduce the value of the collateral securing its margin loan to an amount that renders the margin loan unsecured. Under applicable securities laws and regulations, once a margin account has been established, TradeStation Securities is obligated to require from the customer initial margin of no lower than 50% for purchases of securities and then is obligated to require the customer to maintain its equity in the account equal to at least 25% of the value of the securities in the account. However, TradeStation Securities’ current internal requirement is that the customer’s equity not be allowed to fall below 35% of the value of the securities in the account. If it does fall below 35%, TradeStation Securities requires the customer to increase the account’s equity to 35% of the value of the securities in the account (if not, TradeStation Securities will perform closing transactions to bring the customer account above the maintenance requirement). These requirements can be, and often are, raised as TradeStation Securities deems necessary for certain accounts, groups of accounts, securities or groups of securities. However, there is no assurance that a customer will be willing or able to satisfy a margin call or pay unsecured indebtedness owed to TradeStation Securities.

F-18

(5) PROPERTY AND EQUIPMENT, NET

Property and equipment, net, consist of the following as of December 31, 2006 and 2005:

	Estimated Useful Life In Years	2006			2005
Computers and software	3-5	$	15,812,040		$	9,036,532
Furniture and equipment	3-7		2,823,485			2,190,970
Leasehold improvements	5-10		1,097,197			673,789
			19,732,722			11,901,291
Accumulated depreciation and amortization			(10,997,832	)		(8,689,272	)
		$	8,734,890		$	3,212,019

Depreciation and amortization expense related to property and equipment was approximately $2.5 million, $1.8 million and $1.9 million, for the years ended December 31, 2006, 2005 and 2004, respectively.

(6) DEPOSITS WITH CLEARING ORGANIZATIONS

As a self-clearing broker-dealer, TradeStation Securities is subject to clearing organization and other cash deposit requirements which are, and may continue to be, large in relation to the Company’s total liquid assets, and which may fluctuate significantly from time to time based upon the nature and size of TradeStation Securities’ active trader clients’ trading activity. As of December 31, 2006 and 2005, TradeStation Securities had interest-bearing security deposits totaling approximately $20.2 million and $11.2 million, respectively, with clearing organizations for the self-clearing of stock trades and standardized equity option trades. The increase in deposits as of December 31, 2006, as compared to December 31, 2005, was related to increased deposit requirements for the self-clearing of standardized equity option trades. Deposits are recorded at market value.

(7) PAYABLES TO BROKERAGE CUSTOMERS

As of December 31, 2006, payables to brokerage customers consist primarily of cash balances in brokerage customer accounts. At December 31, 2006 and 2005, payables to customers totaled $516.4 million and $523.9 million, respectively. These funds are the principal source of funding for margin lending. At December 31, 2006 and 2005, TradeStation Securities was paying interest at the rate of 1.25% and 1.125% per annum, respectively, on cash balances in excess of $10,000 in brokerage customer accounts.

(8) SHAREHOLDERS’ EQUITY

Preferred Stock

The Company has authorized 25 million shares of preferred stock with a par value of $.01 per share. To date, no specific preferences or rights have been established with respect to any of these shares, nor have any of these shares been issued.

Common Stock

The Company has authorized 200 million shares of common stock with a par value of $.01 per share. As of December 31, 2006 and 2005, 44,680,397 and 44,179,936 shares, respectively, were issued and outstanding.

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Common Stock Buy Back Plan

In October 2006, the Company’s Board of Directors authorized, and the Company announced, the use of up to $60 million of the Company’s available and unrestricted cash, over a four-year period, to repurchase shares of its common stock in the open market or through privately-negotiated transactions. The stock repurchases are authorized to be made pursuant to a Rule 10b5-1 plan. The four-year period commenced on November 13, 2006 and ends on November 12, 2010. Pursuant to the buy back plan, $1,250,000 of company cash during each full calendar (and prorated amount during the first and last months) of the four-year period (i.e., $15 million per 12-month period and $60 million for the four-year period) has been authorized to be used to purchase company shares at prevailing prices, subject to compliance with applicable securities laws, rules and regulations, including Rules 10b5-1 and 10b-18. The buy back plan does not obligate the Company to acquire any specific number of shares in any period, and may be modified, suspended, extended or discontinued at any time without prior notice.

During the year ended December 31, 2006, the Company used approximately $2.0 million to purchase 139,400 shares of its common stock at an average price of $14.34 per share. All shares purchased have been retired.

Warrants

In connection with TradeStation Securities’ initial public offering, warrants to purchase up to 225,000 shares of TradeStation Securities’ common stock, at an exercise price of $11.55, were granted to the underwriters, with an expiration date of June 9, 2004. The Company assumed such warrants in connection with the 2000 merger acquisition of onlinetradinginc.com corp. (renamed TradeStation Securities) and, based on the 1.7172 to 1 merger conversion ratio, the underwriters were granted rights to purchase up to 386,369 shares of the Company’s common stock at an exercise price of $6.73. During the first half of 2004, the Company issued 1,851 shares of common stock associated with the exercise of warrants in exchange for the delivery and cancellation of warrants for 4,108 shares. All unexercised warrants expired in June 2004.

Stock Option Plans

See Note 9 – STOCK-BASED COMPENSATION for discussion of stock option plans and employee stock purchase plan.

(9) STOCK-BASED COMPENSATION

The Company believes that stock-based compensation is an integral way to provide incentives which will attract and retain highly-competent persons at all levels of the Company, as independent directors, and as independent contractors providing consulting or advisory services to the Company, by providing them opportunities to acquire the Company’s common stock or to receive monetary payments based on the value of such shares.

Stock Plans

The Company has reserved 12 million shares of its common stock for issuance under the TradeStation Group Incentive Stock Plan, as amended and restated (the “Incentive Stock Plan”). The Company’s Board of Directors authorized, and in June 2006, the Company’s shareholders approved, an increase in the number of shares to that 12 million number, as well as an extension of the expiration date of the Incentive Stock Plan to June 5, 2016. Under the Incentive Stock Plan, incentive and nonqualified stock options, stock appreciation rights, stock awards, performance shares and performance units are available to employees or consultants. Through

F-20

December 31, 2006, only stock options have been granted. The terms of each option agreement are determined by the Compensation Committee of the Board of Directors. Options are generally granted by the Company at an exercise price equal to the fair value (as defined in the Incentive Stock Plan) at the date of grant, vest over a period of five years, and expire ten years after the grant date.

On October 25, 2005, the Company (i) globally amended the terms of all outstanding stock option agreements pursuant to the Incentive Stock Plan for non-executive employees, and (ii) adopted a new form of stock option agreement for future grants to non-executive employees, in each case, to provide for the accelerated vesting of all unvested options in the event the Company undergoes a change in control and the optionee’s employment is terminated by the Company (or its successor) without cause within one year following the change in control. This change did not result in any additional compensation expense during 2005, as the employees did not receive any additional benefits as a result of the change and the unvested options continued to vest as employees continued to provide services to the Company.

In December 2006, the Company’s Board of Directors authorized an amendment to the Incentive Stock Plan to change the definition of fair market value to the closing price of the Company’s stock on the day of grant (or the closing price on the next trading date if shares were not traded on the date of grant).

At December 31, 2006, there were 4,783,023 shares available for future grants under the Incentive Stock Plan. In January and February 2007, the Company issued options to purchase an aggregate of 372,350 shares of common stock. Such options vest ratably in annual increments over a five-year period and are exercisable at $12.43 or $13.12 per share, which were the closing prices of the Company’s common stock on the dates the options were granted. All of the options were granted under the Incentive Stock Plan in the ordinary course, and expire, if they remain unexercised, on the tenth anniversary of the date on which they were granted. The Company also issued 152,439 restricted shares of Company common stock to its Chief Executive Officer, in connection with and at the time of his promotion to that position in February 2007. The restricted shares, which had a fair market value of $2.0 million, were granted as a stock award under the Incentive Stock Plan and vest ratably in annual increments over a five-year period.

In connection with the 2000 merger of TradeStation Technologies (formerly known as Omega Research, Inc.) and TradeStation Securities (formerly known as onlinetradinginc.com corp.), the Company assumed the outstanding options under TradeStation Securities’ 1999 Stock Option Plan. Those options generally vested ratably over a five-year period and their terms are ten years. As part of the 1999 acquisition of Window on WallStreet, the Company assumed all outstanding stock options to purchase Window on WallStreet common stock. Those options generally vested ratably over a four-year period and their terms are ten years.

The Company has reserved 350,000 shares of its common stock for issuance under the TradeStation Group Amended and Restated Nonemployee Director Stock Option Plan (the “Director Plan”). Under the Director Plan, an independent director is awarded an initial grant of up to 75,000 non-qualified stock options and annual grants of 7,000 non-qualified stock options. The terms of each option grant are determined by the Board of Directors. Options under this plan are generally granted by the Company at an exercise price equal to the fair value (as defined in the Director Plan) at the date of grant, vest over a period of three years, and expire five years after the grant date. Effective March 8, 2007, the Company’s Board of Directors authorized amendments to the Director Plan to change the definition of fair market value to the closing price of the Company’s stock on the day of grant (or the closing price on the next trading date if shares were not traded on the date of grant) and to amend the definition of change in control. At December 31, 2006, there were 88,000 shares available for future grants under the Director Plan.

F-21

See General Stock Option Information below for additional information about options outstanding as of December 31, 2006.

Employee Stock Purchase Plan

The Company has reserved 500,000 shares of common stock for issuance under the TradeStation Group Employee Stock Purchase Plan (the “Purchase Plan”). Under the Purchase Plan, participating employees may purchase common stock through accumulated payroll deductions. Through December 31, 2005, the exercise price for the options for each six-month Purchase Plan period was 85% of the lower of the fair market value of the Company’s common stock on the first and last business day of the Purchase Plan period. Effective with the offering period beginning January 3, 2006, the Purchase Plan was amended so that the exercise price for the options for each six-month Purchase Plan period is equal to 85% of the fair market value of the Company’s common stock on the exercise date (i.e., the end of the six-month period). During the years ended December 31, 2006, 2005 and 2004, 18,206, 25,832 and 24,011 shares of common stock were issued under the plan at an average price of $11.24, $6.60 and $6.04, respectively. At December 31, 2006, there were 235,639 shares available for future grants under the Purchase Plan.

Stock Compensation

In accordance with SFAS No. 123, Accounting for Stock-Based Compensation, in accounting for stock-based transactions with non-employees the Company records expense in the statement of income when such equity instruments are issued. There were no stock-based transactions with non-employees during the years ended December 31, 2006 or 2005; therefore, no such expense was recorded.

As permitted by SFAS No. 123, prior to January 1, 2006 the Company accounted for its stock-based payments to employees using the intrinsic value method in accordance with the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees. During the year ended December 31, 2005, the Company recognized no compensation cost for employee stock options because options granted under the Company’s plans had an exercise price equal to the fair value of the underlying common stock on the date of grant. The following table illustrates the pro forma effect on net income and earnings per share for the years ended December 31, 2005 and 2004, as if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee transactions.

	2005			2004
Net income, as reported	$	21,065,570		$	14,694,448
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of income taxes		(1,561,144	)		(1,750,793	)
Pro forma net income	$	19,504,426		$	12,943,655
Earnings per share:
As reported:
Basic	$	0.49		$	0.35
Diluted	$	0.48		$	0.33
Pro forma:
Basic	$	0.46		$	0.31
Diluted	$	0.45		$	0.30

F-22

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123R using the modified-prospective-transition method. Under the modified-prospective-transition method of adoption, compensation cost is recognized for all stock-based awards issued after the effective date of adoption, and for the portion of outstanding awards for which the requisite service has not yet been rendered (i.e., the portion of stock-based awards granted prior to the effective date of adoption that were not vested as of the effective date). Under this method of transition, results for prior periods are not restated.

The Company currently uses the Black-Scholes option pricing model to determine the fair value of stock option awards. The determination of the fair value of stock option awards on the date of grant using an option-pricing model is affected by the market price of the Company’s stock, exercise price of an award, expected term of award, volatility of the Company’s stock over the term of the award, risk-free interest rate and expected dividend yield. Separate assumptions are used for employee options (which vest over a five-year period) and non-employee director options (which vest over a three-year period).

For both employee and non-employee director stock option awards, the expected term of all options granted is estimated by taking a weighted average of the following factors: (i) the historical holding term from grant date to exercise date; (ii) the historical holding term from grant date to post-vest cancellation date; and (iii) the projected term for the outstanding options based on a midpoint scenario whereby all vested options would be exercised midway between the valuation date and the contractual term. The expected volatility assumptions are based upon a cumulative look-back of historical volatility calculated on a daily basis over the expected term of an award. The risk-free interest rate used in the option valuation model is based upon the U.S. Treasury note yield with a remaining term similar to the expected term of the particular options awarded. The Company does not anticipate paying any cash dividends in the foreseeable future and, therefore, an expected dividend yield of zero is used in the valuation model.

In accordance with SFAS 123R, the Company is required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. Historical data to estimate pre-vesting option forfeitures are used, and stock-based compensation expense is recorded only for those awards that are expected to vest. Estimated forfeitures were not used in the Company’s expense calculation for prior year pro forma footnote disclosures. All stock-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods.

The assumptions used to estimate the fair value of each option grant on the date of grant using the Black-Scholes model are as follows:

	2006	2005	2004
Risk free interest rate	4-5%	3-4%	3%
Dividend yield	—	—	—
Volatility ranges	60-75%	51- 63%	63- 67%
Weighed-average volatility	73%	62%	64%
Weighted average life (years)	3.8 – 5.8	4.0	4.0

As a result of adopting SFAS 123R, the charge to income before income taxes for the year ended December 31, 2006 was $1.8 million of stock-based compensation included in employee compensation and benefits in the Company’s consolidated statement of income. The impact of adopting SFAS 123R was a reduction to net income for the year ended December 31, 2006 of $1.4 million. The impact of adopting SFAS 123R on both basic and diluted earnings per share for the year ended December 31, 2006 was a reduction of $0.03 per share.

F-23

Effective January 1, 2006, in accordance with SFAS 123R, the Company recorded stock-based compensation related to the Purchase Plan. The amount related to the Purchase Plan is included in the $1.8 million discussed above. The amount of compensation expense for Purchase Plan transactions is the difference between the fair value of the stock to be purchased and the purchase price of the stock (i.e., the expense recorded is equal to the 15% discount). The stock-based compensation related to the Purchase Plan is recognized ratably over the six-month purchase period and recognized, along with any payroll withholdings, as a liability on the consolidated balance sheet. There was no liability at December 31, 2006, as the purchase was completed at December 29, 2006.

As of December 31, 2006, there was total unrecognized compensation cost of approximately $4.5 million, adjusted for estimated forfeitures, related to non-vested stock-based payments granted to the Company’s employees and non-employee directors. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures, and is expected to be recognized over a weighted average period of 3.1 years.

General Stock Option Information

The following table sets forth the summary of option activity under all of the Company’s stock option programs for the years ended December 31, 2006, 2005 and 2004:

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding, January 1, 2004	5,488,913		$	3.72	6.9
Granted	62,500			6.92
Canceled	(261,694	)		4.01
Exercised	(385,356	)		2.44
Outstanding, December 31, 2004	4,904,363			3.85	5.8
Granted	597,082			7.44
Canceled	(81,430	)		5.12
Exercised	(2,296,450	)		2.91
Outstanding, December 31, 2005	3,123,565			5.19	6.4
Granted	277,240			15.90
Canceled	(76,586	)		6.51
Exercised	(621,655	)		3.77
Outstanding, December 31, 2006	2,702,564			6.58	5.9	$	19,369,062
Vested and expected to vest in the future	2,623,152			6.48	5.9	$	19,069,482
Exercisable, December 31, 2006	1,459,049			5.10	4.7	$	12,622,894

F-24

The average fair value of options granted, and cash proceeds, tax benefits and intrinsic value related to total stock options exercised during the years ended December 31, 2006, 2005 and 2004 are as follows:

	2006		2005		2004
Weighted average fair value of options granted	$	10.52	$	3.75	$	3.43
Fair value of shares vested		1,561,275		1,566,334		2,190,682
Proceeds from stock options exercised		2,341,952		6,675,677		941,511
Tax benefits related to stock options exercised		2,442,792		5,280,764		3,798,134
Intrinsic value of stock options exercised		7,287,920		15,448,325		1,829,718

The intrinsic value represents the difference between the fair market value of the Company’s common stock on the date of exercise and the exercise price of each option.

During the year ended December 31, 2006, the benefit of tax deductions in excess of recognized compensation costs (realized through additional paid-in capital) from stock option exercises was approximately $2.3 million. During the year ended December 31, 2006, the benefit of tax deductions recognized through income was $125,000. During the years ended December 31, 2005 and 2004, the entire tax benefits disclosed above were realized through additional paid-in capital.

Upon the exercise of stock options, the Company issues new shares of common stock from its shares authorized and available for issuance. The Company recently announced a stock buy back plan. For further discussion, see Note 8 – SHAREHOLDERS’ EQUITY - Common Stock Buy Back Plan.

A summary of changes in unvested options in the Company’s stock option plans for the year ended December 31, 2006 is as follows:

	Number of Options		Weighted Average Grant Date Fair Value
Nonvested, January 1, 2006	1,748,745		$	2.83
Granted	277,240			10.52
Vested	(706,001	)		2.21
Forfeited	(76,469	)		3.71
Nonvested, December 31, 2006	1,243,515			4.76

(10) EMPLOYEE BENEFIT PLANS

The Company provides retirement benefits through a defined contribution 401(k) plan (the “401(k) Plan”) established during 1994. All employees with at least three months of continuous service are eligible to participate and may contribute up to 60% of their compensation up to the annual limit set by the Internal Revenue Service. Employer matching contributions are discretionary, as defined in the 401(k) Plan, and are vested 20% for each year of service. Matching contributions accrued under this plan were approximately $294,000, $253,000 and $227,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

F-25

(11) INCOME TAXES

The components of income tax provision for the years ended December 31, 2006, 2005, and 2004, are as follows:

	2006			2005		2004
Current income tax provision:
Federal	$	16,285,781		$	9,562,274	$	228,013
State		2,484,767			1,199,040		38,792
		18,770,548			10,761,314		266,805
Deferred income tax provision (benefit):
Federal		181,716			260,970		440,246
State		(1,545	)		428,812		(588,707	)
		180,171			689,782		(148,461	)
Total income tax provision	$	18,950,719		$	11,451,096	$	118,344

Deferred income tax assets (liabilities) are recorded when revenues and expenses are recognized in different periods for financial and income tax reporting purposes. The temporary differences that created deferred income tax assets (liabilities) are as follows as of December 31, 2006 and 2005:

	2006			2005
Deferred income tax assets (liabilities):
Net operating loss carryforwards	$	873,744		$	1,064,494
Tax credit carryforwards		124,350			124,350
Deferred revenue and accrued liabilities		571,593			656,586
Reserves and allowances		32,712			118,981
Property and equipment depreciation		141,587			106,466
Stock-based compensation		189,531			15,137
Difference in revenue recognition and other		71,095			64,204
Subtotal deferred income tax assets		2,004,612			2,150,218
Foreign currency translation gain		(34,565	)		—
Total deferred income tax assets, net	$	1,970,047		$	2,150,218

The following is a rollforward of the valuation allowance for the years ended December 31, 2005 and 2004:

Valuation allowance at December 31, 2003		8,631,613
Increase in deferred income tax assets		770,338
Decrease in deferred income tax assets generated by stock option exercises (recorded through additional paid-in capital)		(44,155	)
Reversal of valuation allowance		(5,300,142	)
Reversal of valuation allowance (recorded through additional paid-in capital)		(3,131,154	)
Valuation allowance at December 31, 2004		926,500
Reversal of valuation allowance		(926,500	)
Valuation allowance at December 31, 2005	$	—

F-26

In June 2004, the Company reversed approximately $8.4 million of the valuation allowance that was provided on its deferred income tax assets and, in December 2005, reversed the remaining valuation allowance of $926,500. In the opinion of management, it was more likely than not that these benefits would be realized. In accordance with SFAS No. 109, deferred income tax assets should be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred income tax assets will not be realized. On a periodic basis, management evaluates and determines the amount of the valuation allowance required and adjusts such valuation allowance accordingly. The 2004 decision to reverse approximately $8.4 million of the valuation allowance was triggered by events which revised the Company’s expectations of the amount of future taxable income. These events included receipt of the final approval by the DTCC for TradeStation Securities to begin self-clearing for equities, the rollout of TradeStation 8 (which included integrated options execution), as well as eight consecutive quarters of income from operations. The result of this reversal was a reduction of $5.3 million to the 2004 income tax provision in the consolidated statement of income and a $3.1 million credit to additional paid-in capital (relating to the tax benefit of stock option exercises). The 2005 decision to reverse the remaining portion of the valuation allowance was triggered by the Company’s continued profitability and the accelerated growth of its income before income taxes during the last four years, as well as the expectation that the Company will continue to have income before income taxes in future years. The result of this reversal was a reduction of $926,500 to the 2005 income tax provision recorded in the consolidated statement of income. On a periodic basis, management will continue to evaluate its remaining deferred income tax assets to determine if a valuation allowance is required.

The change in the valuation allowance in 2004 included an increase of approximately $770,000 relating to adjustments made to the deferred income tax assets and valuation allowance in connection with the filing of the 2003 income tax returns.

As of December 31, 2006, for financial reporting purposes, the Company had available for federal income tax purposes total net operating loss carryforwards and income tax credit carryforwards of approximately $2.5 million and $124,000, respectively, The net operating loss carryforwards expire in 2019 and the tax credits expire between 2010 and 2019. These amounts are subject to annual usage limitations of approximately $545,000. These limitations are cumulative to the extent they are not utilized in any year.

A reconciliation of the difference between the expected income tax provision using the statutory federal tax rate (35% in both 2006 and 2005 and 34% in 2004) and the Company’s actual income tax provision is as follows:

	2006			2005			2004
Income tax provision using statutory federal tax rate	$	17,489,358		$	11,380,833		$	5,036,349
State income tax provision, net of federal income tax benefit		1,628,166			1,194,408			755,393
Change in valuation allowance		—			(926,500	)		(5,300,142	)
Other, net		(166,805	)		(197,645	)		(373,256	)
Total income tax provision	$	18,950,719		$	11,451,096		$	118,344

In September 2006, a letter from the Internal Revenue Service was received notifying the Company that its federal income tax return for the year ended December 31, 2004 has been selected for examination. Management believes this examination, which is currently in progress, to be routine. While no assurances can be given, the Company believes that the results of this examination will not have a material impact on the Company’s consolidated financial position or results of operations.

F-27

(12) EARNINGS PER SHARE

Weighted average shares outstanding for the years ended December 31, 2006, 2005 and 2004 are calculated as follows:

	2006	2005	2004
Weighted average shares outstanding - basic	44,591,437	42,728,461	41,657,981
Impact of dilutive stock options after applying the treasury stock method	1,380,292	1,448,229	2,658,886
Weighted average shares outstanding - diluted	45,971,729	44,176,690	44,316,867

During the years ended December 31, 2006, 2005 and 2004, stock options outstanding of approximately 267,000, 0, and 793,000, respectively, were excluded from the calculation of diluted earnings per share because their weighted average effect would have been anti-dilutive.

(13) COMPREHENSIVE INCOME

A reconciliation of net income to comprehensive income is as follows:

	2006			2005		2004
Net income	$	31,018,876		$	21,065,570	$	14,694,448
Foreign currency translation		(3,067	)		3,067		—
Comprehensive income	$	31,015,809		$	21,068,637	$	14,694,448

(14) NET CAPITAL REQUIREMENTS

TradeStation Securities is subject to the net capital requirements of the SEC’s Uniform Net Capital Rule (Rule 15c3-1) and the Commodity Futures Trading Commission’s financial requirement (Regulation 1.17). TradeStation Securities calculates its net capital requirements using the “alternative method,” which requires the maintenance of minimum net capital, as defined by the rules, equal to the greater of (i) $250,000 and (ii) 2.0% of aggregate customer debit balances. Customer debit items are a function of customer margin receivables and may fluctuate significantly, resulting in a significant fluctuation in the Company’s net capital requirements. At December 31, 2006, TradeStation Securities had net capital of approximately $56.1 million (47.4% of aggregate debit items), which was approximately $53.7 million in excess of its required net capital of approximately $2.4 million. At December 31, 2005, TradeStation Securities had net capital of approximately $35.3 million (36.6% of aggregate debit items), which was approximately $33.4 million in excess of its required net capital of approximately $1.9 million.

(15) COMMITMENTS AND CONTINGENCIES

Restricted Cash

As of December 31, 2006, the Company has $1.4 million of restricted cash supporting a ten-year lease agreement for its corporate headquarters.

F-28

Line of Credit

In June 2005, TradeStation Securities entered into a loan agreement for a revolving credit facility which provided for borrowings up to $10 million. This credit facility expired on June 16, 2006. There were no borrowings under this line of credit, and the Company did not incur any unused line of credit fees through the expiration of this agreement.

Operating Leases

The Company has a ten-year lease expiring in August 2012 (with two 5-year renewal options) that commenced in the summer of 2002 for an approximately 70,000 square foot corporate headquarters in Plantation, Florida. Rent escalations, free rent, and leasehold and other incentives are recognized on a straight-line basis over the initial term of this lease.

In addition to its corporate headquarters, the Company has four non-cancelable operating leases for facilities (including its recently-opened Chicago office) with expirations ranging from February 2007 to February 2011. Future minimum lease payments as of December 31, 2006 under all operating leases are as follows:

2007	$	2,605,609
2008		2,179,467
2009		2,259,330
2010		2,302,500
2011		2,144,635
Thereafter		1,420,814
	$	12,912,355

During 2006, 2005 and 2004, total rent expense (which is included in occupancy and equipment and data centers and communications in the accompanying consolidated statements of income) was approximately $3.8 million, $3.2 million and $3.6 million, respectively.

Purchase Obligations

As of December 31, 2006, the Company had various purchase obligations through September 2010 of approximately $3.7 million as follows: $2.5 million during 2007; $573,000 during 2008; $569,000 during 2009; and $76,000 during 2010, respectively, related primarily to telecommunications services, software maintenance and back office systems.

Litigation and Claims

On September 5, 2003, Datamize, Inc., a Wyoming corporation, filed an Original Complaint for Patent Infringement against nine defendants, including TradeStation Securities, all of whom offer online securities trading services. The other defendants named were Fidelity Brokerage Services, Scottrade, Interactive Brokers Group, Instinet, Charles Schwab, CyberTrader, E*Trade Securities and Terra Nova Trading. The complaint was filed in the United States District Court, Eastern District of Texas. The complaint alleged that the online trading platforms and services the defendants offer to their customers infringe United States Patent No. 6,460,040 issued to Datamize on October 1, 2002. In December 2004, all claims against TradeStation Securities were settled by a settlement and license agreement between TradeStation Securities and Datamize for a lump-sum royalty payment which covers all uses since patent issuance and for the remaining years of the patents in question. The amount of the royalty attributable to the 2004 fourth quarter was not, and the amount attributable to any period subsequent to the 2004 fourth quarter was not and will not be, material to the Company’s consolidated financial position, results of operations or cash flows.

F-29

Three lawsuits were filed in 2003 by former principal owners of onlinetradinginc.com corp. (the predecessor of TradeStation Securities) against the Company, certain of its directors and executive officers and certain family partnerships owned by the two former Co-Chief Executive Officers. On July 25, 2003, Benedict S. Gambino, from whom the Company, as of October 18, 2002, purchased 2,417,000 shares of its common stock in a private transaction, filed a lawsuit against the Company and three of its executive officers, William R. Cruz, Ralph L. Cruz and Marc J. Stone, in the Circuit Court of Broward County, State of Florida. This lawsuit’s allegations included violation of the Florida Securities and Investor Protection Act, common law fraud, negligent misrepresentation, breach of fiduciary duty and breach of contract. On August 18, 2003, Andrew A. Allen Family Limited Partnership (owned and controlled by Andrew A. Allen), from whom the Company, as of November 26, 2002, purchased 1,000,000 shares of its common stock in a private transaction, filed a lawsuit against the same defendants in the same court. This lawsuit’s allegations include violation of the Florida Securities and Investor Protection Act, common law fraud, breach of fiduciary duty, negligent misrepresentation and fraudulent inducement. On August 28, 2003, Farshid Tafazzoli and E. Steven zum Tobel filed a lawsuit against the Company, William and Ralph Cruz, family partnerships owned and controlled by William and Ralph Cruz, Mr. Stone, Charles Wright and David Fleischman in the Circuit Court of Miami-Dade County, State of Florida. Mr. Tafazzoli’s claims relate to his family partnership’s sale, as of May 1, 2002, of 3,000,000 shares of Company common stock to family partnerships owned by William and Ralph Cruz, and Mr. zum Tobel’s claims relate to his family partnership’s sale, as of May 3, 2002, of 133,942 shares of Company common stock to Charles Wright. This lawsuit’s allegations include violation of the Florida Securities and Investor Protection Act, common law fraud and breach of fiduciary duty. Each of the three lawsuits has sought rescission of the share purchases and/or compensatory damages, plus interest, costs and attorneys’ fees.

The Tafazzoli/zum Tobel case is well into the discovery phase of litigation and, in the Allen case, the discovery phase has been completed, plaintiff’s motion to amend its complaint to add a claim for punitive damages was denied, and a trial has tentatively been scheduled for May 2007. The Gambino case has been settled and, pursuant to the settlement agreement dated November 3, 2006, was dismissed with prejudice. The Gambino settlement is not material to the Company’s consolidated financial position, results of operations or cash flows in any period.

The Company continues to believe all of the claims in the remaining two cases are baseless; however, no assurances can be given that a judge or jury will agree with the Company’s assessment.

TradeStation Securities is also engaged in routine regulatory matters and civil litigation or other dispute resolution proceedings, including matters which are currently pending relating to NASD OATS reporting, short sales procedures and short interest reporting, and two pending NASD arbitrations, incidental to, and part of the ordinary course of, its business. The NASD regulatory matters could ultimately result in censures, sanctions, fines and other negative consequences.

While no assurances can be given, the Company does not believe that the ultimate outcome of any of the above legal matters or claims will result in a material adverse effect on its consolidated financial position, results of operations or cash flows.

F-30

The Company decided, as of June 1, 2002, to no longer carry errors or omissions insurance that covers third-party claims made by brokerage customers or software subscribers as a result of alleged human or system errors, failures, acts or omissions. This decision was made based upon the Company’s assessment of the potential risks and benefits, including significant increases in premium rates, deductibles and coinsurance amounts, reductions in available per occurrence and aggregate coverage amounts, and the unavailability of policies that sufficiently cover the types of risks that relate to the Company’s business.

Management Continuity Agreements

In December 2005, the Company entered into a management continuity agreement with three of its executive officers. Each management continuity agreement provides for potential severance payments during the 100-day period following a change in control, as that term is defined in the agreement, in an amount equal to up to two years of the executive’s annual compensation (in the aggregate for all three executive officers, currently approximately $2.1 million). The management continuity agreements do not commit the Company to retain any executive’s services for any fixed period of time, do not provide for severance payments unless the Company undergoes a change in control, and do not represent new hires or appointments, as each executive has been serving in his current positions for several years.

General Contingencies and Guarantees

In the ordinary course of business, there are various contingencies which are not reflected in the consolidated financial statements. These include customer activities involving the execution, settlement and financing of various customer securities and futures transactions. These activities may expose the Company to off-balance sheet credit risk in the event the customers are unable to fulfill their contractual obligations.

In margin transactions, TradeStation Securities may be obligated for credit extended to its customers by TradeStation Securities or its clearing agents that is collateralized by cash and securities in the customers’ accounts. In connection with securities activities, TradeStation Securities also executes customer transactions involving the sale of securities not yet purchased (“short sales”), all of which are transacted on a margin basis subject to federal, self-regulatory organization and individual exchange regulations and TradeStation Securities’ internal policies. Additionally, TradeStation Securities may be obligated for credit extended to its customers by its clearing agents for futures transactions that are collateralized by cash and futures positions in the customers’ accounts. In all cases, such transactions may expose TradeStation Securities to significant off-balance sheet credit risk in the event customer collateral is not sufficient to fully cover losses that customers may incur. In the event customers fail to satisfy their obligations, TradeStation Securities may be required to purchase or sell financial instruments at prevailing market prices to fulfill the customers’ obligations.

TradeStation Securities seeks to manage the risks associated with its customers’ activities by requiring customers to maintain collateral in their margin accounts in compliance with various regulatory requirements, internal requirements, and the requirements of clearing agents. TradeStation Securities and its clearing agents monitor required margin levels on an intra-day basis and, pursuant to such guidelines, require the customers to deposit additional collateral or to reduce positions when necessary. For further discussion, see Note 4 – RECEIVABLES FROM BROKERAGE CUSTOMERS, NET.

F-31

TradeStation Securities borrows securities temporarily from other broker-dealers in connection with its broker-dealer business. TradeStation Securities deposits cash as collateral for the securities borrowed. Decreases in securities prices may cause the market value of the securities borrowed to fall below the amount of cash deposited as collateral. In the event the counterparty to these transactions does not return the cash deposited, TradeStation Securities may be exposed to the risk of selling the securities at prevailing market prices. TradeStation Securities seeks to manage this risk by requiring credit approvals for counterparties, by monitoring the collateral values on a daily basis, and by requiring additional collateral as needed.

The customers’ financing and securities settlement activities may require TradeStation Securities and its clearing agents to pledge customer securities as collateral in support of various secured financing sources, which may include bank loans. In the event the counterparty is unable to meet its contractual obligation to return customer securities pledged as collateral, TradeStation Securities may be exposed to the risk of needing to acquire the securities at prevailing market prices in order to satisfy its obligations. TradeStation Securities seeks to manage this risk by monitoring the market value of securities pledged on a daily basis.

TradeStation Securities provides guarantees to its clearing organization and exchanges under their standard membership agreements, which require members to guarantee the performance of other members. Under the agreements, if another member becomes unable to satisfy its obligations to the clearing organization or exchange, other members would be required to meet shortfalls. TradeStation Securities’ liability under these arrangements is not quantifiable and may exceed the cash and securities it has posted as collateral. However, management believes that the possibility of the Company being required to make payments under these arrangements is remote. Accordingly, no liability has been recorded for these potential events.

(16) SEGMENT AND RELATED INFORMATION

For each of the three years in the period ended December 31, 2006, the Company operated in two principal business segments: (i) brokerage services and (ii) software products and services. The Company evaluates the performance of its segments based on revenue and income before income taxes. The brokerage services segment represents the operations of TradeStation Securities and the software products and services segment represents the operations of TradeStation Technologies. Intercompany transactions between segments are based upon an intercompany licensing and support agreement and an expense-sharing agreement, which reflect current business relationships and complies with applicable regulatory requirements. All significant intercompany transactions and balances have been eliminated in consolidation.

	As of or for the Years Ended December 31,
	2006			2005			2004
Net revenues*:
Brokerage services
Revenues, excluding interest	$	79,215,779		$	66,267,069		$	56,759,608
Interest income		43,120,122			23,937,452			6,184,389
Interest expense		(4,634,946	)		(3,512,606	)		(710,047	)
		117,700,955			86,691,915			62,233,950
Software products and services
Revenues, excluding interest		38,104,121			30,633,185			26,206,384
Interest income		1,466,598			552,244			173,584
		39,570,719			31,185,429			26,379,968
Elimination of intercompany charges to brokerage services		(28,726,469	)		(20,878,375	)		(16,346,000	)
	$	128,545,205		$	96,998,969		$	72,267,918

F-32

	As of or for the Years Ended December 31,
	2006		2005		2004
Income before income taxes:
Brokerage services	$	31,497,590	$	18,488,506	$	5,080,997
Software products and services		18,472,005		14,028,160		9,731,795
	$	49,969,595	$	32,516,666	$	14,812,792
Income tax provision (benefit):
Brokerage services	$	12,257,163	$	7,208,344	$	1,515,929
Software products and services		6,693,556		4,242,752		(1,397,585	)
	$	18,950,719	$	11,451,096	$	118,344
Identifiable assets:
Brokerage services	$	601,187,727	$	575,763,557	$	457,181,965
Software products and services		47,899,686		39,370,388		22,493,864
	$	649,087,413	$	615,133,945	$	479,675,829
Depreciation and amortization**:
Brokerage services	$	781,593	$	702,316	$	699,799
Software products and services		1,726,323		1,068,614		1,279,657
	$	2,507,916	$	1,770,930	$	1,979,456
Capital expenditures:
Brokerage services	$	862,992	$	191,386	$	282,112
Software products and services		7,232,407		1,713,599		1,088,779
	$	8,095,399	$	1,904,985	$	1,370,891

* Revenues (all in U.S. dollars) derived from customers outside of the United States for the years ended December 31, 2006, 2005 and 2004 were approximately 11%, less than 10%, and 12%, respectively.

** Depreciation expense for certain shared corporate assets held in software products and services is partially allocated to brokerage services.

F-33

(17) UNAUDITED QUARTERLY FINANCIAL INFORMATION

The following tables summarize selected unaudited quarterly financial data for the years ended December 31, 2006 and 2005.

	2006
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter			Full Year
Net revenues	$	29,384,679	$	32,450,819	$	32,216,018	$	34,493,689		$	128,545,205
Total expenses		17,925,577		19,849,363		19,919,682		20,880,988			78,575,610
Income before income taxes		11,459,102		12,601,456		12,296,336		13,612,701			49,969,595
Net income		6,951,871		7,643,576		7,836,142		8,587,287			31,018,876
Earnings per share:
Basic	$	0.16	$	0.17	$	0.18	$	0.19		$	0.70
Diluted		0.15		0.17		0.17		0.19			0.67
Weighted average shares outstanding:
Basic		44,319,210		44,570,353		44,716,983		44,759,201			44,591,437
Diluted		45,922,914		45,916,057		45,993,658		46,054,285			45,971,729
	2005
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter			Full Year
Net revenues	$	21,840,994	$	23,345,334	$	24,539,731	$	27,272,910		$	96,998,969
Total expenses		15,955,415		15,846,201		15,663,442		17,017,245			64,482,303
Income before income taxes		5,885,579		7,499,133		8,876,289		10,255,665			32,516,666
Net income		3,778,579		4,677,125		5,270,203		7,339,663	*		21,065,570
Earnings per share:
Basic	$	0.09	$	0.11	$	0.12	$	0.17		$	0.49
Diluted		0.09		0.11		0.12		0.16			0.48
Weighted average shares outstanding:
Basic		41,868,052		42,173,423		43,147,365		43,725,038			42,728,461
Diluted		43,341,270		43,789,156		44,481,956		45,094,410			44,176,690

* The fourth quarter of 2005 includes the reversal of the Company’s remaining valuation allowance. See Note 11 – INCOME TAXES.

F-34

EXHIBIT INDEX

Exhibit Number	Description
3.1	TradeStation Group’s Articles of Incorporation, as amended **
3.2	TradeStation Group’s Bylaws **
4.1	Form of Specimen Certificate for TradeStation Group’s Common Stock (incorporated by reference to Exhibit 4.1 to OnlineTrading.com Group, Inc.’s Amendment No. 3 to Registration Statement No. 333-34922 on Form S-4 filed with the Commission on November 21, 2000)
10.1	onlinetradinginc.com corp. 1999 Stock Option Plan***#
10.2	Window On WallStreet Inc. 1997 Long Term Incentive Plan***#
10.3	TradeStation Group, Inc. Employee Stock Purchase Plan***#
10.4	Amendment to TradeStation Group, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.4 to TradeStation Group’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005) #
10.5	TradeStation Group, Inc. Amended and Restated Incentive Stock Plan (incorporated by reference to Exhibit “B” to TradeStation Group’s Annual Proxy Statement dated April 28, 2006) #
10.6	First Amendment to TradeStation Group, Inc. Amended and Restated Incentive Stock Plan (filed herewith) #
10.7	TradeStation Group, Inc. Amended and Restated Nonemployee Director Stock Option Plan (incorporated by reference to Exhibit 10.5 to TradeStation Group’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001) #
10.8	TradeStation Group, Inc. Amended and Restated Nonemployee Director Stock Option Plan effective as of March 8, 2007 (filed herewith) #
10.9	Form of Executive Officer Stock Option Agreement (filed herewith) #
10.10	Restricted Stock Agreement, dated as of February 20, 2007, between TradeStation Group, Inc. and Salomon Sredni (filed herewith) #
10.11	Form of management continuity agreement, dated December 9, 2005, between TradeStation Group and each of the following executive officers: David H. Fleischman, Marc J. Stone, and Joseph Nikolson (incorporated by reference to Exhibit 1 to TradeStation Group’s Current Report on Form 8-K filed with the Commission on December 12, 2005) #

i

Exhibit Number	Description
10.12	Lease Agreement, dated November 13, 2001, between Crossroads Business Park Associates LLP and TradeStation Group, Inc. (without exhibits and schedules) (incorporated by reference to Exhibit 10.27 to TradeStation Group’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001)
10.13	Lease Agreement, dated as of March 23, 2006, between The Goldman Sachs Group, Inc., Sublandlord and TradeStation Group, Inc., Subtenant (without exhibits and schedules) (filed herewith)
10.14	Office/Showroom/Warehouse Lease Agreement dated June 12, 1996 between Springcreek Place Ltd. and Window On WallStreet Inc. (then named MarketArts, Inc.), as amended by Addendum to Lease dated October 12, 1998, and as further amended by Addendum to Lease dated May 28, 1999 (incorporated by reference to Exhibit 10.13 to Omega Research, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999)
10.15	Modification and Ratification of Lease Agreement, dated July 25, 2002, between Springcreek Place Ltd. and TradeStation Technologies, Inc. (incorporated by reference to Exhibit 10.14 to TradeStation Group’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002)
10.16	Rule 10b5-1 agreement, dated November 9, 2006, between TradeStation Group, Inc. and Sandler O’Neil & Partners L.P. (incorporated by reference to Exhibit 10.1 to TradeStation Group’s Current Report on Form 8-K filed with the Commission on November 9, 2006)
10.17	Form of Non-Competition and Non-Disclosure Agreement*
10.18	Form of Non-Competition Agreement +
10.19	Remote Processing Agreement, dated June 10, 2003, with SunGard Financial Systems, Inc. to provide the SunGard Phase3 System for the processing, clearing and settlement of trades (pricing schedules omitted) (incorporated by reference to Exhibit 10.1 to TradeStation Group’s Report on Form 10-Q for the quarter ended June 30, 2003)
10.20	Clearing Agreement with Bear, Stearns Securities Corp. ++
10.21	Stock Purchase Agreement, dated as of August 8, 2002, between Benedict Gambino and TradeStation Group, Inc. (incorporated by reference to Exhibit 10.23 to TradeStation Group’s Annual Report on Form 10-K for the fiscal year ended December
	31, 2002)
10.22	Stock Purchase Agreement, dated as of October 18, 2002, between Benedict S. Gambino and TradeStation Group, Inc. (incorporated by reference to Exhibit 10.24 to TradeStation Group’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002)

ii

Exhibit Number	Description
10.23	Stock Purchase Agreement, dated as of November 26, 2002, between Andrew A. Allen Family Limited Partnership and TradeStation Group, Inc. (incorporated by reference to Exhibit 10.25 to TradeStation Group’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002)
10.24	Form of Indemnification Agreement +
10.25	Office Lease dated August 13, 1998 between onlinetradinginc.com corp. and Highwood/Florida Holdings, L.P. ++
10.26	Sublease Agreement, dated June 21, 2002, between TradeStation Securities, Inc. and Steflind, Inc. (incorporated by reference to Exhibit 10.21 to TradeStation Group’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002)
10.27	Sublease Agreement, dated January 6, 2004, between TradeStation Securities, Inc. and JVB Financial, Inc. (incorporated by reference to Exhibit 10.10 to TradeStation Group’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003)
21.1	List of Subsidiaries (filed herewith)
23.1	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm, with respect to TradeStation Group, Inc.’s consolidated financial statements, management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting (filed herewith)
31.1	Certifications of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith)
31.2	Certifications of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith)
32.1	Certification of Chief Executive Officer under 18 U.S.C. §1350 (filed herewith)
32.2	Certification of Chief Financial Officer under 18 U.S.C. §1350 (filed herewith)

* Previously filed as part of the Rule 424(b)(1) Proxy Statement/Prospectus of TradeStation Group filed with the Securities and Exchange Commission (the “Commission”) on December 12, 2000.

** Previously filed as part of Registration Statement No. 333-34922 on Form S-4 of OnlineTrading.com Group, Inc. filed with the Commission on April 17, 2000.

*** Previously filed as part of Registration Statement No. 333-53222 on Form S-8 of TradeStation Group, Inc. filed with the Commission on January 5, 2001.

+ Previously filed as part of Registration Statement No. 333-32077 on Form S-1 of Omega Research, Inc. filed with the Commission on July 25, 1997.

++ Previously filed as part of Registration Statement No. 333-75119 of Form SB-2 of onlinetradinginc.com corp. filed with the Commission on March 26, 1999.

# Indicates a management contract or compensatory plan or arrangement.

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EX-10.6

Exhibit 10.6

FIRST AMENDMENT

TO

TRADESTATION GROUP, INC. AMENDED AND RESTATED INCENTIVE

STOCK PLAN

FIRST AMENDMENT, dated December 12, 2006, to TradeStation Group, Inc. (the “Company”) Amended and Restated Incentive Stock Plan (the “Plan”), as authorized and directed by the Board of Directors of the Company at a meeting duly convened and held on December 12, 2006.

The Plan is hereby amended as set forth below. Capitalized terms used herein, if not herein defined, shall have the respective meetings ascribed to them in the Plan.

1. Fair Market Value. Section 14 of the Plan is hereby amended and restated in its entirety as follows:

“Fair Market Value. For purposes of this Plan and any Awards hereunder, Fair Market Value of Common Shares shall be the closing price for the Company’s Common Shares as reported on The NASDAQ Stock Market (or such other exchange or consolidated transaction reporting system on which such Common Shares are primarily traded) on the date of grant (or the closing price on the next trading date if Common Shares were not traded on the date of grant); provided, however, that, if the Company’s Common Shares are not at the applicable time readily tradeable on a national securities exchange or other market system, Fair Market Value shall mean the amount determined in good faith by the Committee as the fair market value of the Common Shares of the Company.”

2. Restrictions and Limitations Applicable to Certain Awards. The following is hereby added to the end of Section 4 of the Plan:

“With respect to Stock Awards, Performance Shares and Performance Units, in no event shall a sale or any other disposition, in whole or in part, of the Common Shares contained in the Award (other than in the case of death, disability or retirement, or change in control of the Company) be permitted prior to the first anniversary of the Award (or, if the Award is not a performance-based award, the third anniversary), and the Company shall have the right and obligation (except there shall be no obligation in the case of death, disability or retirement, or change in control of the Company) to reacquire the Common Shares contained in the Award, for no consideration, if the Award recipient’s employment or engagement by the Company terminates earlier than the first anniversary of the Award (or, if the Award is not a performance-based award, the third anniversary). With respect to any eligible Award recipient, the foregoing Award restrictions and limitations may be lessened or not included at all in the Award (an “exception”), provided that the number of Common Shares subject to the exception, when combined with all other Common Shares that have been subject to an exception, (i) do not exceed 5% of the total number of Common Shares reserved under this Plan and (ii) do not exceed, at the time of the Award, 5% of the Common Shares that remain (inclusive of the Award) available for issuance under the Plan.”

3. Incorporation of Amendments. The foregoing amendments may be seamlessly integrated and incorporated in the applicable sections of all published versions of the Plan, and this First Amendment may be separately publicly filed or otherwise published or disclosed as required or appropriate to comply with applicable laws, rules and regulations or for any other legitimate purpose.

4. No Other Amendments. Except as set forth in this First Amendment, the Plan has not been modified (since the date of its amendment and restatement) and remains of full force and effect.

The undersigned, as Secretary of the Company, hereby certifies that this document accurately reflects the amendments to the Plan authorized and directed to be made by the Board of Directors of the Company on December 12, 2006, as permitted under Section 17 of the Plan, and that the Board unanimously agreed that such amendments, individual and in the aggregate, are not material amendments and do not require the approval of the Company’s shareholders.

/s/ Marc J. Stone

Marc J. Stone, Secretary

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EX-10.8

Exhibit 10.8

TRADESTATION GROUP, INC.

AMENDED AND RESTATED

NONEMPLOYEE DIRECTOR STOCK OPTION PLAN

1. Purpose. The purpose of the Plan is to attract and retain outstanding individuals to serve as members of the Board of Directors of TradeStation Group, Inc. (the “Company”) by providing such persons opportunities to acquire common stock, $.01 par value, of the Company (“Common Shares”), thereby strengthening the mutuality of interest between such persons and the Company’s shareholders.

2. Shares Reserved under the Plan. There is hereby reserved for issuance under the Plan an aggregate of Three Hundred Fifty Thousand (350,000) Common Shares, which shall be authorized but unissued shares, reduced by an aggregate amount of shares of common stock, $.01 par value, of Omega Research, Inc., the predecessor of the Company (“Omega Research”), issued by Omega Research prior to December 29, 2000 pursuant to the exercise of options granted under the Plan. If there is a lapse, expiration, termination or cancellation of any option granted under the Plan by the Company or Omega Research, all unissued shares subject to or reserved for such option may again be used for new options granted under the Plan.

3. Participation. Participation in the Plan is limited to members of the Board of Directors who are not salaried officers or employees of the Company or any of its direct or indirect subsidiaries (a “Nonemployee Director” or “Participant”).

4. Options to be Granted under the Plan. Effective on or about the date of a Nonemployee Director’s initial election to the Board of Directors (which initial election shall be deemed to have occurred when elected by the Board of Directors of either the Company, Omega Research or onlinetradinginc.com corp.), each Nonemployee Director may be awarded nonqualified stock options to purchase up to a maximum of Seventy-Five Thousand (75,000) Common Shares (the “Initial Option”). The actual number of stock options awarded to each Nonemployee Director comprising the Initial Option shall be determined by the Board of Directors as it deems necessary or advisable and in the best interests of the Company in order to attract and obtain outstanding and highly qualified candidates to serve on the Company’s Board of Directors. Upon each re-election of such Nonemployee Director to the Board of Directors at the Company’s annual meeting of shareholders (“Annual Meeting”) commencing with the Annual Meeting held on June 18, 2001, each Nonemployee Director shall automatically be awarded an additional nonqualified stock option (the “Additional Option”) to purchase Seven Thousand (7,000) Common Shares, provided, however, that, unless the Nonemployee Director has been elected as a director at the Company’s previously-held, regularly-scheduled Annual Meeting (in which case the following exception is not intended to, and shall not, apply), such Nonemployee Director shall not be granted such Additional Option upon such re-election if such Nonemployee Director was granted an Initial Option in the immediately preceding twelve (12)-month period upon his or her initial election to the Board of Directors in accordance with this Section 4. The Company is authorized to provide the Participant with a stock option agreement consistent with the terms of the Plan.

5. Option Exercise Price. Each option granted under the Plan shall be exercisable at an option price equal to 100% of the Fair Market Value (as defined in Section 10 hereof) of the Common Shares on the date of grant hereunder.

6. Limitations on Exercise. Any option granted under the Plan may be exercised (in accordance with Section 7 hereof) in whole or in part, from time to time after the date granted, subject to the following limitations:

(a) No option granted hereunder may be exercised during the first year following the date such option was granted. Thereafter, each option may be exercised:

(i) to a maximum cumulative extent of one-third (1/3) of the total shares covered by the option on or after the first anniversary of the date the option was granted;

(ii) to a maximum cumulative extent of two-thirds (2/3) of the total shares covered by the option on or after the second anniversary of the date the option was granted; and

(iii) to a maximum cumulative extent of 100% of the total shares covered by the option on or after the third anniversary of the date the option was granted.

Notwithstanding the limitations of Section 6(a) above, any option granted under the Plan shall become fully exercisable upon the death of the Nonemployee Director while serving on the Board of Directors or upon the Retirement (as hereinafter defined in this Section 6(b)) of the Nonemployee Director if such death or Retirement occurs on or after the first anniversary of the date such option was issued. For these purposes, “Retirement” means a Nonemployee Director’s termination of service as a member of the Board of Directors after age 70 or at any time with the consent of the Board of Directors. Further, notwithstanding the limitations of Section 6(a) above, any option granted under the Plan shall become fully exercisable upon a Change in Control. For these purposes, a “Change in Control” means the occurrence of any of the following: (A) any person or entity unaffiliated with the Company is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Act of 1933, as amended), directly or indirectly, of securities of the Company representing more than fifty (50%) of the combined voting power of the Company’s then outstanding securities; (B) a merger or consolidation of the Company with any other corporation or other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, provided, however, that a merger or consolidation effected to implement a reorganization or recapitalization of the Company (or similar transaction) in which no person or entity acquires more than fifty (50%) of the combined voting power of the Company’s then outstanding securities shall not constitute a Change in Control of the Company; or (C) the consummation of the sale or disposition by the Company, directly or indirectly, of all or substantially all of the Company’s assets or accounts other than (x) the sale or disposition of all or substantially all of the assets of the Company to a subsidiary of the Company or to a person or persons who beneficially own, directly or indirectly, at least fifty percent (50%) or more of the combined voting power of the outstanding voting securities of the Company at the time of the sale or (y) pursuant to a spin-off type transaction, directly or indirectly, of such assets to the stockholders of the Company.

2

Notwithstanding the foregoing, in no event shall a Change in Control be deemed to have occurred, with respect to a Nonemployee Director, if the Nonemployee Director is part of a purchasing group which consummates a transaction causing a Change in Control. A Nonemployee Director shall be deemed “part of a purchasing group” for purposes of the preceding sentence if the Nonemployee Director is a direct or indirect equity participant in the purchasing company or group; provided however, that the Nonemployee Director shall not be considered part of a purchasing group if the Nonemployee Director owns, directly or indirectly, 1% or less of the outstanding securities of the purchasing company or group.

For stock options issued prior to March 8, 2007, the definitions of Change in Control and Sale of the Company in effect under the Plan and used in the stock option agreements issued for those grants shall continue to apply, and the definition above shall apply to grants on or after March 8, 2007.

(b) Any option granted under the Plan shall not be exercised after the earliest to occur of any of the following events:

(i) more than ninety (90) days after termination of any Nonemployee Director’s service as a member of the Board of Directors for any reason other than death or Retirement (and then only to the extent that such Nonemployee Director could have exercised such option on the date of termination);

(ii) more than one hundred eighty (180) days after a Nonemployee Director’s Retirement from the Board of Directors (and then only to the extent that such Nonemployee Director could have exercised such option on the date of Retirement, after giving effect to Section 6(b) above);

(iii) more than twelve (12) months after death of a Nonemployee Director (and then only to the extent that such Nonemployee Director could have exercised such option on the date of death, after giving effect to Section 6(b) above); or

(iv) more than ten (10) years from the date the option is granted.

7. Method and Time of Exercise: Delivery of Certificates. Any option granted under the Plan shall be deemed exercised on the date written notice of exercise is received by the Secretary of the Company at the Company’s corporate headquarters. Such notice shall be accompanied by: (a) a check payable to the Company for the purchase price of the shares to be purchased; or (b) delivery of Common Shares owned by the Participant for at least six (6) months whose Fair Market Value on the date of exercise equals the purchase price of the shares to be purchased; or (c) any combination of the foregoing.

8. Nontransferability. Any option granted under this Plan shall not be transferable other than as required by law or by will or the laws of descent and distribution, and shall be exercisable, during the Participant’s lifetime, only by the Participant or the Participant’s guardian or legal representative. If a Nonemployee Director dies during the option period, any option granted to such Participant may be exercised by his estate or the person to whom the option passes by will or the laws of descent and distribution, but only in accordance with Section 6 above. Notwithstanding the foregoing, an option shall automatically become transferable to the Participant’s “immediate family members” or trusts or family partnerships for the benefit of such persons. For purposes of this Section 8, “immediate family members” shall mean the Participant’s spouse and lineal descendants.

3

9. Other Provisions; Securities Registration. The grant of any option under the Plan may also be subject to other provisions as counsel to the Company deems appropriate, including, without limitation, such provisions as may be appropriate to comply with federal or state securities laws and stock listing requirements.

10. Definition of Fair Market Value. For purposes of the Plan and any options granted hereunder, Fair Market Value of Common Shares shall be the closing price for the Company’s Common Shares as reported on The NASDAQ Stock Market (or such other exchange or consolidated transaction reporting system on which such Common Shares are primarily traded) on the date of grant (or the closing price on the next trading date if Common Shares were not traded on the date of grant); provided, however, that, if the Company’s Common Shares are not at the applicable time readily tradable on a national securities exchange or other market system, Fair Market Value shall mean the amount determined in good faith by the Board of Directors as the fair market value of the Common Shares of the Company.

11. Adjustment Provisions. If the Company shall at any time change the number of issued Common Shares without new consideration to the Company (such as by stock dividend or stock split), the total number of shares reserved for issuance under the Plan and the number of shares covered by each outstanding option and the exercise price thereunder shall be automatically adjusted so that the aggregate consideration payable to the Company and the value of each option shall not be changed. If, during the term of any option granted under the Plan, the Common Shares shall be changed into another kind of stock, securities, cash or other property, whether as a result of reorganization, sale, merger, consolidation, or other similar transaction, the Board of Directors shall cause adequate provision to be made whereby all Participants shall thereafter be entitled to receive, upon the due exercise of any outstanding options, the stock, securities, cash or other property such Participants would have been entitled to receive immediately prior to the effective date of any such transaction for Common Shares which could have been acquired through the exercise of such options.

12. Amendment or Discontinuation of Plan. The Board of Directors may amend the Plan at any time or suspend or discontinue the Plan at any time, but no such action shall adversely affect any outstanding option.

13. Governing Law. The Plan and any options granted hereunder shall be governed and construed in accordance with the laws of the State of Florida (regardless of the law that might otherwise govern under applicable Florida principles of conflicts of laws).

14. Shareholder Approval. The Plan was originally adopted by the Board of Directors of Omega Research and approved by the shareholders of Omega Research on July 24, 1997. On January 2, 1998, Omega Research’s Board of Directors amended the Plan to increase the number of options that may be awarded to such individuals upon their initial election to the Board of Directors. The Plan was then assumed as of December 29, 2000 by the Company pursuant to the Agreement and Plan of Merger and Reorganization dated as of January 19, 2000 among Omega Research, onlinetradinginc.com corp., the Company, Omega Acquisition Corporation and Onlinetrading Acquisition Corporation, and, in connection therewith, the Plan was further amended by the Company’s Board of Directors on December 22, 2000 to be effective as of December 29, 2000 (the effective time of the merger pursuant to the foregoing

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Plan of Merger and Reorganization (the “Effective Time”)), to reflect, among other things, the Company’s assumption of the Plan as of the Effective Time and to provide that all shares issuable after the Effective Time upon exercise of any options granted under the Plan will be shares of $.01 par value common stock of the Company. The Plan in such amended form was approved by the Company’s shareholders on December 22, 2000, to be effective as of the Effective Time. On May 17, 2001, the Company’s Board of Directors approved an amendment to the Plan, subject to the approval of the Company’s shareholders, to increase the number of Common Shares reserved for issuance under the Plan from 175,000 to 350,000 and to increase the number of Common Shares included in the options automatically granted to a nonemployee director upon each annual reelection from 3,000 to 7,000. Such amendment was approved by the Company’s shareholders on June 18, 2001. The Plan was subsequently amended by the Company’s Board of Directors, effective as of January 30, 2002, to clarify that the options granted under the Plan will become fully exercisable upon a Change in Control or a Sale of the Company. The Plan was subsequently amended by the Company’s Board of Directors, effective as of June 6, 2006, to clarify that a Nonemployee Director is to automatically receive an Additional Option if the Initial Option was received in connection with being elected at the last Annual Meeting, even if the current Annual Meeting date is fewer than twelve months from that preceding Annual Meeting date in connection with which the Original Option was granted. The Plan was subsequently amended by the Company’s Board of Directors, effective as of March 8, 2007, to make non-material amendments to the definition of Fair Market Value and Sale of the Company/Change in Control under Sections 10 and 6, respectively, of the Plan. Accordingly, the Plan represents the original 1997 Nonemployee Director Stock Option Plan as restated and amended through March 8, 2007.

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EX-10.9

Exhibit 10.9

STOCK OPTION AGREEMENT

New Executive Form as of February 15, 2007

Agreement, effective as of the             day of             , 200_ (the “Date of Grant”) between TradeStation Group, Inc., a Florida corporation (the “Company”), and                     (“Optionee”).

1. Grant of Options

The Company grants to Optionee, on the terms and conditions set forth below and subject to the terms and conditions of the TradeStation Group, Inc. Incentive Stock Plan (the “Plan”), options (the “Options”) to purchase up to             shares (individually a “Share” and collectively the “Shares”) of TradeStation Group, Inc. common stock (the “Common Stock”), par value $.01 per share, for a price of $            per Share (the “Option Price”), subject to adjustment as provided in Paragraph 3 below. All of the Options have been, and hereby are, designated as Incentive Stock Options (as defined in the Plan).

2. Terms and Conditions of Options

(a) Term of Options

Subject to the limitations set forth in this Agreement (including, without limitation, subparagraph (c) below), the Options, to the extent vested pursuant to subparagraph (g) below, may be exercised by Optionee in whole or in part from time to time during the period beginning on the date of this Agreement and ending on the tenth anniversary of the Date of Grant. In no event shall any of the Options granted under this Agreement be exercisable upon or after the expiration of 10 years from the Date of Grant.

(b) Non-transferability of Options

The Options shall not be transferable by Optionee other than by will or by the laws of descent and distribution and may be exercised during Optionee’s lifetime only by Optionee. If any Options are exercised after Optionee’s death, the Company may require evidence reasonably satisfactory to it of the appointment and qualification of Optionee’s personal representatives and their authority and of the right of any heir or distributee to exercise such Options.

(c) Termination of Employment

If Optionee’s employment with the Company terminates for any reason, Optionee shall have the right to exercise the then unexercised portion of the Options which have vested as of the date of termination of employment within the applicable time period following termination, if any, as described below. Upon the expiration of the applicable time period, if any, all of the Options then unexercised, whether or not vested, shall automatically and without notice terminate and become null and void. Such time periods (if any), and the circumstances of termination under which they respectively apply, are as follows:

(i) In the event that Optionee resigns or Optionee’s employment is terminated by the Company (other than a termination described in subparagraph (ii), (iii) or (iv) below), the Options then vested in accordance with subparagraph (g) may be exercised, subject to subparagraph (v) below, during the period commencing on the date of resignation or termination of employment and ending on the 90th consecutive day thereafter; provided that, if Optionee shall die during such 90-day period, Optionee’s right to exercise the unexercised portion of the Options vested at the date of resignation or termination of employment shall be determined under the provisions of subparagraph (iii) below; and provided further, that, if Optionee is, at the time of such resignation or termination, a director of the Company or an officer of the Company subject to liability under Section 16 of the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder, such period shall be the period commencing on the date of resignation or termination and ending on the first anniversary thereof.

(ii) In the event that Optionee’s employment is terminated by the Company due solely to Optionee’s permanent disability, the Options then vested in accordance with subparagraph (g) may be exercised, subject to subparagraph (v) below, during the period commencing on the date of termination of employment and ending on the first anniversary thereof.

(iii) In the event of Optionee’s death either during Optionee’s employment by the Company or during the 90-day period following the date of Optionee’s resignation or termination of such employment by the Company pursuant to subparagraph (c)(i), the Options then vested in accordance with subparagraph (g) may be exercised, subject to subparagraph (v) below, during the period commencing on the date of Optionee’s death and ending on the first anniversary thereof.

(iv) In the event of termination of Optionee’s employment for cause (as defined below), all Options, vested and unvested, shall expire at the date and time of termination of Optionee’s employment by the Company for cause. For purposes hereof, “cause” means the following acts or conduct on the part of Optionee: fraud upon the Company; dishonesty or gross neglect the effect of which is, or is likely to be, materially adverse to the Company, its business or reputation; commission of a felony; abandonment of duties; wilful acts or omissions resulting in material governmental sanctions against Optionee or the Company (unless such acts or omissions were authorized by, or taken or made with the knowledge of, the Company’s CEO, President or Board of Directors); a wilful breach by Optionee of any of Optionee’s nondisclosure, noncompetition or other covenants or obligations set forth in the Agreement Regarding Employment (the “Covenant Agreement”) previously entered into by and between Optionee and the Company; or a breach by Optionee (other than a wilful breach) of any of Optionee’s nondisclosure, noncompetition or other covenants or obligations set forth in the Covenant Agreement which is not cured within 30 days after Optionee receives notice thereof.

(v) Notwithstanding any of the foregoing to the contrary, in the event that following a termination of Optionee’s employment for a reason other than cause the Company discovers (and the Committee (as defined in the Plan) determines) that acts or conduct on the part of Optionee have occurred constituting cause, the provisions of subparagraph (iv) above shall then automatically apply and Optionee shall have no right to exercise any then unexercised Options, even if vested. For purposes of this paragraph, Options shall not be deemed exercised until a share certificate for the Shares relating to the Options exercised has been issued and delivered to Optionee. The Company shall notify Optionee promptly in the event that it discovers a cause event after termination of employment and the Committee (as defined in the Plan) has determined that subparagraph (iv) above shall apply, but giving such notice is not a condition to the Company’s right to exercise its rights under this paragraph.

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Neither this Agreement nor any Option granted hereunder shall confer on Optionee any right to continue in the Company’s employ, or limit in any respect the Company’s right (in the absence of a specific written agreement to the contrary) to terminate Optionee’s employment at any time with or without cause.

In all events, upon any termination of Optionee’s employment with the Company or upon Optionee’s death, whichever is first to occur (but subject to the penultimate sentence of subparagraph (g)), the unvested portion, if any, of any then unexercised Options shall automatically and without notice terminate and become null and void.

(d) Exercise of Options

The Options may be exercised only by written notice to the Company at its principal business office or such other office as the Company may from time to time direct, which shall specify the number of optioned Shares being purchased. Any notice of exercise of Options shall be accompanied by payment of the full purchase price for the Shares being purchased: (i) by check payable to the Company; or (ii) with the prior consent of the Company, by tendering previously acquired shares of Common Stock having a fair market value (determined as of the date such Options are exercised) equal to all of the purchase price; or (iii) with the prior consent of the Company, by any combination of (i) and (ii), provided that any payment involving the delivery of Common Stock does not result in a charge to earnings for financial accounting purposes, as determined by the Committee (as defined in the Plan). Subject to the foregoing proviso, and with the prior consent of the Company, if shares of the Common Stock are readily tradeable on a national securities exchange or other market system at the time of exercise, payment may also be made by delivering a properly executed exercise notice to the Company together with a copy of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds to pay the exercise price. The Company shall have no obligation to deliver the Shares being purchased pursuant to the exercise of any Options, in whole or in part, until the aforesaid payment in full of the purchase price therefor is received by the Company.

(e) Issuance of Shares

If, at any time, the Company, in its reasonable judgment, or on advice of counsel, shall determine that the listing, registration or qualification of the Shares covered by the Options on any securities exchange or under any state or federal law is necessary as a condition of, or in connection with, the purchase or delivery of Shares hereunder, and that no exemptions are applicable, the delivery of any or all Shares pursuant to exercise of the Options may be withheld unless and until such listing, registration or qualification shall have been effected. Optionee agrees to comply with any and all legal requirements relating to Optionee’s resale or other disposition of any Shares acquired under this Agreement. The Company may require, as a condition of exercise of any Options, that Optionee represent, in writing, that the Shares received upon exercise of the Options are being acquired for investment and not with a view to distribution, and that Optionee agree that the Shares will not be disposed of except pursuant to an effective registration statement unless the Company shall have received an opinion of counsel reasonably satisfactory to the Company that such disposition is exempt from registration under the Securities Act of 1933, as amended. The Company may endorse on certificates representing Shares issued upon the exercise of Options such legends referring to the foregoing representations or any applicable restrictions on resale as the Company, in its discretion, shall deem appropriate.

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(f) Rights as a Shareholder

Optionee shall acquire none of the rights of a shareholder of the Company under this Agreement unless and until certificates for Shares are issued to Optionee upon the exercise of Options.

(g) Vesting

The right to exercise the Options shall vest 20% on each anniversary of the Date of Grant (            shares on each such anniversary), so that, subject to the provisions for earlier termination herein set forth, the right to exercise the Options shall be 100% vested on the fifth anniversary of the Date of Grant. Notwithstanding such vesting schedule, upon a Change In Control (as such term is hereinafter defined), or upon the termination of Optionee’s employment due to death or permanent disability, the right to exercise the Options shall automatically become 100% vested. In addition, upon termination of Optionee’s employment for any other reason, the Company may, in its sole and absolute discretion, accelerate, in whole or in part, the vesting of any Options which are unvested at the date of termination of employment.

(h) Change in Control

In the event of a Change in Control, the Company may require Optionee to exercise all of the Options effective immediately prior to the consummation of the Change in Control. In such event, the Company and Optionee shall cooperate to effectuate the exercise of the Options immediately prior to the consummation of the Change in Control so that the Shares issuable upon such exercise are recognized as issued and outstanding prior to such consummation.

(i) Certain Definitions

For purposes hereof, the following capitalized terms have the respective meanings ascribed to them below:

A “Change in Control” means the occurrence of any of the following: (i) any person or entity unaffiliated with the Company is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing more than fifty (50%) of the combined voting power of the Company’s then outstanding securities; (ii) a merger or consolidation of the Company with any other corporation or other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, provided, however, that a merger or consolidation effected to implement a reorganization or recapitalization of the Company (or similar transaction) in which no person or entity acquires more than fifty (50%) of the combined voting power of the Company’s then outstanding securities shall not constitute a Change in Control of the Company; or (iii) the consummation of the sale or disposition by the Company, directly or indirectly, of all or substantially all of the Company’s assets or accounts other than (x) the sale or disposition of all or substantially all of the assets of the

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Company to a subsidiary of the Company or to a person or persons who beneficially own, directly or indirectly, at least fifty percent (50%) or more of the combined voting power of the outstanding voting securities of the Company at the time of the sale or (y) pursuant to a spin-off type transaction, directly or indirectly, of such assets to the stockholders of the Company.

Notwithstanding the foregoing, in no event shall a Change in Control be deemed to have occurred, with respect to Optionee, if Optionee is part of a purchasing group which consummates a transaction causing a Change in Control. Optionee shall be deemed “part of a purchasing group” for purposes of the preceding sentence if Optionee is a direct or indirect equity participant in the purchasing company or group; provided however, that Optionee shall not be considered part of a purchasing group if the Optionee owns, directly or indirectly, 1% or less of the outstanding securities of the purchasing company or group.

“Fair Market Value” shall have the meaning ascribed to it in the Plan.

3. Adjustment Upon Changes in Capitalization, etc.

In the event of any stock split, stock dividend, reclassification or recapitalization which changes the character or amount of the Company’s outstanding Common Stock while any portion of any Options granted pursuant to this Agreement are outstanding but unexercised, the Company shall make such adjustments in the character and number of Shares subject to such Options and in the Option Price (per Share) as shall be equitable and appropriate in order to make such Options, as nearly as may be practicable, equivalent to such Options immediately prior to such change; provided, however, that no such adjustment shall give Optionee any additional benefits under this Agreement; and provided further, if any such adjustment is made by reason of a transaction described in section 424(a) of the Code (as defined in the Plan), it shall be made so as to conform to the requirements of that section and the regulations thereunder.

If any transaction (other than a change specified in the preceding paragraph) described in section 424(a) of the Code affects the Company’s Common Stock subject to any unexercised Option granted hereunder (hereinafter for purposes of this Paragraph 3 referred to as the “old option”), the Board of Directors of the Company or any surviving or acquiring corporation may take such action as it deems appropriate, and in conformity with the requirements of that section and the regulations thereunder, to substitute a new option for the old option, in order to make the new option, as nearly as may be practicable, equivalent to the old option, or to assume the old option.

If any such change or transaction shall occur, the number and kind of Shares to be issued upon the exercise of any Options shall be adjusted to give effect thereto.

4. Application of Funds

The proceeds received by the Company from the sale of Shares subject to Options may be commingled with any other corporate funds and used for any corporate purpose.

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5. General

(a) Any communication in connection with this Agreement shall be deemed duly given when delivered in person (including by courier service) or mailed by certified or registered mail, return receipt requested, to Optionee at Optionee’s address listed on the signature page hereof or such other address of which Optionee shall have advised the Company by similar notice; and to the Company at the Company’s then executive offices.

(b) This Agreement sets forth the parties’ final and entire agreement with respect to its subject matter, may not be changed or terminated orally and shall be governed by and construed in accordance with the internal laws of the State of Florida. This Agreement shall bind and inure to the benefit of Optionee, and Optionee’s heirs, distributees and personal and legal representatives, and the Company and its successors and assigns.

(c) Wherever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural, and pronouns stated in the masculine, the feminine or the neuter gender shall include the masculine, feminine and neuter.

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.

Optionee:	TRADESTATION GROUP, INC., a Florida corporation
	By:

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EX-10.10

Exhibit 10.10

RESTRICTED STOCK AGREEMENT

Non-transferable

Grant to:

SALOMON SREDNI

(“Grantee”)

by

TradeStation Group, Inc., a Florida corporation (the “Company”),

of

152,439 shares of its common stock, $0.01 par value,

pursuant to and subject to the provisions of the TradeStation Group, Inc. Amended and Restated Incentive Stock Plan (the “Plan”) and to the terms and conditions of this non-transferable Restricted Stock Agreement (this “Agreement”), effective as of the 20th day of February, 2007 (the “Effective Date”). Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Plan.

RECITALS

WHEREAS, the Company desires to issue to Grantee, as Chief Executive Officer of the Company, ONE HUNDRED FIFTY TWO THOUSAND FOUR HUNDRED THIRTY-NINE (152,439) shares (the “Shares”) of the Company’s common stock, $0.01 par value (“Common Stock”); and

WHEREAS, Grantee desires to accept the issuance of the Shares subject to all of the terms and conditions of this Agreement, and is eligible to receive the Shares.

AGREEMENT

NOW, THEREFORE, in consideration of Grantee’s agreement to provide future services to the Company and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Grantee hereby agree as follows:

1. Grant of Shares. The Company hereby grants the Shares to Grantee, subject to all of the restrictions and the other terms and conditions set forth in the Plan and in this Agreement. Unless sooner vested in accordance with Section 3 hereof, and provided that Grantee is then still employed by the Company on the respective dates indicated below, the restrictions imposed under Section 2 hereof on the Shares will expire and the Restricted Shares (as hereinafter defined) shall vest as to the number of the Restricted Shares as set forth below on each of the respective dates as set forth below:

Number of Shares	Date	Cumulative Percentage
30,488	February 20, 2008	20%
30,488	February 20, 2009	40%
30,488	February 20, 2010	60%
30,488	February 20, 2011	80%
30,487	February 20, 2012	100%

Upon each of the foregoing dates, the number of Restricted Shares indicated above shall cease to be subject to the restrictions described herein. For the purposes of this Agreement, the term “vesting” shall have the effect of converting Restricted Shares into unrestricted Shares.

2. Restrictions. The Shares are subject to each of the restrictions set forth in this Section 2 and “Restricted Shares” mean those Shares that are subject to the restrictions imposed hereunder which have not then expired or terminated. Except as provided in Section 12(a) of the Plan, Restricted Shares may not be sold, transferred, exchanged, assigned, pledged, hypothecated or otherwise encumbered; provided, however, that, notwithstanding the foregoing, Grantee may transfer all or part of the Restricted Shares to one or more trusts for the benefit of Grantee’s immediate family members (which for purposes hereof shall be limited to the Grantee’s children, grandchildren and spouse) or partnerships in which such immediate family members and/or trusts are the only partners; provided that any such transfer of Restricted Shares shall remain subject to all of the restrictions and other terms and conditions hereof and the transferee shall execute any and all documents required by the Company to confirm the foregoing. If Grantee’s employment with the Company terminates for any reason other than as set forth in paragraphs (b) or (c) of Section 3 hereof, then Grantee shall forfeit, without the payment or providing of any consideration or other amounts of any kind whatsoever to Grantee, all of Grantee’s right, title and interest in and to the Restricted Shares as of and after the date of employment termination and such Restricted Shares shall automatically revert to the Company immediately following the event of forfeiture. The restrictions imposed under this Section 2 shall apply to all shares of the Company’s Common Stock or other securities issued with respect to Restricted Shares hereunder in connection with any merger, reorganization, consolidation, recapitalization, stock dividend, stock split, business combination or other change in corporate structure directly or indirectly in any way affecting the Common Stock of the Company.

3. Expiration and Termination of Restrictions. The restrictions imposed under Section 2 will expire on the earliest to occur of the following (the period prior to such expiration being referred to herein as the “Restricted Period”):

(a) As to the number of Restricted Shares as and to the extent indicated on the respective dates specified in Section 1 hereinabove; provided, however, that Grantee on those respective dates is then still employed by the Company;

(b) As to all of the unvested Restricted Shares, on the date of termination of Grantee’s employment by reason of death or “Disability.” For the purposes of this Agreement, “Disability” shall mean permanent disability as determined by the Compensation Committee under the Plan, in its sole and absolute discretion; or

(c) As to all of the unvested Restricted Shares, upon the occurrence of a “Change in Control” (as such term is defined below). For purposes of this Agreement, “Change in Control” shall mean the occurrence of any of the following: (i) any person or entity unaffiliated with the Company is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934,

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as amended from time to time), directly or indirectly, of securities of the Company representing more than fifty (50%) of the combined voting power of the Company’s then outstanding securities; (ii) a merger or consolidation of the Company with any other corporation or other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, provided, however, that a merger or consolidation effected to implement a reorganization or recapitalization of the Company (or similar transaction) in which no person or entity acquires more than fifty (50%) of the combined voting power of the Company’s then outstanding securities shall not constitute a Change in Control of the Company; or (iii) the consummation of the sale or disposition by the Company directly or indirectly, of all or substantially all of the Company’s assets or accounts other than (x) the sale or disposition of all or substantially all of the assets of the Company to a subsidiary of the Company or to a person or persons who beneficially own, directly or indirectly, at least fifty percent (50%) or more of the combined voting power of the outstanding voting securities of the Company at the time of the sale or (y) pursuant to a spin-off type transaction, directly or indirectly, of such assets to the stockholders of the Company.

Notwithstanding the foregoing, in no event shall a Change in Control be deemed to have occurred, with respect to Grantee, if Grantee is part of a purchasing group which consummates a transaction causing a Change in Control. Grantee shall be deemed “part of a purchasing group” for purposes of the preceding sentence if Grantee is a direct or indirect equity participant in the purchasing company or group; provided however, that Grantee shall not be considered part of a purchasing group if Grantee owns, directly or indirectly, 1% or less of the outstanding securities of the purchasing company or group.

4. Delivery of Shares.

(a) Delivery to Grantee. The Restricted Shares will be issued to Grantee as of the Grant Date and will be held by Grantee during the Restricted Period in certificated form. Such certificate or certificates for the Shares shall bear a legend under Rule 144 promulgated under the Securities Act of 1933, as amended, as and in such form as required by the Company and during the Restricted Period shall bear the following legend in substantially the following form (in addition to any additional legends required under applicable state securities laws):

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN FORFEITURE AND RETRANSFER OBLIGATIONS, RESTRICTIONS ON TRANSFER AND OTHER AGREEMENTS SET FORTH IN A RESTRICTED STOCK AGREEMENT (THE “AGREEMENT”) BETWEEN TRADESTATION GROUP, INC., A FLORIDA CORPORATION, AND SALOMON SREDNI EFFECTIVE AS OF FEBRUARY 20, 2007, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE COMPANY. ANY TRANSFER, PLEDGE OR OTHER DISPOSITION OF ANY KIND IN CONFLICT WITH, OR IN DEROGATION OF THE AGREEMENT, IS VOID AND OF NO LEGAL FORCE, EFFECT OR VALIDITY WHATSOEVER.”

Stock certificates for the Shares, without the above legend, shall be delivered to Grantee or Grantee’s designee upon request of Grantee after the expiration of the Restricted Period (or from time to time with respect and up to that portion of the Restricted Shares which is deemed to have vested at such time and becomes unrestricted Shares hereunder), but delivery may be postponed for such period

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as may be required for the Company with reasonable diligence to comply, if deemed advisable by the Company, with registration requirements under the Securities Act of 1933, as amended, listing requirements under the rules of any stock exchange, and requirements under any other law or regulation applicable to the issuance or transfer of the Shares.

(b) Delivery to Company Upon Forfeiture. As set forth above, all Restricted Shares forfeited pursuant to the terms hereof shall be automatically transferred to the Company by Grantee or the holder thereof. In furtherance of the foregoing and immediately upon the request of the Company, Grantee shall deliver and/or execute all certificates and other instruments necessary to effectuate the transfer of the Restricted Shares to the Company, including, without limitation, a stock power, all in such form and substance as acceptable to the Company in the Company’s sole and absolute discretion.

5. Voting and Dividend Rights. Grantee, as beneficial owner of the Restricted Shares, shall have full voting rights with respect to the Shares during and after the Restricted Period. In addition, Grantee shall, during and after the Restricted Period, be entitled to receive any dividends on the Shares; provided, however, that notwithstanding the foregoing, in the event any Restricted Shares are forfeited for any reason, Grantee shall, within ten (10) days of such forfeiture, repay to the Company an amount equal to the dividends previously paid on those Restricted Shares. Notwithstanding anything to the contrary contained herein, if Grantee forfeits any rights to Restricted Shares he may have under this Agreement in accordance with Section 2, Section 4(b) or otherwise, Grantee shall no longer have any rights as a shareholder with respect to the Restricted Shares or any interest therein so forfeited and Grantee shall no longer be entitled to vote or receive dividends on the Restricted Shares so forfeited. In the event that for any reason Grantee shall have received dividends upon such Restricted Shares after such forfeiture, Grantee shall immediately repay to the Company an amount equal to such dividends.

6. Changes in Capital Structure. The provisions of the Plan shall apply in the case of a change in the capital structure of the Company. Without limiting the foregoing, in the event of a subdivision of the outstanding Common Stock (stock-split), a declaration of a dividend payable in Common Stock, or a combination or consolidation of the outstanding Common Stock into a lesser number of shares, the Shares then subject to this Agreement shall automatically be adjusted proportionately.

7. No Right of Continued Employment. Nothing in this Agreement shall interfere with or limit in any way the right of the Company to terminate Grantee’s employment at any time, or confer upon Grantee any right to continue in the employ of the Company.

8. Payment of Taxes. Upon issuance of the Shares hereunder, Grantee may make an election to be taxed upon such award under Section 83(b) of the Code. To effect such election, Grantee may file an appropriate election with Internal Revenue Service within thirty (30) days after award of the Shares and otherwise in accordance with applicable Treasury Regulations. In all events, Grantee will, no later than the date as of which any amount related to any of the Shares first becomes includable in Grantee’s gross income for federal income tax purposes, notify the Company of that fact and pay to the Company, or make other arrangements satisfactory to the Company, regarding payment of, any federal, state and local taxes of any kind required by law to be withheld with respect to such amount. The obligations of the Company under this Agreement will be conditional on such notification and payment or arrangements, and the Company will, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind hereafter due, owing or payable to Grantee.

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9. Amendment. The Company may amend, modify or terminate this Agreement without approval of Grantee; provided, however, that such amendment, modification or termination shall not, without Grantee’s consent, reduce or diminish the value of this award with respect to any current, future or potential benefit that exists on the date of such amendment or termination.

10. Plan Controls. The terms contained in the Plan are incorporated into and made a part of this Agreement and this Agreement shall be governed by and construed in accordance with the Plan. In the event of any actual or alleged conflict between the provisions of the Plan and the provisions of this Agreement, the provisions of the Plan shall be controlling and determinative.

11. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Grantee and Grantee’s heirs, personal and legal representatives and permitted assigns and to the benefit of the Company and its successors and assigns.

12. Severability. If any one or more of the provisions contained in this Agreement is deemed to be invalid, illegal or unenforceable, the other provisions of this Agreement will be construed and enforced as if the invalid, illegal or unenforceable provision had never been included.

13. Notice. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given (i) when faxed (with a written confirmation of receipt) or actually delivered, or (ii) three (3) business days after being mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the initial page of this Agreement, provided that all notices to the Company shall be directed to the attention of the General Counsel of the Company, or to such other address as any party may have furnished to the other in writing in accordance herewith. Notice of change of address shall be effective only upon receipt.

14. Governing Law. This Agreement sets forth the final and entire agreement with respect to its subject matter and shall be governed and construed in accordance with the internal laws of the State of Florida without giving effect to the choice of law principles thereof.

15. Pronouns. Wherever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural, and pronouns stated in the masculine, the feminine or the neuter gender shall include the masculine, feminine and neuter.

[Signatures on the following page.]

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IN WITNESS WHEREOF, TradeStation Group, Inc., acting by and through its duly authorized officers, has caused this Agreement to be executed as of the Effective Date.

TRADESTATION GROUP, INC., a Florida corporation
By:	/s/ David H. Fleischman
Name: Title:	David H. Fleischman Chief Financial Officer

The undersigned hereby accepts and agrees to, and to be bound by and to comply with, all of the terms and provisions of the foregoing Agreement.

/s/ Salomon Sredni

SALOMON SREDNI

8050 SW 10^th Street, Suite 4000

Plantation, FL 33324

[Address]

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EX-10.13

Exhibit 10.13

EXECUTION VERSION

SUBLEASE

dated as of

March 23 , 2006

between

THE GOLDMAN SACHS GROUP, INC., Sublandlord

and

TRADESTATION SECURITIES, INC., Subtenant

TABLE OF CONTENTS

		Page
1.	Definitions and Basic Terms	1
2.	Demise; Term; Permitted Use	3
3.	Rents	4
4.	Condition of the Sublease Premises	7
5.	Subordination to and Incorporation of the Overlease	7
6.	Insurance and Indemnification	12
7.	Covenant of Quiet Enjoyment	12
8.	Assignment and Subsubletting	13
9.	Electricity	17
10.	Alterations	20
11.	Casualty and Condemnation	23
12.	Security Deposit	24
13.	Notices	25
14.	Broker	25
15.	Overlandlord Consent	25
16.	Intentionally Deleted	26
17.	Right of Relocation	26
18.	End of Term	28
19.	Miscellaneous	29

Exhibit A	Plan of 48th Floor Showing Sublease Premises
Exhibit B	Intentionally Deleted
Exhibit C	Incorporated Provisions
Exhibit D	Letter of Credit
Exhibit E	Overlease

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SUBLEASE

dated as of the Sublease Date between Sublandlord and Subtenant

W I T N E S S E T H:

WHEREAS Sublandlord is now the tenant under the Overlease which demises portions of the Building (the premises from time to time demised by the Overlease (including any premises hereafter added to the Overlease) being herein called the “Overlease Premises”); and

WHEREAS Sublandlord desires to sublease to Subtenant, and Subtenant desires to sublease from Sublandlord, the Sublease Premises on the terms and conditions contained herein;

NOW, THEREFORE, in consideration of the mutual covenants herein contained, Sublandlord and Subtenant agree as follows:

1. Definitions and Basic Terms

Set forth below are certain definitions and basic terms of this Sublease.

1.1	Sublease Date	March 23 , 2006
1.2	Sublandlord	The Goldman Sachs Group, Inc., a Delaware corporation
1.3	Subtenant	TradeStation Securities, Inc., a Florida corporation
1.4	Overlandlord	the landlord under the Overlease.
1.5	Overlease	that certain lease dated March 31, 1999 (the “Original Lease”), originally between Tower Leasing, Inc., as landlord, and The Goldman Sachs Group, L.P., as tenant, as amended by First Amendment to Lease dated as of August 27, 1999, by Second Amendment to Lease dated as of October 1, 1999, by Third Amendment to Lease dated as of June 26, 2000, by Fourth Amendment to Lease dated as of March 5, 2003 and as hereafter modified or amended from time to time. Any reference in this Section 1.5 to a lease or other document shall include all exhibits and other attachments thereto.
1.6	Incorporated Provisions:	the provisions of the Overlease listed on Exhibit C hereto.
1.7	Building	Sears Tower, 233 South Wacker Drive, Chicago, Illinois
1.8	Sublease Premises	the portion of the 48th floor of the Building shaded on Exhibit A hereto.

1.9	Expiration Date	February 27, 2011
1.10	Sublease Base Rental Rate	$19.00 per annum per rentable square foot; provided, however, that on the first and each subsequent anniversary of the Nominal Commencement Date the Sublease Base Rental Rate shall increase by $0.50 per annum. For example, effective commencing on the third anniversary of the Nominal Commencement Date the Sublease Base Rental Rate shall be $20.50 per annum per rentable square foot. Promptly after the Commencement Date, Sublandlord and Subtenant shall execute a memorandum confirming the amount of Base Rent to be paid on the various dates throughout the term giving effect to (i) the provisions of this Section 1.10, and (ii) the rent abatements provided for in Section 3.1 of this Sublease; provided, however, that (a) the failure or refusal of either party to execute such memorandum shall not constitute a default hereunder or affect or change the rights or obligations of the parties under this Sublease, and (b) such memorandum shall be subject to, and shall not affect or change the rights or obligations of the parties under this Sublease.
1.11	Sublease Premises Rentable Area	10,400 rentable square feet. This area is agreed upon by Sublandlord and Subtenant, and shall be used for purposes of this Sublease regardless of the actual area of the Sublease Premises. Sublandlord shall not be deemed to have represented the accuracy of the Sublease Premises Rentable Area.
1.12	Sublease Base Year	2006
1.13	Recognized Broker	Studley, Inc.
1.14	Required Security Deposit Amount	$100,000.
1.15	Tenant Improvement Allowance Amount	$12.50 per rentable square foot of the Sublease Premises
1.16	this Sublease	this Agreement of Sublease, including the Incorporated Provisions as incorporated herein. The terms “herein,” “hereunder”, “hereinafter”, etc. refer to this Agreement of Sublease, including the Incorporated Provisions as incorporated in this Sublease.

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1.17 Subtenant’s Share The ratio of the rentable square footage of the Sublease Premises divided by the rentable square footage of the Overlease Premises (as such rentable square footage of the Overlease Premises may change from time to time). As of the date of this Sublease, the parties agree that Subtenant’s Share is 4.27436%.

2. Demise; Term; Permitted Use

2.1 Sublandlord hereby subleases to Subtenant, and Subtenant hereby hires from Sublandlord, the Sublease Premises upon and subject to the terms and conditions hereinafter set forth. In addition, Subtenant shall have the right to use, in common with others and to the same extent as Sublandlord, the common areas of the Building, including without limitation, the lobby, public entrances, public stairways and public elevators of the Building.

2.2 The term of this Sublease shall commence on the date (the “Commencement Date”) which is the latest to occur of (a) the date on which the Overlandlord shall have consented to this Sublease in accordance with Section 15 below, and (b) the date that the Demising Work (as hereinafter defined) is complete. The “Nominal Commencement Date” shall mean the Commencement Date, except that if the Commencement Date occurs on a day other than the first day of a calendar month, the Nominal Commencement Date shall mean the first day of the first calendar month following the Commencement Date.

2.3 The term of this Sublease shall expire on the Expiration Date or on such earlier date upon which such term shall expire or be terminated pursuant to any of the provisions of this Sublease or pursuant to law. Subtenant shall have no right to renew or extend this Sublease.

2.4 Subtenant shall use the Sublease Premises for the purposes permitted under the Overlease, and for no other purposes. Notwithstanding the foregoing, no part of the Sublease Premises shall be used for cooking or a cafeteria or other dining facility; provided, however, that to the extent permitted by, and subject to compliance with all of the applicable provisions of, the Overlease, Subtenant shall be allowed to have a pantry consistent with, and including such appliances and vending machines as are typically found in, pantries of other tenants in the Building.

2.5 Subtenant shall, at its sole expense, comply with and conform to all of the requirements of all governmental authorities having jurisdiction over the Building which relate to Subtenant’s use or occupancy of the Sublease Premises, including all equipment and systems therein; provided, however, that Subtenant shall not be obligated to make any repair or alteration to any structural element of the Building in order to comply with requirements of any governmental authority

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unless same is due to Subtenant’s manner of use of the Sublease Premises (i.e. other than ordinary office and ancillary uses). Additionally, Subtenant agrees to observe the rules and regulations for the Building promulgated by the Overlandlord from time to time. Sublandlord represents that it has not received any written notice from any governmental authority of any violation of any requirement of any governmental authority relating to the condition, use or occupancy of the Sublease Premises, including all equipment and systems therein, excluding any such violations which, to the best of Sublandlord’s knowledge, have heretofore been cured. If Overlandlord or any governmental officer or agency shall issue any written notice or demand requiring the remediation or correction of any condition in the Sublease Premises existing on the date of this Sublease which, on the date of this Sublease, is in violation of any legal requirement applicable as of such date, then Sublandlord shall pay when due the reasonable actual out-of-pocket costs and expenses incurred by Subtenant in remedying or correcting such violation in an amount not to exceed $25,000 in the aggregate for all such notices or demands over the term of this Sublease, provided that (a) such violation does not arise out of any change in or to the Sublease Premises made after the date of this Sublease by Subtenant, (b) Subtenant promptly furnishes to Sublandlord a copy of such notice or demand received by Subtenant from Overlandlord or any governmental officer or agency, and (c) Sublandlord shall have given its prior approval of the work or other actions proposed to be taken by Subtenant to effect such remedy, which approval shall not unreasonably be withheld.

3. Rents

3.1 Subtenant shall pay to Sublandlord rent (“Base Rent”) at a rate per annum equal to the Sublease Base Rental Rate, payable in equal monthly installments in advance on the Commencement Date and on the first day of each month thereafter, pro-rated for any partial month. Provided that Subtenant shall not be in default in any material respect under this Sublease, Base Rent shall be abated on the entire Sublease Premises for the following periods, (i) the one hundred five (105) day period commencing on the Nominal Commencement Date, (ii) the two (2) month period commencing on the first anniversary of the Nominal Commencement Date, and (iii) the two (2) month period commencing on the second anniversary of the Nominal Commencement Date.

3.2 Commencing immediately after the Sublease Base Year and continuing for the balance of the term of this Sublease, Subtenant shall pay to Sublandlord Subtenant’s Share of the amount by which Operating Expenses or Variable Operating Expenses (as such terms are defined in the Overlease) exceed the Operating Expenses or Variable Operating Expenses for the Sublease Base Year. Subtenant’s payments under this Section 3.2 shall commence no earlier than January 1, 2007 and shall be made on an estimated basis (on the basis of reasonable, good faith estimates furnished by Sublandlord) during each calendar

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year, subject to reconciliation after Overlandlord issues its related annual statement under Article 3 of the Overlease. Subtenant’s payments under this Section 3.2 shall be due on the dates on which Sublandlord’s payments under the corresponding provisions of the Overlease are due to Overlandlord and shall be pro-rated for any partial month or year; provided, however, that (except for subsequent continuing equal monthly payments) no such payment shall be due until thirty (30) days after Sublandlord shall have furnished Subtenant with notice thereof. If Sublandlord shall receive from Overlandlord any credit or refund in respect of Operating Expenses or Variable Operating Expenses for any year after the Sublease Base Year, Sublandlord shall give to Subtenant a credit or refund to be applied to the next subsequent monthly billing from Sublandlord to Subtenant in an amount equal to Subtenant’s Share of the credit or refund received from Overlandlord less Subtenant’s Share of any reasonable out-of-pocket costs and expenses, including reasonable attorneys’ fees, incurred by Sublandlord in connection with obtaining such credit or refund from Overlandlord. In no event shall the amount of the refund paid to Subtenant exceed the amount paid by Subtenant for Operating Expenses or Variable Operating Expenses with respect to that year. If the amount of the Operating Expenses or Variable Operating Expenses for the Sublease Base Year is adjusted, the adjusted amount shall be used for computing Subtenant’s liability under this Section 3.2 with respect to all periods after such reduction and for recomputing Subtenant’s liability with respect to all periods prior to such reduction. Subtenant shall pay Sublandlord any additional amounts due in respect of all such prior periods within thirty (30) days of Sublandlord’s bill therefor.

3.3 Commencing immediately after the Sublease Base Year and continuing for the balance of the term of this Sublease, Subtenant shall pay to Sublandlord Subtenant’s Share of the amount by which Taxes (as such term is defined in the Overlease) exceed Taxes for the Sublease Base Year. Subtenant’s payments under this Section 3.3 shall commence no earlier than January 1, 2007 and shall be made on an estimated basis (on the basis of estimates furnished by Sublandlord) during each calendar year, subject to reconciliation after Overlandlord issues its related annual statement under Article 3 of the Overlease. Subtenant’s payments under this Section 3.3 shall be due on the dates on which Sublandlord’s payments under the corresponding provisions of the Overlease are due to Overlandlord and shall be pro-rated for any partial month or year; provided, however, that (except for subsequent continuing equal monthly payments) no such payment shall be due until thirty (30) days after Sublandlord shall have furnished Subtenant with notice thereof. If Sublandlord shall receive from Overlandlord any credit or refund in respect of Taxes for any year after the Sublease Base Year, Sublandlord shall give to Subtenant a credit or refund to be applied to the next subsequent monthly billing from Sublandlord to Subtenant in an amount equal to Subtenant’s Share of the credit or refund received from Overlandlord less Subtenant’s Share of any reasonable out-of-pocket costs and expenses, including reasonable attorneys’ fees, incurred by Sublandlord in

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connection with obtaining such credit or refund from Overlandlord. In no event shall the amount of the refund paid to Subtenant exceed the amount paid by Subtenant for Taxes with respect to that year. If the amount of Taxes for the Sublease Base Year is adjusted, the adjusted amount shall be used for computing Subtenant’s liability under this Section 3.3 with respect to all periods after such reduction and for recomputing Subtenant’s liability with respect to all periods prior to such reduction. Subtenant shall pay Sublandlord any additional amounts due in respect of all such prior periods within ten (10) days of Sublandlord’s bill therefor.

3.4 Subtenant shall, within thirty (30) days of written demand, pay or reimburse Sublandlord for all amounts payable under the Overlease arising out of any goods or services requested by Subtenant that are not included in services that Overlandlord is required under the Overlease to provide without additional charge, including (a) supplemental chilled or condenser water (but Subtenant shall not be entitled to any supplemental chilled or condenser water available to Sublandlord under the Overlease), (b) overtime HVAC (and Subtenant understands that if it requests overtime HVAC it shall be liable for the amount payable under the Overlease in respect of providing the same to the entire floor on which the Sublease Premises are located), (c) extra cleaning, (d) overtime or dedicated freight elevator service, (e) keys, locks or signage, (f) construction of alterations, additions or improvements in or to the Sublease Premises, and (g) any maintenance, repair or other service for which a separate charge is made by Overlandlord. This Section 3.4 shall not be applicable to electricity which is covered by Article 9 below.

3.5 As used herein the term “additional rent” shall refer to all sums of money which shall become due and payable by Subtenant to Sublandlord hereunder, other than Base Rent, and the term “rents” shall refer to Base Rent and additional rent. All rents shall be payable in lawful money of the United States at such place and to such person as Sublandlord shall from time to time designate in writing. Until Sublandlord shall otherwise direct in writing to Subtenant, rents shall be paid to The Goldman Sachs Group, Inc., Corporate Services-Financial Controls, 180 Maiden Lane, New York, New York 10004.

3.6 Subtenant shall promptly pay all rents as and when the same become due and payable without setoff, offset or deduction of any kind whatsoever and, if Subtenant fails to pay any additional rent when due, Sublandlord shall have all of the rights and remedies provided for herein or at law or in equity as in the case of non-payment of Base Rent.

3.7 Sublandlord’s failure to deliver any statements or bills required to be delivered to Subtenant hereunder, or Sublandlord’s failure to issue a bill or demand under this Sublease, shall not be a waiver of, or cause Sublandlord to forfeit or surrender, its rights to collect any rents which may have become due pursuant to this Sublease. Subtenant’s liability for rents accruing during or pertaining to the term of this Sublease shall survive the expiration or sooner termination of this Sublease.

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4. Condition of the Sublease Premises

4.1 Sublandlord has not made and does not make any representations or warranties as to the physical condition of the Sublease Premises (including any latent defects in the Sublease Premises), the uses to which the Sublease Premises may be put, or any other matter or thing affecting or relating to the Sublease Premises. Except as may be provided in Section 2.5 hereof, Subtenant shall not be obligated to make any repair or alteration to any structural element of the Building; provided, however, the foregoing shall not be deemed to create any affirmative obligation of Sublandlord to make any repair or alteration to any structural element of the Building pursuant to this Sublease.

4.2 Sublandlord shall, at its expense, construct a demising wall up to deck (with partitions having a fire rating of at least 1 hour) as more particularly shown on Exhibit B hereto, to separate the Sublease Premises from the remaining Overlease Premises (collectively, the “Demising Work”). Otherwise, Subtenant agrees to accept the Sublease Premises in their “as is” condition on the date hereof, as the same may be affected by reasonable wear and tear between the date hereof and the Commencement Date, and Sublandlord shall have no obligation whatsoever to alter, improve, decorate or otherwise prepare the Sublease Premises, or any portion thereof, for Subtenant’s occupancy.

5. Subordination to and Incorporation of the Overlease

5.1 This Sublease is subordinate to the Overlease, and to all leases, mortgages and other rights or encumbrances to which the Overlease is or becomes subject or subordinate. This provision shall be self-operative but Subtenant shall within five (5) business days of Sublandlord’s request execute any instrument requested by Sublandlord or Overlandlord to evidence or confirm the same. Sublandlord represents and warrants that (a) a true and complete copy of the Overlease as in effect on the date hereof (excluding redacted terms and conditions not relevant to Subtenant) is attached hereto as Exhibit E, (b) the Overlease is in full force and effect, (c) Sublandlord is not in default in the payment of rent or additional rent under the Overlease, and to the best of Sublandlord’s knowledge, Sublandlord is not in default in the performance of any other covenant contained under the Overlease, (d) Sublandlord has not received any notice of default under the Overlease, except for any defaults which Sublandlord has cured and Overlandlord is no longer claiming to exist, and (e) Sublandlord has not received any notice from a governmental body or other source that the Sublease Premises is in violation of any applicable laws, except for any such violation (if any) which has been cured. Sublandlord will not enter into any agreement with Overlandlord, whether by an amendment to the Overlease or otherwise, that (i) increases the

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obligations of Subtenant under this Sublease, or (ii) decreases the rights of Subtenant under this Sublease. If the provisions of this Sublease conflict with or are inconsistent with any of the Incorporated Provisions, the provisions of this Sublease shall control.

5.2 Sublandlord shall not voluntarily terminate or voluntarily consent to the termination of the Overlease in whole or with respect to the Sublease Premises unless such termination is effected pursuant to a right of termination arising out of casualty or condemnation set forth in the Overlease (it being understood that Sublandlord shall have the right to exercise any such right of termination). Sublandlord shall not suffer or permit the Overlease to be terminated by reason of a default under the Overlease not arising out of a default hereunder by Subtenant or any other subtenant of the Overlease Premises. If the Overlease shall terminate for any reason then this Sublease shall also terminate. Sublandlord shall not have any liability to Subtenant on account of any such termination unless such termination (a) shall have arisen out of a default under the Overlease not arising out of a default hereunder by Subtenant, or (b) shall have been effected by Sublandlord in violation of this Section 5.2.

5.3 Intentionally deleted.

5.4 Except as otherwise expressly provided in, or otherwise inconsistent with, this Sublease, and except to the extent not applicable to the Sublease Premises, the Incorporated Provisions are hereby incorporated in this Sublease by reference with the same force and effect as if set forth herein, except that, unless the context requires otherwise:

5.4.1 references in such provisions to Owner, Landlord or Lessor shall be deemed to refer to Sublandlord;

5.4.2 references in such provisions to Tenant or Lessee shall be deemed to refer to Subtenant;

5.4.3 references in such provisions to the Premises or the Demised Premises or the Leased Premises shall be deemed to refer to the Sublease Premises;

5.4.4 references in such provisions to the Term shall be deemed to refer to the term of this Sublease;

5.4.5 references in such provisions to other provisions of the Overlease that are not incorporated herein shall be disregarded; and

5.4.6 references in such provisions to subleases, sublettings or subtenants shall be deemed to refer to subsubleases, subsublettings or subsubtenants.

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5.5 Notwithstanding the incorporation herein of the Incorporated Provisions, (a) Sublandlord shall not be deemed to have made any representation made by Overlandlord in the Overlease, and (b) Sublandlord shall not be obligated

5.5.1 to provide any of the services or utilities that Overlandlord has agreed in the Overlease to provide,

5.5.2 to make any of the repairs or restorations that Overlandlord has agreed in the Overlease to make,

5.5.3 to comply with any laws or requirements of public authorities with which Overlandlord has agreed in the Overlease to comply, or

5.5.4 to take any action with respect to the operation, administration or control of the Building or any of its public or common areas that the Overlandlord has agreed in the Overlease to take,

(all the foregoing being herein called the “Building Services”) and Sublandlord shall have no liability to Subtenant on account of any failure of Overlandlord to do so, or on account of any failure of Overlandlord to observe or perform any of the terms, covenants or conditions of the Overlease required to be observed or performed by Overlandlord, or on account of any other act or omission of Overlandlord.

Subtenant shall not be entitled to any abatement or diminution of rent for any period on account of the untenantability of the Sublease Premises or otherwise (including any such abatement or diminution provided for in any of the Incorporated Provisions), except that (a) if Sublandlord is entitled to an abatement of rent under the Overlease with respect to any portion of the Sublease Premises with respect to any day then Subtenant shall be entitled to an abatement of rent hereunder with respect to such portion of the Sublease Premises with respect to such day, or (b) if there is an interruption or diminution of any Building Services to the Sublease Premises, and if (i) such interruption or diminution does not arise as a result of an act or omission of Subtenant, (ii) such interruption or diminution does not arise as a result of a matter or condition affecting two or more city blocks, such as a city-wide power outage, (iii) as a result of such interruption or diminution, the Sublease Premises or any material portion thereof is rendered untenantable (meaning a lack of elevator access or Subtenant’s inability to reasonably use the Sublease Premises or such material portion thereof in the normal course of its business) and Subtenant in fact so ceases to use the Sublease Premises or such material portion thereof for the normal conduct of its business, and (iv) such interruption or diminution continues for a period of five (5) or more consecutive business days, then (without duplication of any abatement of rent for the same day under clause (a) of this sentence) the rent payable hereunder shall be equitably abated according to the percentage of the space in the Sublease

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Premises so rendered untenantable and not being used by Subtenant; and the abatement of rent under this clause (b) shall become effective as of the day the Sublease Premises or such material portion thereof becomes untenantable and Subtenant ceases to use such space for the normal conduct of its business.

Furthermore, if there is an interruption or diminution of, or failure of Landlord to provide, any Building Services to the Sublease Premises, and if (i) such interruption or diminution or failure to provide does not arise as a result of an act or omission of Subtenant, (ii) such interruption or diminution or failure to provide does not arise as a result of a matter or condition affecting two or more city blocks, such as a city-wide power outage, (iii) as a result of such interruption or diminution or failure to provide, the Sublease Premises or any material portion thereof is rendered untenantable (meaning a lack of elevator access or Subtenant’s inability to reasonably use the Sublease Premises or such material portion thereof in the normal course of its business) and Subtenant in fact so ceases to use the Sublease Premises or such material portion thereof for the normal conduct of its business, and (iv) such interruption or diminution or failure to provide continues for a period of sixty (60) or more consecutive days, then Subtenant shall have the right, by written notice to Sublandlord at any time after such sixty (60) day period and for so long as a the Sublease Premises or any material portion thereof remains untenantable, to terminate this Sublease as of the date of Subtenant’s notice.

5.6 Whenever Subtenant desires to do any act or thing which requires the consent or approval of Overlandlord:

5.6.1 Subtenant shall not do such act or thing without first having obtained the consent or approval of both Overlandlord and Sublandlord (and Sublandlord’s right to withhold consent or approval shall be independent of Overlandlord’s right, but shall not be unreasonably withheld or delayed unless expressly set forth herein);

5.6.2 Subtenant shall not request Overlandlord’s consent or approval directly (and no efforts by Sublandlord to obtain Overlandlord’s consent or approval shall constitute Sublandlord’s consent or approval or prejudice Sublandlord’s right to withhold consent or approval); and

5.6.3 in no event shall Sublandlord be required to give its consent or approval prior to Overlandlord doing so.

5.7 Sublandlord agrees, upon Subtenant’s request and at Subtenant’s expense, to use commercially reasonable, diligent efforts (including sending demand letters and default notices and exercising self-help rights if granted under the Overlease, but excluding litigation or arbitration),

5.7.1 to obtain Overlandlord’s consent or approval whenever required by the Overlease (unless, in such instance, Sublandlord shall be entitled to withhold its consent or approval even if Overlandlord shall have granted its consent or approval); and.

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5.7.2 to cause Overlandlord to provide to the Sublease Premises the services required to be provided by Overlandlord under the following provisions of the Overlease (excluding any portions thereof redacted on Exhibit C to this Sublease):

(a) Section 6(a)(i), excluding the fifth paragraph thereof regarding installation of humidification equipment,

(b) the first paragraph of Section 6(a)(ii),

(c) Section 6(a)(iii),

(d) Section 6(a)(iv),

(e) Section 6(a)(v),

(f) Section 6(a)(vi),

(g) Section 6(a)(vii),

(h) Section 6(a)(viii),

(i) the first sentence of Section 6(i),

(j) Section 7(a),

(k) Article 11, and

(l) Exhibit F.

Subtenant shall not have any right to the services or facilities provided under any other provisions of the Overlease, e.g. Section 6(f) and 6(g) of the Overlease.

5.8 Subtenant shall observe and perform each and every term, covenant and condition of the Incorporated Provisions of the Overlease (other than Articles 2 and 3 thereof which are superseded hereby), and as to any term, covenant or condition requiring performance by a certain date or time or within a certain period, Subtenant shall perform the same by the date or time two (2) business days prior to the date or time provided for in the Overlease or within a period ending two (2) business days prior to the period provided for in the Overlease.

5.9 If Subtenant shall fail to perform any of its obligations hereunder within the time periods provided for in this Sublease (including by virtue of the Incorporated

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Provisions), Sublandlord shall have the right (but not the obligation) to perform or endeavor to perform such obligations, at Subtenant’s expense, and Subtenant shall, within thirty (30) days of Sublandlord’s demand from time to time, reimburse Sublandlord for all costs and expenses incurred by Sublandlord in doing so. Except (a) in case of any emergency or (b) if Overlandlord shall have required performance or given a notice or demand with respect thereto, Sublandlord shall give Subtenant no less than five (5) days prior written notice of its intention to take action pursuant to this Section 5.9.

6. Insurance and Indemnification

6.1 Whenever, pursuant to any of the Incorporated Provisions as incorporated herein, Subtenant is required to furnish insurance to or for Sublandlord, Subtenant also shall be required to furnish such insurance to or for Overlandlord and such other persons as shall be entitled thereto under the Overlease, provided that, in the case of any such other person not named in the Overlease, Sublandlord shall have notified Subtenant thereof.

6.2 Whenever, pursuant to any of the Incorporated Provisions as incorporated herein, Subtenant is required to indemnify or defend Sublandlord, Subtenant shall be required also to indemnify or defend Overlandlord and such other persons as shall be entitled thereto under the Overlease.

6.3 In addition to Subtenant’s obligations under Section 6.2 of this Sublease, Subtenant shall indemnify, defend and hold harmless Sublandlord from and against any loss, cost, damage or expense (including reasonable attorneys’ fees), or any claim therefor, arising out of any failure by Subtenant to observe or perform any of the terms, covenants or conditions of this Sublease required to be observed or performed by Subtenant (including the provisions of the Overlease), including any loss, cost, damage or expense which may result from (i) any default under or termination of the Overlease to the extent arising by reason of any such failure, or (ii) any holding over by Subtenant in the Sublease Premises beyond the expiration or sooner termination of this Sublease, including any such liability with respect to the entire Overlease Premises arising out of such holding over by Subtenant.

7. Covenant of Quiet Enjoyment

Sublandlord covenants that Subtenant may peaceably and quietly enjoy the Sublease Premises without disturbance, subject nevertheless to the terms and conditions of this Sublease and to the Overlease and any other leases and mortgages to which this Sublease is subordinate.

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8. Assignment and Subsubletting

8.1 Without the prior written consent of Overlandlord and Sublandlord in each instance:

(a) neither this Sublease nor any interest therein shall be assigned, conveyed, encumbered or otherwise transferred, including by operation of law;

(b) Subtenant shall not permit to occur or permit to exist any assignment of this Sublease, or any lien upon Subtenant’s interest, voluntarily or by operation of law;

(c) the Sublease Premises shall not be subsublet in whole or in part;

(d) Subtenant shall not advertise as available for subsublet or assignment all or any part of the Sublease Premises; and

(e) the Sublease Premises shall not be used or occupied by any person other than Subtenant or its employees, in whole or in part.

8.2 Any subsublease shall be subject and subordinate to this Sublease. No assignment shall be valid or effective unless and until the assignee shall have delivered to Sublandlord an instrument, in form satisfactory to Sublandlord, pursuant to which the assignee assumes the due observance and performance of all of the obligations of Subtenant hereunder from and after the date of such assignment.

8.3 No assignment or subsublease or use or occupancy by another shall release the Subtenant named herein or any of its successors from any liability hereunder. If this Sublease is assigned or the Sublease Premises or any part thereof are subsublet or used or occupied by another in violation of this Sublease then Sublandlord may collect rents from or accept performance from the assignee, subsubtenant, user or occupant and no such collection or acceptance shall effect any such release or be deemed to constitute Sublandlord’s consent to any assignment, subsubleasing, use or occupancy.

8.4 Any sale, transfer, issuance or redemption of membership, stock or capital interests in Subtenant (or any parent company of Subtenant) or any subsubtenant (or any parent company of any subsubtenant), whether by operation of law or otherwise, whether in a single transaction, a series of transactions or otherwise, which results, directly or indirectly, in a change in control of Subtenant or any subsubtenant shall be deemed to constitute an assignment of this Sublease or such subsublease to which all of the terms and provisions of this Article 8 shall be applicable.

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8.5 The liability of Subtenant for the due performance of this Sublease shall not be discharged, released or impaired in any respect by any agreement or stipulation made by Sublandlord with any assignee or successor in interest of Subtenant extending the time of or modifying any of the obligations contained in this Sublease, or by any waiver or failure of Sublandlord to enforce any of the obligations of this Sublease, and Subtenant shall continue to be liable under this Sublease notwithstanding any such agreement, stipulation, waiver or failure. If any such agreement or modification operates to increase the obligations of the subtenant under this Sublease, the obligations of Subtenant shall, unless Subtenant shall have consented to such agreement or modification in writing, continue to be no greater than if such agreement or modification had not yet been made.

8.6 Sublandlord’s consent to any subsublease or assignment shall not deemed or construed to modify, amend or affect the terms and provisions of this Sublease, or Subtenant’s obligations hereunder, and all such terms and provisions shall apply to Subtenant, the all of the occupants of the Sublease Premises (including Subtenant, the subtenant and the assignee. Any act or omission of any subsubtenant or assignee shall constitute an act or omission of Subtenant. If and to the extent of a conflict between this Sublease and the subsublease or assignment, this Sublease shall be controlling in same manner as if the subsublease or assignment had not been made.

8.7 Subtenant shall include in any subsublease a provision prohibiting the assignment of such subsublease (including with respect to the subsubtenant, a provision in the form of Section 8.4 of this Sublease) or any subsubsubletting thereunder without the consent of Overlandlord and Sublandlord in each instance obtained.

8.8 If Subtenant desires Sublandlord’s consent to an assignment or subsubletting, Subtenant shall furnish to Sublandlord (i) a fully-executed letter of intent or term sheet (a “Term Sheet”) with respect to such assignment or subsublease, setting forth all of the material terms thereof, including (a) the identity of the assignee or subsublessee; (b) in the case of a subsubletting, the term thereof; (c) consideration to be paid for any such assignment or subsubletting, including the base or fixed minimum rent thereunder; (d) any free rent or other economic concessions provided thereunder; (e) a description of the costs of tenant improvements or work allowance thereunder; and (f) other material terms thereof of the proposed Lease, and (ii) such information relative to the proposed assignee or subsubtenant as Sublandlord may reasonably request, including (a) information on the business and principals of the proposed assignee or subsubtenant, and (b) the most recent financial statements of the assignee or subsubtenant. Within twenty-five (25) days after Sublandlord’s receipt of all required information to be supplied by Subtenant under this Section 8.8, Sublandlord shall notify Subtenant in writing of Sublandlord’s approval or disapproval of any proposed assignment or subletting or, if applicable, of Sublandlord’s election to recapture as described below. If Sublandlord fails to deliver written notice to Subtenant that it disapproves of the

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proposed assignment or subsublease or, if applicable, is exercising its right to recapture, within such twenty-five (25) day period, then Subtenant may thereafter submit to Sublandlord a notice requesting approval of such assignment or subsublease that states clearly, in 14-point type or larger: “THIS IS A REQUEST FOR APPROVAL OF A PROPOSED ASSIGNMENT OR SUBSUBLETTING. IF SUBLANDLORD DOES NOT RESPOND WITHIN SEVEN (7) DAYS OF RECEIPT OF THIS NOTICE, APPROVAL OF SUCH PROPOSED ASSIGNMENT OR SUBSUBLETTING SHALL BE DEEMED GIVEN”. If Sublandlord fails to respond in writing within seven (7) days of receipt of such notice, then Sublandlord’s approval to such proposed assignment or subsubletting shall be deemed given. Sublandlord shall not unreasonably withhold or delay its consent; provided, however, that (A) without limiting the generality of the foregoing, Sublandlord shall be entitled to withhold its consent if (i) Overlandlord shall have withheld consent, (ii) Subtenant shall be in default under this Sublease, (iii) the proposed assignee or subsubtenant (or an affiliate thereof) is an occupant of any part of the Overlease Premises or is a person with whom Sublandlord has been in negotiations at any time during the preceding six months for any part of the Overlease Premises, (iv) in the judgment of Sublandlord, the proposed assignee or subsubtenant is of a character or is engaged in a business which is not appropriate for the Sublease Premises or has insufficient financial strength, considering the obligations involved, (v) the proposed assignee or subsubtenant is a government or governmental agency or not-for-profit entity, (vi) in case of a proposed subsublease covering less than all of the Sublease Premises, the area proposed to be subsubleased, the remaining area or the means of egress provided do not conform to applicable laws and requirements (it being understood that the foregoing are only examples of reasons for which Sublandlord may reasonably withhold consent and shall not be deemed to exclude other reasons similar or dissimilar), (B) Sublandlord shall be entitled in all instances to withhold its decision until Overlandlord has determined to grant or refuse consent, and (C) notwithstanding any consent or deemed consent granted by Sublandlord pursuant to this Section 8.8, the effectiveness of such assignment or subsublease shall be subject to (i) prior delivery of a fully-executed copy of such assignment or subsublease to Sublandlord, (ii) conformity of such assignment or subsublease, in all material respects, to the Term Sheet approved or deemed approved by Sublandlord, and (iii) in the case of a subsublease, such subsublease shall not seek to impose any obligation or liability upon Sublandlord. For the avoidance of doubt, Sublandlord’s consent to any subsublease shall not be deemed consent to any of the terms, conditions or provisions of such subsublease, and shall not create any privity of contract between any subsublessee and Sublandlord, expressly or by implication. In lieu of granting or withholding consent, Sublandlord may elect to terminate this Sublease (in case of a proposed assignment, or a proposed subsublease of all or substantially all of the Sublease Premises) or terminate this Sublease as to the portions of the Sublease Premises proposed to be subsublet (in case of a proposed subsublease). If Sublandlord elects to exercise its aforesaid right of termination, Sublandlord shall so notify

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Subtenant, specifying in such notice the effective date of such termination, which shall be no earlier than the effective or commencement date provided for in the proposed assignment or subsublease, and no later than ninety (90) days thereafter, and upon such termination effective date this Sublease shall terminate (in whole or in part, as the case may be) and, in case of a partial termination, (a) such termination shall also apply to all portions of the Sublease Premises required for egress from the area proposed to be subsubleased or the remaining area, (b) the Rent hereunder shall be proportionately reduced, and (c) Sublandlord shall perform, and Sublandlord and Subtenant shall share equally in the cost of, all work required to separate the area proposed to be subsubleased from the remaining area and/or to provide required egress.

8.9 In the event of any assignment or subsublease, Subtenant shall pay to Sublandlord, as additional rent, 50% of (x) any consideration, excluding payment for leasehold improvements or personal property, paid by the assignee or subsubtenant for or in connection with the assignment or subsublease and, in the case of subsublease, the excess of the amount of rent paid for the sublet space by the subsubtenant over the Base Rent and additional rent hereunder for the sublet space during the term of the subsublease, minus (y) reasonable out-of-pocket expenses incurred by Subtenant in connection with the assignment or subsubletting, including, without limitation, any Alterations to the Sublease Premises incident to such assignment or subsublease, reasonable brokerage commissions paid in connection with such assignment or subsublease, marketing costs, any improvement allowance or other economic concession (such as planning allowances or moving expenses) paid by Subtenant to or for the subsublessee or assignee and lease takeover payments. Subtenant’s payments under this Section shall be due within thirty (30) days of Subtenant’s receipt of any such consideration or excess rent, and within 90 days after the end of each calendar year Subtenant shall furnish to Sublandlord an annual accounting of all receipts and disbursements under this Section. If there is more than one subsublease under this Sublease, the amounts (if any) to be paid by Subtenant to Sublandlord pursuant to this Section shall be separately calculated for each subsublease and amounts due Sublandlord with regard to any one subsublease shall not be reduced by reason of any other subsublease. Sublandlord shall have the right, upon reasonable advance notice to Subtenant, to audit Subtenant’s books and records relative to the matters referenced in this Section.

8.10 Notwithstanding anything contained in this Section 8 to the contrary, Subtenant shall have the right, from time to time with written notice to Sublandlord but without Sublandlord’s consent (provided that the foregoing shall not obviate any requirement to obtain the consent of Overlandlord under the Overlease), and without being subject to Sections 8.4, 8.8 and 8.9, to assign this Sublease by agreement, or by operation of law in the case of a merger, or subsublet all or any part of the Sublease Premises to (a) any entity owned or controlled by Subtenant; (b) any entity of which Subtenant is a subsidiary; (c) any entity that is under

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common ownership or control with Subtenant; (d) an entity into which Subtenant is merged or consolidated; or (e) any entity that acquires all or substantially all of the assets or stock of Subtenant, provided that such third party assumes all of the obligations and liabilities of Subtenant arising under this Sublease Subtenant agrees to provide Sublandlord with prior written notice of any transaction falling within the purview of this Section 8.10, containing sufficient information and documentation to enable Sublandlord to confirm that all of the requirements of this Section 8.10 have been satisfied.

9. Electricity

9.1 Tenant’s use of electricity shall not at any time exceed the capacity of the electrical system within or serving the Sublease Premises and Tenant shall not overload any component of such system. In no event shall Subtenant draw more electricity than that which the feeders, risers, panels and other electricity supply equipment serving the Sublease Premises are capable of safely supplying.

9.2 In no event shall Sublandlord have any liability for any defect in, or any interruption or failure of, the electricity furnished to the Sublease Premises. Landlord shall not be deemed to have made any representation with respect to the capacity of electrical system within or serving the Sublease Premises or the amount of electricity available in the Sublease Premises. If and to the extent that Sublandlord receives an abatement of rent under the Overlease relative to the Sublease Premises by reason of an interruption of electricity service, Subtenant shall receive an abatement of Base Rent hereunder.

9.3 As of the date of this Sublease, tenants and subtenants of the Building may order overtime hours of lighting (lighting in excess of 260 hours per month) by way of an automated telephone ordering system, pursuant to a unique identification number given to each user of the system, with Overlandlord directly billing each user of the system for its overtime hours. For so long as such ordering and direct-billing system is in place, Subtenant shall pay for such overtime hours ordered by Subtenant directly to Overlandlord. If the ordering and direct-billing system described above (or substantially similar direct-bill system) shall no longer be used by Overlandlord, then (i) if Overlandlord shall bill Sublandlord for amounts attributable solely to overtime hours of lighting that are ordered by Subtenant, Subtenant shall reimburse Sublandlord for all such amounts within thirty (30) days of written demand, or (ii) if Overlandlord shall bill Sublandlord for amounts attributable to overtime hours of lighting that relate to the Sublease Premises and to other portions of the Overlease Premises, then the amount allocable to the Sublease Premises shall be determined by Sublandlord in a commercially reasonable manner and Subtenant shall reimburse Sublandlord for such amount within thirty (30) days of written demand).

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9.4 In respect of electricity for incidental uses (as such term is defined in the Overlease), Subtenant shall pay to Sublandlord, as additional rent, an amount per annum equal to the Incidental Electric Charge (as hereinafter defined). The Incidental Electric Charge shall be paid in monthly installments, together with each payment of Fixed Rent.

9.4.1 Subject to adjustment as provided in Section 9.4.2 below, the Incidental Electric Charge shall equal $1.25 per square foot of rentable area per annum.

9.4.2 If Sublandlord shall believe that the Incidental Electric Charge does not reflect the cost to Sublandlord of the incidental electricity furnished to Subtenant Sublandlord may cause Sublandlord’s electric consultant to survey the equipment in the Sublease Premises and Subtenant’s usage and to estimate the annual cost to Sublandlord of the incidental electricity furnished to Subtenant, considering consumption, demand and all other relevant factors and based on the electric rate schedule pursuant to which Sublandlord purchases electricity. If the annual cost estimated by Sublandlord’s consultant exceeds the Incidental Electric Charge then in effect, the Incidental Electric Charge shall be increased by the amount of such excess, effective as of the date of the survey or, if performed within 180 days of the date on which Subtenant opened for business in the Sublease Premises, effective as of the date of such opening. The amount of any such increase for any period from the effective date of the increase to the last day of the month in which Subtenant receives notice of the increase shall be paid within ten (10) business days following Subtenant’s receipt of Sublandlord’s statement, including a copy of the report from Sublandlord’s electrical consultant. Any determination of Sublandlord’s electrical consultant under this Section shall be binding and conclusive on Subtenant unless within 90 days after Subtenant’s receipt of such determination Subtenant notifies Sublandlord that Subtenant disputes such determination, identifies in Subtenant’s notice Subtenant’s electrical consultant and delivers to Sublandlord a copy of Subtenant’s electric consultant’s determination. If Sublandlord’s consultant and Subtenant’s consultant fail to agree on the determination in question within 30 days following Sublandlord’s receipt of Subtenant’s notice of dispute, Sublandlord’s electric consultant and Subtenant’s electric consultant shall, within 40 days following Sublandlord’s receipt of Subtenant’s notice of dispute, designate an independent electric consultant to make the determination. The independent electric consultant must be a person having not less than 10 years experience as an electric consultant for commercial office buildings. If the independent electric consultant is not designated within 40 days following Sublandlord’s receipt of Subtenant’s notice of dispute, the independent electric consultant shall be designated by the Chicago office of the American Arbitration

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Association (or any successor organization) under its then expedited rules at the request of either Sublandlord or Subtenant. The determination of the independent electric consultant shall be binding and conclusive on Sublandlord and Subtenant. Sublandlord and Subtenant shall each pay their own expenses of this procedure, except the fees and expenses of the independent electric consultant or the American Arbitration Association (or any successor organization) shall be paid 50 percent by Sublandlord and 50 percent by Subtenant. Pending the resolution of any dispute, Subtenant shall pay to Sublandlord any increase in the Incidental Electric Charge determined by Sublandlord’s electric consultant. If it is determined that the increase is less than the increase determined by Sublandlord’s electric consultant, Sublandlord shall credit the overpayment against the Subtenant’s next payments under this lease or if any overpayment is due Subtenant at the Expiration Date, Sublandlord shall promptly pay that overpayment to Subtenant.

9.5 Sublandlord may at any time, by written notice to Subtenant, elect to submeter the incidental electricity provided to the Sublease Premises. If Sublandlord gives that notice this Sublease shall continue in full force and effect unaffected thereby, except that (a) Sublandlord shall, at Sublandlord’s expense, furnish, install and maintain any submeter and other equipment in order for Subtenant’s electricity to be separately measured, and (b) from and after the date the submeter and equipment are placed in service (i) no Incidental Electric Charge shall be payable and (ii) in lieu thereof, Subtenant shall pay to Sublandlord for Subtenant’s electricity usage, for any submeter billing period, within thirty (30) days following Subtenant’s receipt of Sublandlord’s statement, an amount determined by applying Subtenant’s consumption of (KWH) and demand for (KW) electricity as measured by the submeter to the rate schedule pursuant to which Sublandlord purchases electricity (“Base Electric Charge”); provided, however, that if the submeter does not measure demand for electricity then the Base Electric Charge shall be equal to the product of Subtenant’s consumption of (KWH) electricity as measured by the submeter multiplied by the average cost per KWH of the electricity purchased by Sublandlord for the utility billing period most closely corresponding to such submeter billing period. Such average cost shall be calculated for any utility billing period by dividing (i) the total cost incurred by Sublandlord (including consumption (KWH) related and demand (KW) related charges) for such utility billing period by (ii) the consumption (KWH) for such utility billing period. If more than one submeter measures Subtenant’s electricity, the electricity supplied through each submeter may be computed and billed separately in accordance with this Section.

9.6 If Sublandlord verifies (by a writing from Overlandlord) that the existing Building electrical system is available and suitable for use by Subtenant and will safely provide incidental electricity to the Sublease Premises, then Sublandlord may at any time, by written notice to Subtenant, elect to discontinue providing incidental electricity to the Sublease Premises. If

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Sublandlord gives that notice this Sublease shall continue in full force and effect unaffected thereby, except that (a) Subtenant shall, at Subtenant’s expense, diligently arrange to obtain incidental electricity from the utility or other supplier providing electricity to the Building by means of the existing Building electrical system, (b) Sublandlord shall, at Sublandlord’s expense, furnish and install any additional equipment (including any meters) required in order for Subtenant to obtain incidental electricity directly from the utility or other supplier, (c) from and after the date Subtenant receives electricity from the utility or other supplier, no Incidental Electrical Charge shall be payable, and (d) Sublandlord shall continue to provide incidental electricity to the Sublease Premises until the utility or other supplier is prepared to supply it so that delivery of electricity to the Sublease Premises is not interrupted.

10. Alterations

10.1 Subtenant shall not make any alterations, installations, additions or improvements (“Alterations”) in or to the Sublease Premises without first having obtained the consent of (which term, as used herein, shall include approval of plans and specifications by) Overlandlord (except to the extent that, pursuant to the Overlease, Overlandlord’s consent is not required) and Sublandlord (except to the extent that, pursuant to the Overlease, Overlandlord’s consent is not required). Sublandlord shall not unreasonably withhold, condition or delay its consent provided that the proposed Alterations are consistent with the permitted uses of the Sublease Premises and will not adversely affect the mechanical, electrical, plumbing, HVAC or fire and life safety systems or structural components of the Building, the Overlease Premises or the Sublease Premises and will not require there to be provided to the Sublease Premises services or utilities in excess of that provided for in this Sublease. In the performance of Alterations, Subtenant shall use only architects, engineers, contractors and subcontractors approved by Sublandlord and Overlandlord. In furtherance of the foregoing, and in connection with any Alterations that require the consent of the Overlandlord and/or Sublandlord hereunder, Subtenant shall furnish to Sublandlord detailed plans and specifications therefor, and Subtenant shall (i) diligently review said plans, and shall respond thereto within thirty (30) days of submission to Sublandlord, with approval or disapproval (and in the case of disapproval, with appropriate comments and suggestions thereto), and (ii) if consent is required under the Overlease, promptly submit said plans to Overlandlord for its review. If Sublandlord fails to respond to Subtenant within such thirty (30) day period, then Subtenant may thereafter submit to Sublandlord a notice requesting approval of such plans and specifications that states clearly, in 14-point type or larger: “THIS IS A REQUEST FOR APPROVAL OF A PROPOSED ALTERATION. IF SUBLANDLORD DOES NOT RESPOND WITHIN FIVE (5) BUSINESS DAYS OF RECEIPT OF THIS NOTICE, APPROVAL OF SUCH PROPOSED ALTERATIONS BY SUBLANDLORD SHALL BE DEEMED GIVEN”. If Sublandlord fails to respond in writing within five (5) business days of receipt of such notice, then Sublandlord’s approval

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to such proposed alterations shall be deemed given. If Subtenant shall revise and resubmit any such plans and specification, Sublandlord shall (i) diligently review said revised plans, and shall respond thereto within ten (10) days of submission to Sublandlord, and (ii) if consent is required under the Overlease, promptly submit said revised plans to Overlandlord for its review. If Sublandlord fails to respond to Subtenant within such ten (10) day period, then Subtenant may also thereafter submit to Sublandlord a notice requesting approval of such revised plans and specifications that states clearly, in 14-point type or larger: “THIS IS A REQUEST FOR APPROVAL OF A PROPOSED ALTERATION. IF SUBLANDLORD DOES NOT RESPOND WITHIN FIVE (5) BUSINESS DAYS OF RECEIPT OF THIS NOTICE, APPROVAL OF SUCH PROPOSED ALTERATIONS BY SUBLANDLORD SHALL BE DEEMED GIVEN”. If Sublandlord fails to respond in writing within five (5) business days of receipt of such further notice, then Sublandlord’s approval to such proposed alterations shall be deemed given.

10.2 If and whenever Subtenant shall make any Alterations, Subtenant shall observe and perform (a) all of the terms, covenants and conditions contained in, or imposed by Overlandlord pursuant to, the Overlease, including the payment of all fees, charges and amounts payable under the Overlease, and (b) any additional terms, covenants and conditions imposed by Sublandlord with respect to such Alterations including requiring Subtenant to furnish Sublandlord with (i) security for the payment of all costs to be incurred in connection with such Alterations (solely to the extent required by the Overlandlord), (ii) builders risk insurance, workers compensation coverage and insurance against liabilities which may arise by reason of such Alterations, (iii) plans and specifications plus permits necessary for such Alterations and (iv) following completion, “as-built” drawings. In addition, Subtenant shall pay to Sublandlord all of Sublandlord’s reasonable out of pocket costs and expenses (including without limitation cost and expenses for review and approval of plans and specifications and for inspections) incurred by Sublandlord in connection with such Alterations, not to exceed $1,000.

10.3 Subtenant will not permit any mechanic’s or materialmen’s lien or other lien to be placed upon the Sublease Premises, the Overlease Premises or the Building in respect of any work, services or materials furnished or claim to have been furnished to Subtenant, and if any such lien is filed Subtenant shall, within ten (10) business days after Sublandlord has delivered notice of the filing thereof to Subtenant, either pay the amount of the lien and cause the lien to be released of record, or bond such lien and diligently contest same. If Subtenant shall not timely remove or bond such lien, Sublandlord may do so by payment, bonding (if authorized by law) or otherwise and, in such a case, Subtenant shall reimburse Sublandlord as additional rent upon demand for any sums incurred by Sublandlord for that purpose (including reasonable attorneys’ fees).

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10.4 If at the expiration or sooner termination of the Overlease, Sublandlord will be required by the Overlease to perform any removal, restoration or repair work relative to the Sublease Premises, Subtenant shall perform such removal, restoration or repair work prior to the expiration or sooner termination of this Sublease and, if and to the extent that Subtenant does not do so, Subtenant shall reimburse Sublandlord for any costs incurred by Sublandlord on account thereof; provided, however, that Subtenant shall not be required to remove from the Sublease Premises any Alterations not made by Subtenant. Subtenant shall not have the right to make the Alterations contemplated by the second paragraph of Section 8(a) of the Overlease.

10.5 Subtenant shall indemnify and hold harmless Overlandlord and Sublandlord from any and against any loss, cost, damage or expense arising out of any Alterations made by Subtenant, including reasonable attorneys fees incurred in connection with any claim therefor.

10.6 Sublandlord shall provide Subtenant with the Tenant Improvement Allowance Amount. Subtenant may apply the Tenant Improvement Allowance to all hard and soft costs associated with the Initial Alterations (defined below) including, without limitation, the cost to prepare space plans and working drawings, the cost to obtain permits and other similar approvals, and the costs of labor and materials incorporated into the Initial Alterations (including costs of data and telephone cabling, and costs of furnishings, fixtures, equipment, signage and other personal property, including switches, servers, routers and similar data and telecommunications equipment). Sublandlord shall disburse such allowance to Subtenant within thirty days after Subtenant’s request accompanied by (i) an affidavit from Subtenant’s architect confirming that all of the Alterations performed by Subtenant in order to prepare the Sublease Premises for its initial occupancy (“Initial Alterations”) have been completed in accordance with plans and specifications approved by Overlandlord and Sublandlord, (ii) paid and receipted invoices, sworn statements and lien waivers from all contractors and subcontractors, (iii) evidence that the Building, the Overlease Premises and Sublease Premises are free from any mechanics or other liens arising out of the Initial Alterations, (iv) all final governmental approvals and sign-offs required in connection with the Initial Alterations, and (v) any other documentation required by the Overlease to be submitted to or issued by Overlandlord in connection with such Initial Alterations. If the cost of the Initial Alterations shall be less than the Tenant Improvement Allowance Amount, then Sublandlord agrees that the difference between the Tenant Improvement Allowance Amount and the cost of the Initial Alterations shall be credited against the next sums of Base Rent due following completion of the Initial Alterations.

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11. Casualty and Condemnation.

11.1 If all or any part of the Sublease Premises are damaged by fire or other casualty, (a) Subtenant shall notify Sublandlord, (b) if Sublandlord is entitled to an abatement of Base Rent under Article 2 of the Overlease and Additional Rent under Article 3 of the Overlease with respect to any portion of the Sublease Premises with respect to any day then Subtenant shall be entitled to an abatement of rent under Section 3.1 and 3.2 of this Sublease with respect to such portion of the Sublease Premises with respect to such day, and (c) except to the extent that Overlandlord is required to repair and/or restore the Sublease Premises, Subtenant shall repair and/or restore the Sublease Premises, except that Subtenant shall not be obligated to repair and/or restore any of the structural elements of the Building (which elements, among other things, Overlandlord is required to repair and/or restore pursuant to Section 6(a) of the Overlease). Sublandlord shall be responsible for repair and/or restoration of any common areas on Subtenant’s floor and outside of the Sublease Premises that Overlandlord is not obligated to, or does not, repair and/or restore.

11.2 If all or any part of the Sublease Premises are taken by condemnation or eminent domain, (a) this Sublease shall be deemed terminated with respect to the premises taken, (b) Sublandlord shall be entitled to the entire award in respect thereof, and (c) if less than all of the Sublease Premises are taken the rent hereunder shall be abated in proportion to the portion taken.

11.3 Except to the extent caused by the negligence or willful misconduct of Sublandlord or its employees, agents or contractors, but subject to Section 10(a) of the Overlease as incorporated herein, Sublandlord shall not be liable to Subtenant for or with respect to any fire or other casualty, or any taking, or any damage to property or interference with occupancy or business that may result therefrom or that may result from any repairs or restoration work.

11.4 Notwithstanding anything to the contrary contained in this Sublease, if all or any part of the Sublease Premises are damaged by fire or other casualty, and (i) such casualty occurs during the last twelve (12) months of the term of this Sublease, and (ii) in the reasonable, good faith judgment of Subtenant , the damage to the Sublease Premises is likely to render the Sublease Premises untenantable (meaning Subtenant’s inability to reasonably use the Sublease Premises or a material portion thereof in the normal course of its business) for a period in excess of thirty (30) days from the date of such damage, then Subtenant shall have the right, by written notice to Sublandlord within thirty (30) days after such damage, to terminate this Sublease as of the date of Subtenant’s notice. If Subtenant does not elect to terminate this Sublease, then Sublandlord shall use its reasonable efforts to cause Overlandlord to repair and restore the Sublease Premises to the extent of Overlandlord’s obligations with respect to same under the Overlease.

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12. Security Deposit

12.1 Within five (5) business days after Subtenant receives a copy of Overlandlord’s written consent to this Sublease, Subtenant shall deliver to Sublandlord a security deposit in the Required Security Deposit Amount to secure the faithful observance and performance by Subtenant of the terms and conditions of this Sublease. The Required Security Deposit shall bear interest at a rate of 2% per annum. If Subtenant defaults in the observance or performance of any of such terms and conditions and such default continues after any applicable notice and cure period provided for herein, Sublandlord may use or apply all or any part of such security deposit for the payment of any rent not paid when due or for the payment of any other amounts due Sublandlord by reason of such default, including any costs of Sublandlord’s observing or performing such terms or conditions on Subtenant’s behalf and any deficiencies in reletting or damages incurred by Sublandlord. If Sublandlord shall use or apply all or any part of such security deposit, Subtenant shall immediately upon written notice from Sublandlord, deliver to Sublandlord additional funds so as to restore the security deposit to the Required Security Deposit Amount. If Subtenant shall faithfully observe and perform all of the terms and conditions of this Sublease, the security deposit, or so much thereof as shall not have been used or applied in accordance with this Section 12, together with all interest thereon, shall be returned to Subtenant within thirty (30) days after the expiration or sooner termination of this Sublease, the vacation and surrender of the Sublease Premises in accordance with this Sublease and the performance by Subtenant of all of its obligations under this Sublease. Subtenant shall not assign (other than to an assignee of this Sublease) or encumber its interest in the security deposit and no such assignment or encumbrance shall be valid or binding upon Sublandlord.

12.2 Notwithstanding the foregoing, Subtenant may post the security deposit by means of a clean irrevocable letter of credit in the form of Exhibit D in the amount of the Required Security Deposit Amount naming Subtenant as the account party and Sublandlord as the beneficiary and in an amount equal to the Required Security Deposit Amount and issued by a bank satisfactory to Sublandlord (the “Letter of Credit”). Sublandlord shall have the right to draw the full amount of the Letter of Credit whenever, pursuant to Section 12.1 of this Sublease, Sublandlord would have the right to use or apply all or any portion of the security deposit provided for therein; provided, however, that if, pursuant to Section 12.1 of this Sublease Sublandlord shall have the right to use or apply only a portion of the security deposit provided for therein then the balance of the amount so drawn shall be held by Sublandlord pursuant to Section 12.1 of this Sublease (and, as provided in Section 12.1 of this Sublease, Subtenant shall immediately deposit additional funds or an additional Letter of Credit so that the total amount so held shall equal the Required Security Deposit Amount).

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12.3 The aforesaid letter of credit shall have an initial term of one year and shall provide that it shall automatically renew for successive periods of one year through a date no earlier than the date 60 days after the expiration date of this Sublease unless at least 45 days prior to the then scheduled expiration date of the letter of credit the issuing bank shall notify Sublandlord that such letter of credit will not be renewed. If Sublandlord shall receive any such notice of renewal Sublandlord shall have the right to draw the full amount of the aforesaid letter of credit in which case Sublandlord shall hold the same pursuant to Section 12.1 of this Sublease. (including the obligation to deposit additional security if any of such security is use or applied as provided in Section 12.1 of this Sublease).

13. Notices

Any notice or other communication under this Sublease shall be in writing and shall be sent by registered or certified mail, return receipt requested, or nationally recognized overnight courier service, addressed to the party for whom intended at its address set forth on the signature page hereof, or to such other address as such party shall have designated by notice to the other in the manner herein prescribed. Any such notice, etc. shall be deemed given when delivered or refused or when delivery is attempted on a business day.

14. Broker

Subtenant and Sublandlord each represent and warrant to the other that it has dealt with no broker, agent or finder in connection with this Sublease other than the Recognized Broker and agrees to indemnify the other against any claim for commission or other compensation in connection with this Sublease made against the other by any other broker, agent or finder with whom it has dealt, or is claimed to have dealt, in connection with this Sublease, and all costs, expenses and liabilities in connection therewith, including reasonable attorneys’ fees and disbursements incurred by the other in the defense of any such claim. Sublandlord shall pay the commission due the Recognized Broker if, as and when provided for in a separate agreement.

15. Overlandlord Consent

This Sublease is subject to Overlandlord’s consent to this Sublease. Promptly following the full execution and delivery of this Sublease, Sublandlord shall request and diligently pursue Overlandlord’s written consent to this Sublease and pay any fees or charges expressly provided for in the Overlease, but shall not be required to pay any additional consideration to Overlandlord. Subtenant agrees promptly to provide any financial or other information requested by Overlandlord, and to execute any documents required by Overlandlord (and reasonably acceptable to Subtenant) in connection with consent to this Sublease. If Overlandlord’s consent to this Sublease is not received within sixty (60) days of the full execution and delivery hereof, either

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party by notice to the other given prior to the receipt of Overlandlord’s consent, may cancel this Sublease, in which case Sublandlord shall promptly return to Subtenant all sums theretofore paid by Subtenant hereunder. Subtenant waives any claim against Overlandlord arising out of any failure or refusal by Overlandlord to grant consent. Sublandlord also agrees to use its best efforts (at no out-of-pocket cost to Sublandlord) to assist in facilitating Overlandlord’s response to Subtenant’s proposed plans and specifications for Subtenant’s Initial Alterations, including promptly submitting, at Subtenant’s request, Subtenant’s proposed plans and specifications for Subtenant’s Initial Alterations, and otherwise corresponding and/or meeting with Overlandlord or its engineers, if necessary, provided, however, that the failure of Overlandlord to approve such plans shall not affect the validity of this Sublease or Overlandlord’s consent to this Sublease.

16. Intentionally Deleted

17. Right of Relocation

17.1 Sublandlord shall have the right to relocate Subtenant to other premises in the Building which are comparable in terms of quality, size and build-out and located on or above the 20th floor of the Building and having a commercially leaseable number of perimeter exterior windows (which may be different from the number of perimeter exterior windows in the original premises) (“Relocation Premises”) and which may be within the Overlease Premises or elsewhere in the Building, provided, such premises may only be located elsewhere in the Building if such premises is leased by Sublandlord pursuant to a lease from the Overlandlord that is no less favorable to Subtenant in its application to Subtenant, in any material respect, than the Overlease. In order to exercise this right, Sublandlord shall give Subtenant notice (a “Relocation Notice”) specifying the Relocation Premises and, if any work will be performed in order to conform the Relocation Premises to the requirement of the first sentence of this Section (“Sublandlord’s Relocation Work”), an outline plan and specifications therefor; provided, however, that such notice shall not be effective unless Overlandlord has consented to the relocation (whether or not the Relocation Premises are within the Overlease Premises). The Relocation Notice must be given, if at all, within the period ending two (2) years from the Commencement Date. If Subtenant believes that the Relocation Premises (including any Sublandlord’s Relocation Work described in the Relocation Notice) will not conform to the requirements of the first sentence of this Section 17.1, Subtenant shall so notify Sublandlord within thirty (30) days of Subtenant’s receipt of the Relocation Notice (a “Relocation Dispute Notice”) and, if Subtenant shall timely give such a Relocation Dispute Notice and the dispute is not resolved within five (5) days thereafter, the dispute shall be resolved pursuant to the expedited arbitration rules of the American Arbitration Association. If Subtenant shall fail timely to give such a Relocation Dispute Notice, the Relocation Premises shall be deemed to conform to the requirements of the first sentence of this Section 17.1 and Subtenant shall be deemed to have waived any right to assert to the contrary. If either (i) the dispute shall be resolved

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in Sublandlord’s favor, or (ii) Subtenant shall fail timely to give a Relocation Dispute Notice then, subject to Section 17.3 and Section 17.4, as soon as the Relocation Premises are available to Subtenant (and Sublandlord’s Relocation Work, if any, is substantially completed), but not sooner than 90 days after the date of Sublandlord’s Relocation Notice, (a) Subtenant shall vacate and surrender the Sublease Premises originally demised herein in its as-is, where-is condition, (b) the Sublease Premises originally demised herein shall be deemed released from this Sublease, (c) the term “Sublease Premises” as used herein shall be deemed to refer to the Relocation Premises in lieu of the Sublease Premises originally demised herein, and (d) if the rentable area of the Relocation Premises is less than the Sublease Premises Rentable Area, then Base Rent and Subtenant’s Share shall be reduced accordingly. Sublandlord shall reimburse Subtenant for the reasonable out-of-pocket costs and expenses incurred by Subtenant for (i) relocating, reassembling and connecting its furniture and equipment and voice/data service from the Sublease Premises originally demised herein to the Relocation Premises and (ii) reprinting of stationery.

17.2 Subtenant shall join in the execution of any instrument reasonably requested by Sublandlord or Overlandlord to confirm the Subtenant’s relocation pursuant to this Section 17 and the leasing of the Relocation Premises, but no failure of Subtenant to do so shall affect such relocation or leasing.

17.3 If Sublandlord shall give Subtenant a Relocation Notice then Subtenant shall have the right, by notice to Sublandlord given within thirty (30) days of its receipt of such Relocation Notice, to terminate this Sublease effective upon the date hereinafter described; provided, however, that there shall be no extension of the aforesaid thirty (30) day period by reason of any dispute under Section 17.1 or any Relocation Dispute Notice. If Subtenant shall give a valid and timely notice of termination, then

17.3.1 Sublandlord’s Relocation Notice shall be of no effect and Subtenant shall not be required to relocate and

17.3.2 subject to Section 17.4, (a) Sublandlord shall, within ninety (90) days of Sublandlord’s receipt of Subtenant’s notice of termination, notify Subtenant of the effective date of such termination (which shall be no earlier than 90 days after the date of Sublandlord’s notice pursuant to this clause (a)), (b) Subtenant shall continue to be liable for all Rent hereunder through such effective date so specified by Sublandlord, and (c) upon such effective date so specified by Sublandlord this Sublease shall terminate and expire as if such effective date so specified by Sublandlord had been originally provided herein as the expiration date.

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17.4 Sublandlord shall have the right, by notice to Subtenant at any time prior to Subtenant’s relocation pursuant to Section 17.1 or the giving of Sublandlord’s notice under clause (a) of Section 17.3.2), to withdraw its Relocation Notice, in which case the parties shall be restored to their respective positions as if such Relocation Notice had never been given (and, if Subtenant shall have exercised its right under Section 17.3 the same shall be void). Sublandlord’s exercise of its rights under this Section shall not prejudice Sublandlord’s right to give a subsequent Relocation Notice under Section 17.1.

17.5 Notwithstanding any other provision of this Section 17, Sublandlord shall not give any Relocation Notice unless, at time of the Sublandlord’s doing so, its purpose in doing so is to facilitate a lease or sublease, for a tenant or subtenant, of no less than 100,000 rentable square feet in the Building, inclusive of the Sublease Premises.

18. End of Term

18.1 Upon the expiration or sooner termination of this Sublease (a) Subtenant (and all other occupants) shall vacate and surrender the Sublease Premises, broom clean and in at least as good a condition as it was on the date of this Sublease (except for damage for which Subtenant is not responsible under this Sublease and ordinary wear and tear) and otherwise as may be required by this Sublease, including Section 10.4 of this Sublease, and (b) Subtenant shall remove all of Subtenant’s property.

18.2 If the Sublease Premises are not vacated and surrendered in accordance with this Sublease, on the date required by this Sublease, Subtenant shall be liable to Sublandlord for (a) all losses, costs, liabilities and damages which Sublandlord incurs by reason thereof, including reasonable attorneys’ fees, and (b) per diem use and occupancy in respect of the Sublease Premises equal to twice the Rent payable under this Sublease for the last year of the term (which Sublandlord and Subtenant presently agree is the Rent to which Sublandlord would be entitled, is presently contemplated by them as being fair and reasonable under such circumstances and is not a penalty). In no event, however, shall this Section be construed as permitting Subtenant (and all other occupants) to remain in possession of the Sublease Premises after the expiration or sooner termination of this Sublease.

18.3 Subtenant’s specifically acknowledges and agrees that if Subtenant holds over in possession of the Sublease Premises beyond the expiration or sooner termination of the Overlease such hold over by Subtenant will constitute a holding over by Sublandlord (as tenant under the Overlease) of the entire Overlease Premises and that, in such a case, (a) Sublandlord will be liable for holdover rent and damages with respect to the entire Overlease Premises, and (b) Subtenant shall be liable to Sublandlord for the entire amount of such holdover rent and damages with respect to the entire Overlease Premises

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(the “Overlease Holdover Rent and Damages”); provided, however, that if Subtenant and one or more other subtenants of Sublandlord holds over beyond the expiration or sooner termination of the Overlease Sublandlord shall be entitled to recover all or any portion of the Overlease Holdover Rent and Damages from Subtenant or from any one or more other subtenants (as Sublandlord shall elect from time to time) so long as Sublandlord shall not recover more than 100% of the Overlease Holdover Rent and Damages in the aggregate from Subtenant and all such other subtenants.

19. Miscellaneous

19.1 In any instance in which Sublandlord is required by any provision of this Sublease or applicable law not unreasonably to withhold consent or approval, Subtenant’s sole remedy, except as next provided, shall be an action for specific performance or injunction requiring Sublandlord to grant such consent or approval, all other remedies (including money damages) which would otherwise be available being hereby waived by Subtenant. In any such action, the substantially prevailing party shall be entitled to reimbursement of its legal fees and expenses from the other party.

19.2 Subtenant and Sublandlord each agree that neither it, nor any of its affiliates, agents, contractors or representatives, shall, (i) use in advertising, publicity, marketing or other promotional materials or activities, signage or otherwise the name of the other party or any affiliate of the other party or any officer or employee of the other party or any affiliate of the other party, or any abbreviation, contraction or simulation thereof, or any symbol, tradename, trademark, trade device or service mark of or owned by the other party or any affiliate of the other party; or (ii) represent, directly or indirectly, that any product or service provided by it or any of its affiliates, agents, contractors or representatives has been approved or endorsed by the other party or any affiliate of the other party, or (iii) except as required under applicable law, discuss with, or comment to unrelated third-parties or members of the press, regarding the existence or terms of this Sublease or any of the other party’s activities, or the status, terms or outcome of any negotiations between Sublandlord and Subtenant or the terms of this Sublease or other transaction between Sublandlord and Subtenant.

This Section shall survive the expiration or sooner termination of this Sublease.

19.3 Sublandlord shall provide Building-standard signage to Subtenant at no charge for the elevator lobby of the 48th floor, subject to approval by Overlandlord. In addition, Subtenant shall be permitted to install a sign on the entrance to the Sublease Premises. In each case, Subtenant’s signs may state, in addition to the name of Subtenant, the following “Member NYSE, NASD, SIPC & NFA.”

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19.4 Subtenant represents and warrants to Sublandlord that, as of the date of the entering into of this Sublease, no representative, officer, agent or employee of Sublandlord or of any of Sublandlord’s representatives, agents or affiliates has been offered by or received from Subtenant or any of Subtenant’s representatives, officers, agents, employees or affiliates, directly or indirectly, any benefit, fee, commission, dividend, gift, cash, gratuity, services or consideration or inducements of any kind in connection with this Sublease.

Subtenant shall not offer, and shall not suffer or permit any of its representatives, officers, agents, employees or affiliates to offer, directly or indirectly, to any representative, officer, agent or employee of Sublandlord or of any of Sublandlord’s representatives, agents or affiliates any benefit, fee, commission, dividend, gift, cash, gratuity, services or consideration or inducements of any kind in connection with this Sublease.

Subtenant confirms that it has been advised and instructed by Sublandlord that Sublandlord and its affiliates have a policy that prohibits any actions in violation of the Foreign Corrupt Practices Act, 15 USCA § 78dd-1 et seq. and §78ff (the “FCPA”). Among other things, this policy forbids Subtenant and its representatives, agents and affiliates, as well as Sublandlord and its representatives, agents and affiliates, from offering or promising to transfer, and from transferring or authorizing the transfer of, any money or thing of value to any foreign official, party or candidate to act or to refrain from acting in their official capacity, either directly or indirectly, in order to assist in obtaining or retaining business for or with Sublandlord or any of its affiliates or directing business to any other person or entity. As used in this paragraph, the term “foreign official” includes officers or employees of a foreign government, any department or agency of a foreign government, or anyone acting in any official capacity on behalf of such government. Subtenant hereby represent that it has not taken, or suffered or permitted any of its representatives, agents or affiliates to take, any action in violation of the FCPA and agrees that it shall observe and comply, and cause its representatives, agents and affiliates to comply, with the terms and conditions of the FCPA and Sublandlord’s policy with respect thereto.

Subtenant shall not discriminate against any employee or applicant for employment because of race, creed, color, national origin or sex and will take affirmative action to ensure that they are afforded equal employment opportunities without discrimination because of race, creed, color, national origin or sex. Such action shall be taken with reference, but not be limited, to recruitment, employment, job assignment, promotion, upgrading, demotion, transfer, layoff or termination, rates of pay or other forms of compensation, and selection for training or retraining, including apprenticeship and on-the-job training.

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19.5 This Sublease contains the entire agreement between the parties and all prior negotiations and agreements are merged in this Sublease. Any agreement hereafter made shall be ineffective to change, modify or discharge this Sublease in whole or in part unless such agreement is in writing and signed by the parties hereto.

19.6 The submission of this document by Sublandlord to Subtenant shall not constitute an offer by Sublandlord and Sublandlord shall not be bound in any way unless and until this Sublease is executed and delivered by both parties.

19.7 If no other time or period is provided for Subtenant to make any payment hereunder, such payment shall be due within thirty (30) days of Sublandlord’s request.

19.8 The parties hereto hereby waive trial by jury in any action or proceeding arising under this Sublease. In any such action or proceeding, the prevailing party shall be entitled to recover its reasonable attorneys’ fees from the other party.

19.9 If and to the extent that any of the amounts payable by Subtenant to Sublandlord are subject to any sale or use or similar tax, Subtenant shall pay the same to Sublandlord and Sublandlord shall remit the same to the appropriate agency.

[Continued on next page]

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement of Sublease as of the day and year first above written.

Sublandlord
	THE GOLDMAN SACHS GROUP, INC. a Delaware corporation
	By:	/s/ Anthony Cammarata Jr.
		Name:	Anthony Cammarata Jr.
		Title:	Authorized Signatory

Address for Notices:
85 Broad Street
New York, New York 10004
Attention:	Corporate Services
	Anthony Cammarata
with a copy to:
85 Broad Street
New York, New York 10004
Attention:	Legal Department
	Peggy Rawitt

Subtenant
	TRADESTATION SECURITIES, INC., a Florida corporation
	By:	/s/ Marc J Stone
		Name:	MARC J. STONE
		Title:	VP and GEN COUNSEL

Address for Notices:

8050 SW 10^TH Street, Ste. 4000

Plantation, FL 33324

Attn: Marc J. Stone

General Counsel

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EX-21.1

Exhibit 21.1

Subsidiaries

Name	Jurisdiction of Incorporation
TradeStation Securities, Inc.	Florida
TradeStation Technologies, Inc.	Florida
TradeStation Europe Limited	United Kingdom

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in each of the Registration Statement (Form S-8 No. 333-53222), Registration Statement (Form S-8 No. 333-86968) and the Registration Statement (Form S-3 No. 333-107079) pertaining to TradeStation Group, Inc. and Subsidiaries of our reports dated March 8, 2007, with respect to the consolidated financial statements of TradeStation Group, Inc. and Subsidiaries, TradeStation Group, Inc. and Subsidiaries management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of TradeStation Group, Inc. and Subsidiaries, included in this annual report (Form 10-K) for the year ended December 31, 2006.

/s/ Ernst & Young LLP

Certified Public Accountants

Fort Lauderdale, Florida,

March 8, 2007.

EX-31.1

Exhibit 31.1

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER

PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934

I, Salomon Sredni, Chief Executive Officer of TradeStation Group, Inc., certify that:

1. I have reviewed this annual report on Form 10-K of TradeStation Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 9, 2007	By:	/s/ Salomon Sredni
Date		Salomon Sredni Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS OF CHIEF FINANCIAL OFFICER

PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934

I, David H. Fleischman, Chief Financial Officer of TradeStation Group, Inc., certify that:

1. I have reviewed this annual report on Form 10-K of TradeStation Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 9, 2007	By:	/s/ David H. Fleischman
Date		David H. Fleischman Chief Financial Officer,     Vice President of Finance and Treasurer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER UNDER 18 U.S.C. §1350

I, Salomon Sredni, Chief Executive Officer of TradeStation Group, Inc., hereby certify, to my knowledge, that:

The Annual Report on Form 10-K of TradeStation Group, Inc. for the year ended December 31, 2006 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of TradeStation Group, Inc.

The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being filed as part of the Report or as a separate disclosure document.

March 9, 2007	/s/ Salomon Sredni
Date	Salomon Sredni Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER UNDER 18 U.S.C. §1350

I, David H. Fleischman, Chief Financial Officer of TradeStation Group, Inc., hereby certify, to my knowledge, that:

The Annual Report on Form 10-K of TradeStation Group, Inc. for the year ended December 31, 2006 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of TradeStation Group, Inc.

The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being filed as part of the Report or as a separate disclosure document.

March 9, 2007	/s/ David H. Fleischman
Date	David H. Fleischman Chief Financial Officer,     Vice President of Finance and Treasurer