WeTable are currently undergoing routine U.S. federal tax examinations by the Internal Revenue Service for the 2007 and 2008 fiscal years. During the second quarter of 2010, a state tax authority completed routine tax examinations of our 2007 and 2008 fiscal years with no adjustments. We are no longer subject to U.S. federal tax examinations or state and local tax examinations for periods prior to 2006. Contents

Table of Contents

Table of Contents

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September~~March 3031, ~~2010~~2011

¨	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. 10^th Street, Suite 4000, Plantation, Florida		33324
(Address of principal executive offices)		(Zip Code)

954-652-7000

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

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. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

The registrant had 3940,~~986~~138,~~141~~397 shares of common stock, $.01 par value, outstanding as of ~~November~~May 12, ~~2010~~2011.

TRADESTATION GROUP, INC. AND SUBSIDIARIES

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance SheetsSeptember 30, 2010 (unaudited) and December 31, 2009		3
	Consolidated Balance Sheets March 31, 2011 (unaudited) and December 31, 2010		3
	Consolidated Statements of IncomeThree and Nine Months Ended September 30, 2010 and 2009 (unaudited)		4
	Consolidated Statements of Income Three Months Ended March 31, 2011 and 2010 (unaudited)		4
	Consolidated Statements of Cash FlowsNine Months Ended September 30, 2010 and 2009 (unaudited)		5
	Consolidated Statements of Cash Flows Three Months Ended March 31, 2011 and 2010 (unaudited)		5
	Notes to Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2123
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		36
Item 4.	Controls and Procedures		37
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		38
Item 1A.	Risk Factors		3940
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		39
Item 6.	Exhibits		42
Item 6.	Exhibits		40
Signature			43
Signature			41

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

TRADESTATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	September 30,2010			December 31,2009
	March 31,2011			December 31,2010
	(Unaudited)
ASSETS:
Cash and cash equivalents, including restricted cash of $478 at September 30, 2010 and $717 at December 31, 2009	$	52,512		$	57,405
Cash and cash equivalents, including restricted cash of $478 at March 31, 2011 and at December 31, 2010	$	56,416		$	41,888
Cash and investments segregated in compliance with federal regulations		1,~~277~~329,~~768~~491			~~785~~1,~~208~~279,734
Marketable securities		5660,~~678~~889			7663,~~342~~255
Receivables from brokers, dealers, clearing organizations and clearing agents		36117,~~689~~378			3280,~~226~~827
Receivables from brokerage customers, net		53,227			45,034
Receivables from brokerage customers		70,891			68,268
Property and equipment, net		1617,~~711~~229			717,~~578~~974
Deferred income taxes, net		1,780			1,276
Deposits with clearing organizations		35,524			35,504
Deposits with clearing organizations		35,485			38,521
Other assets		7,064			5,716
Other assets		4,122			5,606
Total assets	$	1,694,882		$	1,593,166
Total assets	$	1,534,972		$	1,049,196
LIABILITIES AND SHAREHOLDERS’ EQUITY:
LIABILITIES:
Payables to brokers, dealers and clearing organizations	$	~~198~~52,853		$	~~114~~27,770
Payables to brokerage customers		1,~~347~~456,~~914~~536			~~868~~1,~~741~~381,105
Accounts payable		51,~~340~~913			23,~~627~~767
Accrued expenses		87,~~210~~511			76,~~206~~967
Total liabilities		1,361,662			878,688
Deferred income taxes, net		230			120
Total liabilities		1,519,043			1,419,729
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, 39,293,648 and 40,692,328 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively		393			407
Common stock, $.01 par value; 200,000,000 shares authorized, 39,163,066 and 39,055,900 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively		392			391
Additional paid-in capital		3435,~~873~~673			4234,~~728~~237
Accumulated other comprehensive income		5			5
Accumulated other comprehensive (loss) income		(30	)		1
Retained earnings		~~138~~139,~~039~~804			~~127~~138,~~368~~808
Total shareholders’ equity		~~173~~175,~~310~~839			~~170~~173,~~508~~437
Total liabilities and shareholders’ equity	$	1,~~534~~694,~~972~~882		$	1,~~049~~593,~~196~~166

See accompanying notes.

TRADESTATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share data)

	Three Months Ended					Nine Months Ended
	Three Months EndedMarch 31,
	September 30,					September 30,
	2011			2010
	2010			2009		2010		2009
REVENUES:
REVENUES:
Brokerage commissions and fees	$	27,123		$	26,948
Brokerage commissions and fees	$	26,031		$	28,623	$	83,435	$	93,422
Interest income		3,576			2,293
Interest income		2,757			1,612		7,673		3,948
Brokerage interest expense		—			—
Brokerage interest expense		—			—		—		—
Net interest income		3,576			2,293
Net interest income		2,757			1,612		7,673		3,948
Subscription fees and other		1,498			1,628
Subscription fees and other		1,517			1,777		4,754		5,809
Gains (losses) on marketable securities, net		(51	)		1,221
Gains (losses) on marketable securities, net		(728	)		344		4,175		344
Net revenues		32,146			32,090
Net revenues		29,577			32,356		100,037		103,523
EXPENSES:
EXPENSES:
Employee compensation and benefits		11,694			11,194
Employee compensation and benefits		11,400			10,509		34,055		31,662
Clearing and execution		7,258			7,184
Clearing and execution		6,952			7,160		22,452		23,822
Data centers and communications		3,828			3,502
Data centers and communications		3,403			2,902		10,846		8,551
Marketing		2,392			1,532
Marketing		1,791			1,453		5,070		5,046
Professional services		751			697
Professional services		1,109			754		2,545		2,514
Occupancy and equipment		802			752
Occupancy and equipment		805			800		2,364		2,282
Depreciation and amortization		1,918			950
Depreciation and amortization		1,317			1,062		3,330		3,306
Other		1,702			1,794
Other		2,474			1,653		6,220		4,862
Total expenses		30,345			27,605
Total expenses		29,251			26,293		86,882		82,045
Income before income taxes		1,801			4,485
Income before income taxes		326			6,063		13,155		21,478
INCOME TAX PROVISION		805			1,811
INCOME TAX (BENEFIT) PROVISION		(2,730	)		2,366		2,484		8,420
Net income	$	996		$	2,674
Net income	$	3,056		$	3,697	$	10,671	$	13,058
EARNINGS PER SHARE:
EARNINGS PER SHARE:
Basic	$	0.03		$	0.07
Basic	$	0.08		$	0.09	$	0.27	$	0.31
Diluted	$	0.03		$	0.07
Diluted	$	0.08		$	0.09	$	0.26	$	0.31
WEIGHTED AVERAGE SHARES OUTSTANDING:
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		39,120			40,502
Basic		39,624			41,285		40,051		41,715
Diluted		39,536			40,940
Diluted		39,996			41,792		40,476		42,188

See accompanying notes.

TRADESTATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine Months EndedSeptember 30,
	Three Months EndedMarch 31,
	2010			2009
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	~~10,671~~996		$	132,~~058~~674
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		31,~~330~~918			~~3,306~~950
Stock-based compensation expense		21,~~378~~065			~~2,067~~798
Deferred income tax benefit		(695	)		1,093
Unrealized loss (gain) on investments		20			(1,221	)
Gains on marketable securities, net		(4,175	)		(344	)
(Increase) decrease in:
Cash and investments segregated in compliance with federal regulations		(4320,~~573~~859	)		(~~170~~27,~~411~~657	)
Trading investments transactions, net		(~~424~~20,~~984~~457	)		(53351,~~109~~287	)
Receivables from brokers, dealers, clearing organizations and clearing agents		(436,~~463~~551	)		(155,~~646~~361	)
Receivables from brokerage customers, net		(82,~~193~~623	)		(91,~~545~~247	)
Prepaid income taxes		—			(442	)
Other assets		(1,258	)		1,102
Deposits with clearing organizations		—			15,000
Other assets		997			(412	)
Increase (decrease) in:
Payables to brokers, dealers and clearing organizations		842,942			(82	)
Payables to brokerage customers		~~479~~75,~~173~~431			~~204~~401,~~654~~798
Accounts payable		2,713			(914	)
Securities loaned		22,141			—
Accrued expenses		1,175			(106	)
Accounts payable		(1,854	)		121
Net cash provided by (used in) operating activities		14,438			(11,759	)
Accrued expenses		536			(20	)
Net cash provided by operating activities		21,447			20,648
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(111,~~954~~153	)		(32,~~369~~397	)
Purchases of available-for-sale marketable securities		(3026,~~169~~147	)		(2610,~~977~~190	)
Proceeds from maturities of marketable securities		33,456			3,985
Proceeds from maturities of available-for-sale marketable securities		20,001			25,464
Decrease in restricted cash		239			239
Net cash (used in) provided by investing activities		(7,299	)		12,877
Net cash used in investing activities		(8,428	)		(26,122	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		~~412~~145			~~791~~199
Excess tax benefits from stock option exercises		~~149~~235			~~102~~108
Repurchase and retirement of common stock		~~(11,225~~—	)		(113,~~135~~725	)
Net cash used in financing activities		(10,664	)		(10,242	)
Net cash provided by (used in) financing activities		380			(3,418	)
NET DECREASE IN UNRESTRICTED CASH AND CASH EQUIVALENTS		(4,654	)		(48,123	)
NET INCREASE IN UNRESTRICTED CASH AND CASH EQUIVALENTS		14,528			30,107
UNRESTRICTED CASH AND CASH EQUIVALENTS, beginning of period		5641,~~688~~410			9956,~~358~~688
UNRESTRICTED CASH AND CASH EQUIVALENTS, end of period	$	5255,~~034~~938		$	5186,~~235~~795
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
Cash paid for interest	$	—		$	8
INFORMATION:
Cash paid for income taxes	$	5,882		$	8,257
Cash paid for interest	$	—		$	—
Cash paid for income taxes	$	45		$	—

See accompanying notes.

TRADESTATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All notes and related disclosures applicable to the

three ~~and nine~~ months ended ~~September~~ March 3031, ~~2010~~2011 and ~~2009~~2010 are unaudited)

(1)

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

TradeStation Group, Inc. (~~“TradeStation Group” or~~ the “Company”), a Florida corporation formed in 2000, is the successor company to a publicly-held trading software company that was formed in 1982. The Company is listed on The NASDAQ Global Select Market under the symbol “TRAD.” TradeStation Securities, Inc., ~~TradeStation~~a ~~Technologies,~~licensed ~~Inc.,~~securities broker-dealer and ~~TradeStation~~a ~~Europe~~registered ~~Limited~~futures ~~are~~commission ~~TradeStation~~merchant, ~~Group’s~~and ~~operating subsidiaries.~~ TradeStation ~~Securities~~Technologies, isInc., a ~~licensed~~trading ~~securities~~technology company, ~~broker-dealer~~are ~~and~~the ~~a registered~~Company’s ~~futures~~two ~~commission~~established ~~merchant~~operating subsidiaries. ~~TradeStation~~The ~~Technologies~~Company ~~develops~~has ~~and~~two ~~offers~~other ~~strategy~~subsidiaries, ~~trading~~TradeStation ~~software~~Europe ~~tools~~Limited and ~~subscription~~TradeStation ~~services~~Forex, Inc. TradeStation Europe Limited, a company organized under the laws of England and Wales, is authorized and regulated by the ~~United~~UK ~~Kingdom~~ Financial Services Authority (“FSA”), and holds what is known as a “Passport” to introduce brokerage accounts for residents of countries within the European Economic Area. ~~The Company recently formed a wholly-owned subsidiary,~~ TradeStation Forex, Inc., a Florida corporation ~~(“TradeStation Forex”)~~, ~~with~~was ~~the~~recently ~~intent~~formed ~~that~~to ~~TradeStation Forex, by the end of the 2010 year, will~~ assume, own and conduct all ~~TradeStation~~of the Company’s forex brokerage business (such business iswas ~~currently~~historically owned and conducted by TradeStation Securities using an established forex dealer to clear its forex business). In January 2011, TradeStation Forex was registered with the Commodity Futures Trading Commission (“CFTC”) as a Retail Foreign Exchange Dealer ~~with~~and approved by the National Futures Association (“NFA”) as a forex dealer member. In April 2011, ~~and~~TradeStation ~~registered~~Forex ~~under~~received ~~such~~$30.3 ~~classification~~million ~~with~~as ~~the~~a ~~Commodity Futures~~transfer ~~Trading~~from ~~Commission~~Gain Capital Group, LLC (“~~CFTC~~Gain Capital”). ~~TradeStation~~of ~~Forex’s~~substantially ~~application~~all ~~for~~of ~~such~~TradeStation ~~CFTC~~Securities’ ~~registration~~forex ~~and~~accounts ~~NFA~~that ~~membership~~were ~~was~~introduced ~~made~~by TradeStation Securities to ~~the~~Gain ~~NFA~~Capital, inand ~~June~~commenced ~~2010.~~operations ~~TradeStation~~as ~~Forex~~a ~~currently~~forex ~~conducts~~dealer nousing ~~business~~the ~~other~~“agency ~~than~~broker ~~start-up~~model” ~~activities~~(at ~~to prepare~~which ~~for~~time ~~the~~TradeStation ~~ownership~~Securities ~~and~~ceased ~~operation~~conducting ofany ~~such~~ forex ~~brokerage~~ business).

The accompanying consolidated financial statements include the results of the Company and its subsidiaries, all of which are wholly owned. All intercompany accounts and transactions have been eliminated.

The accompanying consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K of TradeStation Group for the year ended December 31, ~~2009~~2010. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company’s consolidated financial position as of ~~September~~March 3031, ~~2010~~2011 and the consolidated results of operations and cash flows for each of the periods presented have been recorded. The results of operations and cash flows for an interim period are not necessarily indicative of the results of operations or cash flows that may be reported for the year or for any subsequent period.

The Company has performed an evaluation of subsequent events through the date these financial statements were issued and filed with the Securities and Exchange Commission (“SEC”).

Recently Issued Accounting Standards

In July 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-20, Receivables, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (“ASU 2010-20”). ASU 2010-20 requires entities to provide extensive new disclosures in their financial statements about their financing receivables, including credit risk exposures and the allowance for credit losses. Public entities are required to adopt ASU 2010-20 for disclosures of financing receivables as of the end of a reporting period for interim and annual reporting periods ending on or after December 15, 2010. The financing receivables disclosures related to activity that occurs during a reporting period are required to be adopted by public entities for interim and annual reporting periods beginning on or after December 15, 2010. The Company will adopt this guidance beginning on January 1, 2011 and does not expect its adoption of ASU 2010-20 to have a material impact on its consolidated financial statements.

InRecently ~~January~~Issued ~~2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 amends the Fair Value Measurements and Disclosures Topic of the FASB~~ Accounting Standards Codification (“ASC”) to require additional disclosures regarding fair value measurements. The amended guidance requires entities to disclose additional information regarding assets and liabilities that are transferred between levels of the fair value hierarchy. Entities are also required to disclose information in the Level 3 Rollforward about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosure requirements, ASU 2010-06 clarifies existing guidance pertaining to the level of disaggregation at which fair value disclosures should be made and the requirements to disclose information about the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. The guidance in ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the requirement to separately disclose purchases, sales, issuances and settlements in the Level 3 Rollforward, which becomes effective for fiscal years (and for interim periods within those fiscal years) beginning after December 15, 2010. The Company’s adoption of ASU 2010-06, effective January 1, 2010, did not have a material impact on its consolidated financial position, results of operations or cash flows during the nine months ended September 30, 2010. The Company does not expect the deferred portion of the adoption of ASU 2010-06 to have a material impact on its consolidated financial statements.

In ~~October~~January ~~2009~~2010, the Financial Accounting Standards Board (“FASB”) issued ~~accounting~~Accounting Standards Update (“ASU”) No. 2010-06, Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 amends the Fair Value Measurements and Disclosures Topic (the “Fair Value Measurements and Disclosures Topic”) of the FASB Accounting Standards Codification (“ASC”) to require additional disclosures regarding fair value measurements. The amended guidance requires entities to disclose additional information regarding assets and liabilities that ~~amends~~are transferred between levels of the ~~criteria~~fair ~~for~~value ~~allocating~~hierarchy. Entities are also required to disclose information in the Level 3 Rollforward about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosure requirements, ASU ~~contract’s~~2010-06 ~~consideration~~clarifies existing guidance pertaining to ~~individual~~the ~~services~~level orof ~~products~~disaggregation at which fair value disclosures should be made and the requirements to disclose information about the valuation techniques and inputs used in ~~multiple~~estimating ~~deliverable~~Level ~~arrangements~~2 and Level 3 fair value measurements. ~~This~~The guidance in ASU 2010-06 is effective ~~prospectively~~for interim and annual reporting periods beginning after December 15, 2009, except for ~~revenue~~the ~~arrangements~~requirement ~~entered~~to ~~into~~separately ordisclose ~~materially~~purchases, ~~modified~~sales, issuances and settlements in the Level 3 Rollforward, which becomes effective for fiscal years ~~beginning~~(and onfor orinterim periods within those fiscal years) beginning after ~~June~~ December 15, 2010. The Company’s ~~will~~adoption ~~adopt~~of ~~this~~ASU ~~guidance~~2010-06, ~~beginning~~effective on January 1, ~~2011~~2010, and ~~does~~the deferred portion of ASU 2010-06, effective January 1, 2011, did not ~~expect~~have a material impact on its consolidated financial ~~statements~~position, results of operations or cash flows.

(2)

STOCK-BASED COMPENSATION

Stock Compensation

The Company records stock-based compensation expense for employee services based upon the grant-date fair value of those awards in accordance with the provisions of the Compensation-Stock Compensation Topic of the FASB ASC (the “Compensation-Stock Compensation Topic”). 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 stock, exercise price of the award, expected term of the award, estimated volatility of the stock over the term of the award, risk-free interest rate and expected dividend yield. Separate assumptions are used for employee officer options, and non-officer employee options (both of which, subject to certain vesting-acceleration events, vest over a five-year period) and non-employee director options (which, subject to certain vesting-acceleration events, vest over a three-year period).

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:

	For the Three Months			For the Nine Months
	For the Three MonthsEnded March 31,
	Ended September 30,			Ended September 30,
	2011			2010
	2010		2009	2010		2009
Risk free interest rate		3	%		3	%
Risk free interest rate	*		*	3%		2%
Dividend yield		—			—
Dividend yield	*		*	-		-
Volatility ranges		53	%		55	%
Volatility ranges	*		*	55%		51 - 60%
Weighted-average volatility		53	%		55	%
Weighted-average volatility	*		*	55%		59%
Weighted-average life (years)		7.1			7.3
Weighted-average life (years)	*		*	7.3		6.4

* The company did not grant any options to purchase common stock during the three months ended September 30, 2010 and 2009.

In accordance with the Compensation-Stock Compensation Topic, 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 are used to estimate pre-vesting option forfeitures, and stock-based compensation expense is recorded only for those awards that are expected to vest. 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.

During the three months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010, the Company recorded stock-based compensation expense of $~~836,000~~1.1 million ($~~646~~807,000 net of tax) and $~~635~~798,000 ($~~534~~660,000 net of tax), respectively,. ~~primarily~~The ~~related~~$1.1 tomillion ~~the issuance~~ of stock-based ~~options~~compensation ~~and~~expense ~~restricted~~recorded ~~stock~~during ~~awards~~the ~~(and,~~three tomonths aended ~~lesser extent~~March 31, ~~performance~~2011 ~~shares~~included ~~issued in~~$520,000 ~~2010~~related ~~under~~to ~~the~~restricted ~~Company’s~~stock ~~Incentive~~grants ~~Stock Plan~~ and ~~common~~$68,000 related ~~stock~~to ~~issued~~performance ~~during~~shares ~~both~~(restricted ~~periods at a discount under the Company’s employee~~ stock ~~purchase plan~~units). ~~During~~The ~~each~~$798,000 of ~~the nine months ended September 30, 2010 and 2009, the Company recorded~~ stock-based compensation expense ofrecorded ~~$2.4~~during ~~million~~the ~~($1.9~~three ~~million~~months ~~net~~ended ofMarch 31, ~~tax)~~2010 ~~and~~included $~~2.1 million ($1.7 million net of tax)~~245,000 ~~respectively, primarily~~ related to ~~the issuance of stock options and~~ restricted stock ~~awards~~grants (and $20,000 torelated ~~a lesser~~to ~~extent,~~ performance shares ~~issued~~(restricted ~~in 2010 under the Company’s Incentive Stock Plan and common~~ stock ~~issued during both periods at a discount under the Company’s employee stock purchase plan~~units).

Stock-based Awards

~~The~~During ~~Company did not grant any options to purchase common stock during~~ the three months ended ~~September~~March 3031, ~~2010. During the nine months ended September 30~~2011, ~~2010,~~ the Company granted options to purchase an aggregate of ~~345~~213,~~047~~115 shares of common stock with a weighted-average, grant-date, Black-Scholes fair value of $34.8002 per share. Such options vest ratably in annual increments over a five-year period and are exercisable at a price of $67.41 11 per share, which was the closing price of the Company’s common stock on the date the options were granted. During the three months ended ~~September~~March 3031, ~~2009~~2010, the Company ~~did not grant any options to purchase common stock. During the nine months ended September 30, 2009, the Company~~ granted options to purchase an aggregate of ~~682~~345,~~540~~047 shares of common stock with a weighted-average, grant-date , Black-Scholes fair value of $3.2980 per share. Such options vest ratably in annual increments over a ~~three- to~~ five-year period and are exercisable at ~~prices~~a ~~ranging~~price ~~from~~of $56.4941 ~~to $8.55~~ per share, which ~~were~~was the ~~respective~~ closing ~~prices~~price of the Company’s common stock on the ~~respective~~date ~~dates~~ the options were granted.

During the three ~~and nine~~ months ended ~~September~~March 3031, ~~2010~~2011, the Company ~~awarded~~issued 96188,~~264~~607 ~~and 437,625~~ restricted shares of common stock ~~as compensation~~, ~~respectively,~~ which had a fair market ~~values~~value of $~~582,000 and $2~~1.83 million, ~~respectively,~~ at the grant ~~dates~~date. ~~The~~During the three months ended March 31, 2010, the Company ~~did~~issued ~~not~~299,402 ~~issue~~restricted ~~any~~shares of common stock, which had a fair market value of $1.9 million at the grant date. These restricted shares of common stock ~~during~~were granted to certain officers of the ~~three~~Company ~~months~~as ~~ended~~awards ~~September 30~~under the Company’s Incentive Stock Plan, vest 50% on the third anniversary of the date of grant and 100% on the sixth anniversary ~~2009.~~(except ~~During~~for one award which vests 50% on the ~~nine~~third ~~months~~anniversary ~~ended~~of ~~September 30~~the date of grant and 100% on the fifth anniversary), ~~2009~~and include 100% automatic vesting acceleration upon retirement, death, disability or change in control of the Company. ~~issued~~All ~~225,048~~of these restricted shares ofcontain ~~common~~a ~~stock~~provision whereby, ~~which~~if ~~had~~employment aterminates ~~fair~~prior ~~market~~to ~~value~~full ofvesting, ~~$1.3~~the ~~million~~non-vested atshares will automatically be forfeited and the ~~grant~~Company ~~date~~will reacquire the non-vested shares for no consideration.

~~The~~During ~~restricted shares of common stock issued during~~ the three ~~and nine~~ months ended ~~September~~March 3031, ~~2010~~2011, ~~include~~the ~~58,824~~Company ~~unregistered shares~~also issued toperformance ashares ~~seller~~(more ofcommonly ~~software~~referred ~~technology~~to ~~that~~as restricted stock units) representing the ~~Company~~right ~~acquired~~to inreceive ~~August~~an ~~2010.~~aggregate ~~Such~~of 188,638 shares ~~had~~of common stock with a fair market value of approximately $~~342,000~~1.3 ~~at the date of grant~~million. ~~These~~During ~~shares~~the ~~were~~three ~~then~~months ~~distributed~~ended toMarch 31, a2010, ~~shareholder~~the ofCompany ~~the~~issued ~~seller~~performance ~~who~~shares ~~became~~representing ~~an employee of~~ the ~~Company~~right ~~and~~to ~~the~~receive ~~vesting~~an aggregate of ~~such~~152,331 shares isof ~~contingent~~common onstock ~~his~~with ~~continued~~a ~~employment.~~fair ~~These~~market ~~shares~~value ~~vest 33.33% on each~~ of ~~the~~approximately ~~first~~$976,000 ~~three~~on ~~anniversaries of~~ the date of grant. ~~and~~Performance ~~include~~shares ~~100%~~awarded ~~automatic~~by ~~vesting~~the ~~acceleration~~Company ~~upon retirement,~~vest ~~death,~~60% ~~disability~~on orthe ~~involuntary~~third ~~termination~~anniversary of ~~employment~~the bydate ~~the~~of grant, ~~Company~~20% ~~without~~on ~~cause.~~the ~~These~~fourth ~~restricted~~anniversary ~~shares~~of ~~contain~~the adate ~~provision~~of ~~whereby,~~grant ifand ~~employment~~20% ~~terminates~~on ~~prior~~the tofifth ~~full~~anniversary ~~vesting,~~of the ~~non-vested~~date ~~shares~~of ~~will~~grant, ~~automatically~~with ~~be forfeited~~100% ~~and~~acceleration ~~the~~upon ~~Company~~retirement, ~~will~~death ~~reacquire~~or ~~the~~disability. ~~non-vested~~Performance shares ~~for~~automatically noconvert ~~consideration.~~ into

The restricted shares of common stock issued during the three and nine months ended September 30, 2010 also include 37,440 shares issued to our nonemployee directors under the Company’s Nonemployee Director Incentive Stock Plan. Such shares had a fair market value of approximately $240,000 at the date of grant and vest 33.33% during each of the first three anniversaries of the date of grant. All other restricted shares of common stock awarded as compensation have been granted to current employees of

~~the~~shares ~~Company~~of ~~as awards under~~ the Company’s ~~Incentive~~common ~~Stock~~stock ~~Plan~~upon ~~and~~vesting. ~~vest~~All ~~50% on the third anniversary~~ of the ~~date~~performance ofshares ~~grant~~were ~~and 100% on the sixth anniversary (except for one award~~ granted ~~in 2010~~under ~~which vests 50% on~~ the ~~third~~Incentive ~~anniversary~~Stock ~~of the date of grant and 100% on the fifth anniversary)~~Plan. ~~All~~Unvested ofperformance ~~the~~shares ~~foregoing~~expire ~~grants include 100% automatic vesting acceleration~~ upon ~~retirement, death, disability or change in control of~~ the ~~Company (except~~termination ~~for one award granted in 2010 which does not provide for acceleration upon change in control~~ of ~~the Company but instead provides for acceleration upon~~ an employee’s ~~involuntary termination of~~ employment bywith the Company ~~without cause)~~. ~~All~~Generally ofspeaking, ~~these restricted~~performance shares ~~contain~~are aintended ~~provision~~to ~~whereby,~~replace ifemployee ~~employment~~stock oroption ~~service~~grants onin the ~~board~~Company’s ~~terminates~~annual ~~prior~~equity-based tocompensation ~~full~~grants ~~vesting,~~to ~~the~~its ~~non-vested~~general ~~shares~~employee ~~will~~base ~~automatically~~under ~~be forfeited and~~ the Company’s ~~will~~Incentive ~~reacquire~~Stock ~~the non-vested shares for no consideration~~Plan.

During the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011, ~~the~~stock ~~Company~~options ~~also,~~ for ~~the first time in its history~~25,642 ~~issued performance~~ shares ~~(more commonly referred to as restricted stock units) representing the right to receive an aggregate~~ of ~~152,331 shares of common stock. Such performance shares, which had a fair market value of approximately $976,000 on the date of grant,~~ ~~vest 60% on~~ the third anniversary of the date of grant, 20% on the fourth anniversary of the date of grant and 20% on the fifth anniversary of the date of grant, with 100% acceleration upon retirement, death or disability. Performance shares automatically convert into shares of the Company’s common stock ~~upon vesting. All of the performance shares~~ were ~~granted~~exercised under the Company’s Incentive Stock Plan. ~~Unvested~~During ~~performance shares expire upon~~ the ~~termination~~three ofmonths anended ~~employee’s~~March 31, ~~employment with~~2010, ~~the~~stock ~~Company.~~options ~~Generally~~for ~~speaking~~62,037 ~~performance~~ shares ~~are~~of ~~intended to replace employee stock option grants in~~ the Company’s ~~annual~~common ~~equity-based~~stock ~~compensation~~were ~~grants~~exercised ~~to its general employee base~~ under the ~~Company’s~~ Incentive Stock Plan.

During the three ~~and nine~~ months ended ~~September~~March 3031, ~~2010~~2011, ~~stock~~the ~~options~~Company ~~for~~issued 188,~~446~~836 shares ~~and~~of ~~110,034~~common ~~shares, respectively,~~stock ofunder the Company’s ~~common~~employee stock ~~were~~purchase ~~exercised~~plan, ~~under~~relating to the ~~Company’s~~six-month ~~Incentive~~plan ~~Stock~~period ~~Plan~~ended December 31, 2010, at an average price of $6.75 per share. During the three ~~and nine~~ months ended ~~September~~March 3031, ~~2009~~2010, ~~stock~~the ~~options~~Company ~~for~~issued 2212,~~511~~217 shares ~~and~~of ~~153~~common stock under the Company’s employee stock purchase plan,~~621~~ ~~shares~~relating to the six-month plan period ended December 31, ~~respectively~~2009, at an average price of ~~the~~ $6.71 per share. The Company’s ~~common~~does ~~stock~~not ~~were~~currently ~~exercised~~intend ~~under~~to offer plan periods following the June 30, ~~Incentive~~2011 ~~Stock~~expiration ~~Plan~~of the current plan period.

During the three and nine months ended September 30, 2010, the Company issued 5,275 and 17,492 shares of common stock, respectively, under the Company’s employee stock purchase plan at average prices of $6.75 and $7.55 per share. During the three and nine months ended September 30, 2009, the Company issued 13,180 and 29,114 shares of common stock, respectively, under the Company’s employee stock purchase plan at average prices of $8.46 and $7.36 per share.

(3)

EARNINGS PER SHARE

Weighted average shares outstanding for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010 are calculated as follows (in thousands):

For the Three MonthsEnded September 30,

For the Nine MonthsEnded September 30,

For the Three MonthsEnded March 31,

2010

2009

2010

2009

2011

2010

Weighted average shares outstanding (basic)

39,~~624~~120

4140,~~285~~502

~~40,051~~

~~41,715~~

Impact of dilutive stock-based payments after applying the treasury stock method

~~372~~416

~~507~~438

~~425~~

~~473~~

Weighted average shares outstanding (diluted)

39,~~996~~536

4140,~~792~~940

~~40,476~~

~~42,188~~

Stock options, non-vested restricted shares and performance shares outstanding for the three months ended March 31, 2011 which were not included in the calculation of diluted earnings per share because their weighted average effect would have been anti-dilutive are as follows (in thousands):


	For the Three Months Ended March 31,
	2011		2010

Stock options		2,525		2,170


Restricted shares of common stock (non-vested)		171		231


Performance shares of common stock (non-vested)		94		74

Stock options, non-vested restricted shares and performance shares outstanding for the three and nine months ended September 30, 2010 and 2009, which were not included in the calculation of diluted earnings per share because their weighted average effect would have been anti-dilutive are as follows (in thousands):

	For the Three MonthsEnded September 30,				For the Nine MonthsEnded September 30,
	2010		2009		2010		2009
Stock options		2,497		2,113		2,441		2,254
Restricted shares of common stock (non-vested)		193		98		356		205
Performance shares of common stock (non-vested)		—		—		123		—

4)	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 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.

A reconciliation of net income to comprehensive income is as follows (in thousands):

	For the Three Months						For the Nine Months
	For the Three MonthsEnded March 31,
	Ended September 30,						Ended September 30,
	2011			2010
	2010			2009			2010		2009
Net income	$	996		$	2,674
Net income	$	3,056		$	3,697		$	10,671	$	13,058
Unrealized losses on securities, net of tax		(30	)		(6	)
Unrealized gains on securities, net of tax		2			2			1		2
Comprehensive income	$	966		$	2,668
Comprehensive income	$	3,058		$	3,699		$	10,672	$	13,060

(5)

CASH AND INVESTMENTS SEGREGATED IN COMPLIANCE WITH FEDERAL REGULATIONS

TradeStation Securities is obligated by rules mandated by two of its primary regulators, the SEC and the CFTC, to set aside cash or qualified securities to satisfy regulations promulgated to protect customer assets. Cash and investments segregated in compliance with federal regulations, consisting primarily of U.S. Treasury securities, of $1.2833 billion (which includes $1.1 4 million of interest receivable) and $~~785~~1.228 ~~million~~billion (which includes $~~349~~337,000 of interest receivable) as of ~~September~~March 3031, ~~2010~~2011 and December 31, ~~2009~~2010, respectively, have been segregated in special reserve accounts at JPMorgan Chase ($1.24 27 billion as of ~~September~~March 3031, ~~2010~~2011 and $~~785~~1.222 ~~million~~billion as of December 31, ~~2009~~2010) and R.J. O’Brien & Associates, LLC (“R.J. O’Brien”) ($4260.5 million as of ~~September~~March 3031, ~~2010~~2011 and $064.1 million as of December 31, ~~2009~~2010) for the exclusive benefit of customers under Rule 15c3-3 under the Securities Exchange Act of 1934 (“Rule 15c3-3”) and the Commodity Exchange Act. Of the $1.2833 billion in cash and investments segregated in compliance with federal regulations as of ~~September~~March 3031, ~~2010~~2011, $~~877~~904.05 million was related to Rule 15c3-3 and $~~400~~423.86 million was related to CFTC requirements. ~~All~~Of of the $~~785~~1.228 ~~million~~billion ~~balance~~in cash and investments segregated in compliance with federal regulations as of December 31, ~~2009~~2010, $857.4 million was related to Rule 15c3-3 and $421.9 million was related to CFTC requirements. By the second business day of each week, under Rule 15c3-3, if required, this amount is adjusted based upon the previous week-end or month-end calculation. For example, based on this requirement, on ~~October~~April 1, ~~2010~~2011 cash and investments segregated in compliance with federal regulations ~~decreased~~increased by $411.0 7 million, and ~~marketable~~cash ~~securities~~and ~~increased~~cash equivalents decreased by $411.07 million. AsOn ~~another~~January 4, ~~example~~2010, TradeStation Securities converted its futures accounts, held at R.J. O’Brien as clearance agent, from clearance on ~~January 4~~a fully-disclosed basis to omnibus clearance. As a result of converting to omnibus clearance, ~~2010~~TradeStation ~~cash~~Securities ~~and~~received from R.J. O’Brien approximately $349.0 million in futures customers’ funds which were then appropriately segregated in accordance with Commodity Exchange Act rules.

~~investments~~(6) ~~segregated~~RECEIVABLES inFROM ~~compliance~~BROKERAGE with federal regulations increased by $7.7 million and cash and cash equivalents decreased by $7.7 million. On January 4, 2010, TradeStation Securities converted its futures accounts, held at R.J. O’Brien & Associates as clearance agent, from clearance on a fully-disclosed basis to omnibus clearance. As a result of converting to omnibus clearance, TradeStation Securities received from R.J. O’Brien approximately $349.0 million in futures customers’ funds which were then appropriately segregated in accordance with Commodity Exchange Act rules. CUSTOMERS

~~(6)~~Receivables ~~RECEIVABLES~~from ~~FROM~~brokerage ~~BROKERAGE~~customers ~~CUSTOMERS~~consist primarily of margin loans to TradeStation Securities’ equities brokerage customer accounts of approximately $70.9 million and $68.3 million at March 31, ~~NET~~2011 and December 31, 2010, respectively. Securities owned by brokerage customers are held as collateral for such margin loans. Such collateral is not reflected in the consolidated financial statements. At March 31, 2011 and December 31, 2010, TradeStation Securities was charging a base margin debit interest rate of 7.75% per annum on debit balances.

~~Receivables~~“Margin” ~~from~~requirements ~~brokerage~~determine the amount of collateral 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 ~~customers~~Governors of the Federal Reserve System, ~~net~~the ~~consist~~margin ~~primarily~~requirements of ~~margin~~the ~~loans~~Financial toIndustry Regulatory Authority (“FINRA”), limits imposed by clearing agent firms, and TradeStation Securities’ own internal policies. Nearly all equities accounts ~~brokerage~~at ~~customer~~TradeStation Securities are margin accounts. While not, technically speaking, an extension of ~~approximately~~credit, ~~$53.2~~TradeStation ~~million~~Securities also provides leverage, the effect of which is similar to margin lending, to its customers’ futures and forex ~~$45~~accounts.0 ~~million~~By atpermitting ~~September 30~~customers to purchase and maintain positions on margin or using leverage, ~~2010~~TradeStation Securities takes the risk that a market decline will reduce the value of the collateral securing its margin loan or the leveraged amount to an amount that renders the margin loan or leverage provided less secured or unsecured. Under applicable securities laws and ~~December 31~~regulations, ~~2009~~once a margin account for equities has been established, ~~respectively.~~TradeStation Securities is obligated to ~~owned~~require byfrom ~~brokerage~~the ~~customers~~customer ~~are~~initial ~~held~~margin asof ~~collateral~~no lower than 50% for ~~such~~purchases ~~margin~~of ~~loans~~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, ~~Such~~TradeStation ~~collateral~~Securities’ current internal requirement is that the customer’s equity not ~~reflected~~be allowed to fall below 35% of the value of the securities in the ~~consolidated~~account. ~~financial~~If ~~statements~~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). AtTradeStation Securities ~~September 30~~(and TradeStation Forex as of April 2011) also monitor the futures and forex leverage they provide on an intra-day basis and, ~~2010~~pursuant to exchange guidelines and ~~December 31~~other applicable rules, ~~2009~~requires customers to deposit additional collateral, or to reduce positions, when necessary to reduce excessive leverage to an acceptable level (prior to April 2011, under TradeStation Securities’ ~~was~~contractual ~~charging~~relationship awith ~~base~~Gain Capital, Gain Capital had this responsibility with respect to ~~margin~~forex ~~debit~~accounts). ~~interest~~All ~~rate~~of these requirements can be, and often are, raised as TradeStation Securities (and TradeStation Forex, as of 7April 2011) deem necessary for certain accounts, groups of accounts, securities or positions, or groups of securities or positions.~~75% per~~ ~~annum~~However, onthere ~~debit~~is ~~balances~~no assurance that a customer will be willing or able to satisfy a margin call or pay unsecured indebtedness owed to TradeStation Securities (or TradeStation Forex).

“Margin” requirements determine the amount of collateral 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 Financial Industry Regulatory Authority (“FINRA”), limits imposed by clearing agent firms, and TradeStation Securities’ own internal policies. Nearly all equities accounts at TradeStation Securities are margin accounts. While not, technically speaking, an extension of credit, TradeStation Securities also provides leverage, the effect of which is similar to margin lending, to its customers’ futures and forex accounts. By permitting customers to purchase and maintain positions on margin or using leverage, TradeStation Securities takes the risk that a market decline will reduce the value of the collateral securing its margin loan or the leveraged amount to an amount that renders the margin loan or leverage provided less secured or unsecured. Under applicable securities laws and regulations, once a margin account for equities 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). TradeStation Securities also monitors the futures and forex leverage it provides on an intra-day basis and, pursuant to exchange guidelines and other applicable rules, requires customers to deposit additional collateral, or to reduce positions, when necessary to reduce excessive leverage to an acceptable level. All of these requirements can be, and often are, raised as TradeStation Securities deems necessary for certain accounts, groups of accounts, securities or positions, or groups of securities or positions. 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.

(7)

RECEIVABLES FROM BROKERS, DEALERS, CLEARING ORGANIZATIONS AND CLEARING AGENTS

Amounts receivable from brokers, dealers, clearing organizations and clearing agents for equities accounts were as follows as of ~~September~~ March 3031, ~~2010~~2011 and December 31, ~~2009~~2010, respectively (in thousands):

	September 30,2010		December 31,2009
	March 31,		December 31,
Securities borrowed from broker-dealers	$	35,843	$	30,490
	2011		2010
Fees and commissions receivable from clearing agents		285		947
Securities borrowed from broker-dealers	$	116,928	$	80,200
Securities failed to deliver to broker-dealers and other		561		789
Fees and commissions receivable from clearing agents		438		313
	$	36,689	$	32,226
Securities failed to deliver to broker-dealers and other		12		314
	$	117,378	$	80,827

Securities borrowed transactions in equities accounts require TradeStation Securities to provide the counterparty with collateral in the form of cash and are recorded at the amount of cash collateral advanced to the lender. TradeStation Securities monitors the market value of securities borrowed on a daily basis, and collateral is adjusted as necessary based upon market prices. See Note 1112 – COMMITMENTS AND CONTINGENCIES – General Contingencies and Guarantees. As of ~~September~~March 3031, ~~2010~~2011 and December 31, ~~2009~~2010, TradeStation Securities serviced most of its institutional equities accounts through J.P. Morgan Clearing Corp. and, prior to April 2011, its forex ~~trades~~accounts through Gain Capital ~~Group, Inc.,~~ all on a fully-disclosed basis. ~~Through~~On ~~December~~or about April 318, ~~2009~~ 2011, ~~futures~~TradeStation ~~trades~~Forex ~~were~~received ~~cleared~~$30.3 ~~through~~million ~~R.J.~~as Oa transfer from Gain Capital of substantially all of TradeStation Securities’~~Brien &~~ ~~Associates~~forex onaccounts that were introduced by TradeStation Securities to Gain Capital, and commenced operations as a ~~fully-disclosed~~forex ~~basis~~dealer using the “agency broker model” (at which time TradeStation Securities ceased conducting any forex business). On January 4, 2010, TradeStation Securities ~~converted~~assumed more direct control over its futures business by converting its clearance of futures accounts using R.J. O’Brien from a fully-disclosed basis to an omnibus clearance basis. As a result of converting to omnibus clearance, TradeStation Securities received from R.J. O’Brien approximately $349.0 million in futures customers’ funds which were then appropriately segregated in accordance with Commodity Exchange Act rules. J.P. Morgan Clearing Corp., R.J. O’Brien ~~& Associates~~, and Gain Capital ~~Group,~~(with ~~Inc.~~respect to the applicable periods described above) are collectively referred to as “clearing agents” or “clearing agent firms.” These clearing agents, at the times they act or have acted as such, 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,. ~~except~~With ~~that, since~~respect to R.J. O’Brien, ~~provides~~as of January 4, 2010, its clearance and settlement on an omnibus basis, means that TradeStation Securities deals directly with its futures account customers on such matters, using R.J. O’Brien’s assistance as a back-office vendor pursuant to an industry-standard facilities management agreement between the companies.

(8) PAYABLES TO ~~BROKERAGE~~BROKERS, ~~CUSTOMERS~~DEALERS AND CLEARING ORGANIZATIONS

AsAmounts ofpayable ~~September 30, 2010, payables~~ to ~~brokerage customers consisted primarily of cash balances in customer accounts. At September 30~~brokers, ~~2010 and December 31~~dealers, ~~2009, payables to brokerage customers totaled $1.35 billion~~ and ~~$868.7~~clearing ~~million,~~organizations ~~respectively.~~consist Ofof the ~~$1.35~~following ~~billion in payables to brokerage customers~~ as of ~~September~~March 3031, ~~2010,~~2011 ~~payables to equities customers were $959.9 million~~ and ~~payables to commodities customers were $388.3 million. The $868.7 million in payables to brokerage customers as of~~ December 31, ~~2009 related entirely to equities customers. The payables related to equities customers are the principal source of funding for margin lending. At September 30,~~ 2010 ~~and December 31, 2009, TradeStation Securities was not paying interest on cash balances~~ (in ~~customer~~thousands): ~~accounts.~~

(9) NET CAPITAL REQUIREMENTS


	March 31,		December 31,
	2011		2010

Securities loaned to brokers-dealers	$	49,312	$	27,170
Payables to brokers		3,399		499
Payables to clearing organizations		142		101


	$	52,853	$	27,770

TradeStation Securities is subject to the net capital requirements of the SEC’s Uniform Net Capital Rule (Rule 15c3-1), which is administered by the SEC and FINRA, and the CFTC financial requirement (Regulation 1.17 under the Commodity Exchange Act), which is administered by the CFTC and the NFA. Under these rules, 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 highest of: (i) $1,000,000; (ii) 8.0% of domestic and foreign domiciled customer and non-customer (excluding proprietary) risk maintenance margin/performance bond requirements for all domestic and foreign futures, options on futures contracts and cleared over-the-counter derivatives positions, excluding the risk margin associated with naked long option positions; or (iii) 2.0% of aggregate customer debit balances. At September 30, 2010, TradeStation Securities had net capital of approximately $72.0 million (70.5% of aggregate debit items), which was approximately $69.0 million in excess of its required net capital of approximately $3.0 million. At December 31, 2009, TradeStation Securities had net capital of approximately $85.6 million (95% of aggregate debit items), which was approximately $83.8 million in excess of its required net capital of approximately $1.8 million.

(10) FAIR VALUE MEASURES

The Fair Value Measurements and Disclosures Topic of the FASB ASC (the “Fair Value Measurements and Disclosures Topic”) establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. In accordance with guidance under the Fair Value Measurements and Disclosures Topic, three levels of inputs may be used to measure fair value:

Level 1 – Level 1 inputs are quoted prices in active markets for identical assets or liabilities. The Company’s Level 1 assets consist of U.S. Treasury Bills and Notes (“U.S. Treasuries”) and actively-traded, marketable, exchange-listed equity securities. As of September 30, 2010, the Company’s U.S. Treasuries had maturities ranging from October 2010 to December 2011.

Level 2 – Level 2 inputs are observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company’s Level 2 assets consist of variable rate demand note (~~“VRDN”~~9) ~~securities~~PAYABLES ~~issued~~TO byBROKERAGE 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 a maturity date of March 2023), they are priced and traded as short-term instruments. The Company classifies these short-term investments as available-for-sale in accordance with the Investments-Debt and Equity Securities Topic of the FASB ASC. The investments are carried at cost or par value, which approximates the fair market value. CUSTOMERS

~~Level 3~~As –of ~~Level~~March 31, 32011, ~~inputs~~payables ~~are~~to ~~unobservable~~brokerage ~~inputs~~customers ~~regarding~~consisted ~~financial instruments~~primarily ~~that~~of ~~are~~cash ~~supported~~balances byin ~~little~~customer oraccounts. noAt ~~market~~March 31, ~~activity~~2011 and ~~whose~~December 31, ~~values~~2010, ~~are~~payables ~~determined~~to ~~using~~brokerage ~~pricing~~customers totaled ~~models,~~$1.46 ~~discounted~~billion ~~cash~~and ~~flow~~$1.38 ~~methodologies~~billion, orrespectively. ~~similar~~Of ~~techniques,~~the as$1.46 ~~well~~billion in payables to brokerage customers as ~~instruments~~of ~~for~~March 31, ~~which~~2011, payables to equities customers were $1.04 billion and payables to commodities customers were $412.6 million. Of the ~~determination~~$1.38 billion in payables to brokerage customers as of ~~fair~~December 31, ~~value~~2010, ~~requires significant~~payables ~~judgment~~to orequities ~~estimation~~customers were $970 million and payables to commodities customers were $410.6 million. The ~~Company~~payables ~~did~~related ~~not~~to ~~hold~~equities ~~any~~customers ~~Level~~are 3the principal ~~assets~~source ~~during~~of ~~the~~funding ~~three~~for ~~and~~margin ~~nine~~lending. ~~months~~At ~~ended~~March 31, ~~September~~2011 and December 3031, 2010, TradeStation Securities was not paying interest on cash balances in customer accounts.

~~The~~(10) ~~following~~NET ~~table~~CAPITAL ~~summarizes the basis used to measure the fair value of securities on a recurring basis in the Company’s consolidated balance sheet as of September 30, 2010 (in thousands):~~ REQUIREMENTS

	September 30, 2010
	Level I		Level II		Level III		Fair Value
Investments segregated in compliance with federal regulations	$	1,231,947	$	—	$	—	$	1,231,947
Marketable securities	$	30,005	$	5,700	$	—	$	35,705
Deposits with clearing organizations	$	27,963	$	—	$	—	$	27,963

TradeStation Securities is subject to the net capital requirements of the SEC’s Uniform Net Capital Rule (Rule 15c3-1), which is administered by the SEC and FINRA, and the CFTC financial requirement (Regulation 1.17 under the Commodity Exchange Act), which is administered by the CFTC and the NFA. Under these rules, 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 highest of: (i) $1,000,000; (ii) 8.0% of domestic and foreign domiciled customer and non-customer (excluding proprietary) risk maintenance margin/performance bond requirements for all domestic and foreign futures, options on futures contracts and cleared over-the-counter derivatives positions, excluding the risk margin associated with naked long option positions; or (iii) 2.0% of aggregate customer debit balances. At March 31, 2011, TradeStation Securities had net capital of approximately $60.2 million (40.4% of aggregate debit items), which was approximately $57.0 million in excess of its required net capital of approximately $3.2 million. At December 31, 2010, TradeStation Securities had net capital of approximately $68.4 million (51% of aggregate debit items), which was approximately $65.6 million in excess of its required net capital of approximately $2.8 million. At March 31, 2011 and December 31, 2010, TradeStation Forex had net capital of approximately $23.0, $3.0 million higher than its $20.0 million minimum net capital required to be maintained by a CFTC-registered, NFA-member retail foreign currency dealer (RFED).

~~The~~(11) ~~Company~~FAIR ~~purchased available-for-sale~~VALUE marketable securities of approximately $30.2 million and had proceeds from maturities of available-for-sale marketable securities of approximately $33.5 million during the nine months ended September 30, 2010. As of September 30, 2010, the Company had approximately $27.9 million of available-for-sale marketable securities. MEASURES

~~Broker-dealers~~The Fair ~~are~~Value ~~required~~Measurements toand ~~account~~Disclosures ~~for~~Topic ~~investments~~establishes ina ~~marketable~~fair ~~securities~~value ashierarchy ~~trading~~which ~~investments.~~requires ~~The~~an ~~Company’s~~entity ~~broker-dealer, TradeStation~~to ~~Securities,~~maximize ~~had~~the ~~net~~use ~~trading~~of ~~investment~~observable ~~transactions~~inputs ~~(purchases,~~and ~~net~~minimize the use of ~~proceeds~~unobservable ~~and~~inputs ~~interest~~when ~~accreted)~~measuring offair ~~$404~~value.0 ~~million~~In ~~during~~accordance with guidance under the ~~nine~~Fair ~~months~~Value ~~ended~~Measurements ~~September 30~~and Disclosures Topic, ~~2010.~~three ~~The~~levels ~~Company~~of ~~capitalized~~inputs ~~its~~may ~~recently~~be ~~formed~~used ~~subsidiary, TradeStation~~to ~~Forex,~~measure fair value:

Level 1 – Level 1 inputs are quoted prices in active markets for identical assets or liabilities. The Company’s Level 1 assets consist of U.S. Treasury Bills and Notes (“U.S. Treasuries”) and actively-traded, marketable, exchange-listed equity securities. As of March 31, 2011, the Company’s U.S. Treasuries had maturities ranging from April 2011 to February 2014.

Level 2 – Level 2 inputs are observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company’s Level 2 assets consist 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

~~with~~(generally ~~$23.0~~no ~~million~~longer ofthan ~~which~~seven ~~TradeStation~~days) ~~Forex~~to ~~invested~~the ~~$21~~remarketing agent.0 ~~million~~Although inthe ~~U.S.~~Company’s ~~Treasury~~VRDN securities ~~that~~are ~~had~~issued ~~maturities~~and ~~longer~~rated ~~than~~as 90long-term ~~days.~~securities As(with a maturity date of ~~September 30,~~March ~~2010~~2023), ~~TradeStation Securities~~they ~~and~~are ~~TradeStation~~priced ~~Forex~~and ~~had~~traded ~~trading~~as ~~investments~~short-term ~~of approximately $1~~instruments.29 ~~billion.~~The ~~Unrealized~~Company ~~net~~classifies ~~losses from~~ these ~~trading~~short-term investments ~~were~~as ~~approximately~~available-for-sale ~~$888,000~~in ~~during~~accordance with the ~~three~~Investments-Debt ~~months ended September 30, 2010~~ and ~~unrealized~~Equity ~~net~~Securities ~~gains~~Topic ~~from~~of ~~these trading investments were approximately $4.0 million during~~ the ~~nine~~FASB ~~months ended September 30, 2010~~ASC. ~~Such~~The ~~unrealized~~investments ~~net~~are ~~losses~~carried ~~and~~at ~~net~~cost ~~gains~~or par ~~are~~value, ~~reflected~~which inapproximates the ~~accompanying~~fair ~~consolidated~~market ~~statements of income~~value.

Level 3 – Level 3 inputs are unobservable inputs regarding financial instruments that are supported by little or no market activity and whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. The Company did not hold any Level 3 assets during the three months ended March 31, 2011.

The following table summarizes the basis used to measure the fair value of securities on a recurring basis in the Company’s consolidated balance sheet as of March 31, 2011 (in thousands):


	March 31, 2011
	Level I		Level II		Level III		Fair Value

Investments segregated in compliance with federal regulations	$	1,279,122	$	—	$	—	$	1,279,122

Marketable securities	$	55,189	$	5,700	$	—	$	60,889

Deposits with clearing organizations	$	27,984	$	—	$	—	$	27,984

The Company purchased available-for-sale marketable securities of approximately $26.1 million and had proceeds from the sale or maturity of available-for-sale marketable securities of approximately $20.0 million during the three months ended March 31, 2011. As of March 31, 2011, the Company had approximately $35.8 million of available-for-sale marketable securities.

Broker-dealers are required to account for investments in marketable securities as trading investments. The Company’s broker-dealer, TradeStation Securities, had net trading investment transactions (purchases, net of proceeds and interest accreted) of $20.5 million during the three months ended March 31, 2011. The Company capitalized its recently-formed subsidiary, TradeStation Forex, with $23.0 million, of which $22.7 million was invested in U.S. Treasuries that had maturities longer than 90 days. As of March 31, 2011, TradeStation Securities and TradeStation Forex had investments of approximately $1.32 billion. Unrealized net marked-to-market losses from these trading investments were approximately $51,000 during the three months ended March 31, 2011. Such unrealized net losses and net gains are reflected in the accompanying consolidated statements of income.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and cash equivalents, brokerage receivables and brokerage payables

For these financial instruments, the carrying amount is a reasonable estimate of fair value.

Marketable securities

For investments in U.S. Treasuries, the fair value equals the quoted market price of each U.S. Treasury Bill or U.S. Treasury Note. Investments in VRDN’s are carried at cost or par value, which approximates the fair market value. The fair value of equity securities equals the quoted market prices for such securities.

The estimated fair values of the Company’s financial instruments are as follows (in thousands):

	September 30, 2010
	March 31, 2011
	Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	5256,~~512~~416	$	5256,~~512~~416
Cash and investments segregated in compliance with federal regulations		1,~~277~~329,~~768~~491		1,~~277~~329,~~768~~491
Marketable securities		5660,~~678~~889		5660,~~678~~889
Receivables from brokers, dealers, clearing organizations and clearing agents		36117,~~689~~378		36117,~~689~~378
Receivables from brokerage customers, net		5370,~~227~~891		5370,~~227~~891
Deposits with clearing organizations		35,~~485~~524		35,~~485~~524
Financial liabilities:
Payables to brokers, dealers and clearing organizations		~~198~~52,853		~~198~~52,853
Payables to brokerage customers		1,~~347~~456,~~914~~536		1,~~347~~456,~~914~~536

(1112) COMMITMENTS AND CONTINGENCIES

Restricted Cash

As of ~~September~~March 3031, ~~2010~~2011 and December 31, ~~2009~~2010, the Company had $478,000 ~~and $717,000~~ of restricted cash, ~~respectively,~~ supporting a ten-year lease agreement for its corporate headquarters.

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 ten-year term of this lease. In addition to its corporate headquarters, the Company has seven non-cancelable operating leases for facilities (including three data centers) with expirations ranging from ~~January~~June 2011 to May ~~2015~~2016. Future minimum lease payments as of ~~September~~March 3031, ~~2010~~2011 under all operating leases are as follows (in thousands):

2010	$	1,811
2011	$	4,593
2011		5,299
2012		3,901
2012		2,540
2013		657
2013		166
2014		504
2014		169
2015		414
Thereafter		7157
	$	10,~~056~~126

~~During~~15 the three months ended September 30, 2010 and 2009, total rent expense (which is included in occupancy and equipment and data centers and communications expenses in the accompanying consolidated statements of income) was approximately $1.6 million and $1.3 million, respectively. During the nine months ended September 30, 2010 and 2009, total rent expense was approximately $5.0 million and $4.1 million, respectively.

During the three months ended March 31, 2011 and 2010, total rent expense (which is included in occupancy and equipment and data centers and communications expenses in the accompanying consolidated statements of income) was approximately $2.0 million and $1.7 million, respectively.

Purchase Obligations

As of ~~September~~March 3031, ~~2010~~2011, the Company had various purchase obligations through December 2014 totaling approximately $4.3.6 million, as follows: approximately $~~1.0 million, $~~2.47 million, $~~767~~792,000, $69,000, and $46,000 during the remainder of ~~2010,~~ 2011, 2012, 2013 and 2014, respectively, related primarily to back-office systems and telecommunications services.

Litigation and Claims

On or about December 20, 2007, TradeStation Technologies was named as one of several defendants in a complaint filed in the United States District Court, Southern District of Texas, styled Amacker, et. al. v. Renaissance Asset Management (RAM), et. al. Other named defendants include Anthony Michael Ramunno, Man Financial Inc., MF Global, Inc., Lind-Waldock & Company, LLC, Vision, LP, Vision Financial Markets, LLC, R.J. O’Brien ~~& Associates~~, ~~Inc.,~~ and FXCM Holdings, LLC. The initial complaint alleged that over forty plaintiffs are entitled to damages because the plaintiffs were investors in a fraudulent commodity pool operated by Mr. Ramunno and RAM. The initial complaint alleged that TradeStation Technologies conducted trades on behalf of and at the request of Mr. Ramunno and RAM. The initial complaint attempted to allege the following claims: (i) violations of the Commodity Exchange Act and accompanying regulations; (ii) common law fraud under Texas law; (iii) statutory fraud under the Texas Business and Commerce Code; (iv) breach of fiduciary duties under Texas law; (v) negligent and intentional misrepresentations under Texas law; and (vi) negligence under Texas law. Plaintiffs filed a Second Amended Complaint that contained similar factual allegations and attempted to allege a single claim for aiding and abetting liability under the Commodity Exchange Act. The Second Amended Complaint asserted actual damages of at least $32.0 million. On October 10, 2008, the court dismissed the case for failure to state a claim upon which relief may be granted. On December 2, 2008, plaintiffs filed a notice of appeal with the United States Court of Appeals for the Fifth Circuit, and, on February 2, 2009, plaintiffs filed their Appellants’ Brief with that court. On March 6, 2009, TradeStation Technologies filed its Opposition Brief. Oral arguments on the appeal were held on September 2, 2009. No decision has yet been issued by the appeals court.

~~TradeStation~~On ~~Securities~~or ~~was~~about ~~contacted~~February 9, by2010, ~~Canadian~~TradeStation ~~regulatory~~Securities ~~authorities~~and ~~regarding~~TradeStation ~~its~~Group ~~acceptance~~were named ~~of Canadian residents~~ as ~~clients~~the ~~and~~only ~~trading~~defendants in ~~securities~~a oncomplaint ~~behalf~~filed ofin ~~Canadian~~the ~~residents~~United ~~without~~States ~~being registered~~District inCourt, ~~Canada.~~Northern ~~(TradeStation~~District ~~Securities~~of ~~does~~Illinois, ~~not~~Eastern ~~accept~~Division, ~~equities~~styled ~~accounts~~Trading ~~from~~Technologies ~~Canadian~~International, ~~residents~~Inc. ~~but~~v. ~~has,~~TradeStation ~~historically~~Securities, ~~accepted~~Inc. ~~unsolicited~~and ~~futures~~TradeStation ~~and~~Group, ~~forex~~Inc. The ~~accounts~~complaint, ~~from~~as ~~certain~~amended, ~~provinces~~alleges ~~based~~that onTradeStation ~~what~~Securities itand ~~believed~~TradeStation toGroup behave ~~certain~~infringed ~~relevant exemptions~~and orcontinue ~~other~~to ~~applicable~~infringe ~~legal~~several ~~theories.)~~patents ~~Since~~held ~~receiving~~by ~~that~~Trading ~~notification~~Technologies International, ~~TradeStation~~Inc. ~~Securities~~The ~~has~~plaintiff ~~closed~~seeks ~~all~~a ~~British~~judgment ~~Columbian~~enjoining ~~accounts~~the alleged infringement and ~~agreed~~awarding tounspecified ~~not~~damages ~~open~~and ~~any~~costs. ~~new~~TradeStation ~~accounts~~Securities ~~for~~and ~~residents~~TradeStation ofGroup ~~British~~filed ~~Columbia~~their ~~without~~answer ~~applying~~on ~~for registration~~August 31, or2010 ~~qualifying~~generally ~~under~~denying the

1516

anallegations ~~exemption.~~and Noasserting ~~money~~a isvariety ~~being paid to British Columbia by virtue~~ of ~~this~~affirmative ~~resolution~~defenses. ~~TradeStation~~The ~~Securities~~FRCP ~~has~~Rule ~~also~~26(a)(1) ~~closed~~Initial ~~all~~Disclosures ~~accounts~~have ofbeen ~~residents~~exchanged, ~~of New Brunswick~~ and ~~has~~plaintiff’s ~~agreed~~Initial toInfringement aContentions and ~~non~~Defendants’ Non-~~public~~Infringement ~~undertaking~~Contentions ~~for~~have ~~the~~been ~~province~~filed. ofDiscovery ~~New~~has ~~Brunswick~~commenced toand ~~not~~trial ~~open~~was ~~any~~initially ~~new~~scheduled ~~accounts~~ for ~~residents~~July 16, of2012, ~~New~~but ~~Brunswick~~will ~~without~~not ~~applying~~go ~~for~~forward ~~registration~~at orthat ~~qualifying~~time ~~under~~because, anon ~~exemption.~~February 3, No2011, ~~money~~a isFederal ~~being~~Judge ~~paid~~granted ~~to New Brunswick in connection with this~~Trading ~~undertaking.~~Technologies’ ~~TradeStation~~motion ~~Securities~~to ~~also~~consolidate ~~closed~~12 ~~all~~similar ~~accounts~~actions ofagainst ~~residents~~various ~~in Nova Scotia and on October 26~~defendants, ~~2010,~~including the ~~Nova~~case ~~Scotia~~against ~~Securities Commission approved a settlement agreement between~~ TradeStation Securities and ~~the~~TradeStation ~~Nova~~Group, ~~Scotia Securities~~into ~~Commission~~one ~~enforcement~~case. ~~staff~~On ~~under~~February 26, ~~which~~2011, TradeStation ~~Securities~~filed ~~agreed to pay~~ a ~~C$7,500~~motion ~~administrative~~to de-consolidate ~~penalty~~itself. ~~and~~The ~~C$2,500~~case inwas ~~costs~~scheduled for ~~having~~a ~~maintained,~~status ~~between~~conference ~~January 1,~~on ~~2006 and December~~February 3128, ~~2008~~2011. ~~four~~At ~~self-directed~~that ~~futures accounts~~conference, ~~for~~TradeStation ~~investors~~was ~~resident~~given inpermission ~~Nova~~by ~~Scotia~~the ~~without~~judge ~~being~~to ~~licensed~~file ~~under~~a ~~applicable~~summary ~~law.~~judgment ~~TradeStation~~motion ~~Securities~~that, ~~has~~in ~~not~~the ~~heard~~Company’s ~~from~~opinion, ~~nor~~seeks ~~has~~to eliminate itthe ~~undertaken~~crux ~~any negotiations with, any~~ of the ~~other~~plaintiff’s ~~Canadian provinces and territories~~claims. ~~The~~While ~~loss~~it ofis ~~all Canadian~~too ~~resident~~early ~~accounts~~to ~~would~~predict ~~not~~the ~~have~~outcome aof ~~material~~this ~~adverse~~matter, ~~impact~~management onbelieves ~~TradeStation~~the ~~Securities’~~case ~~consolidated~~to ~~net~~be ~~revenues~~without ~~or net income~~merit.

OnIn orMay ~~about February 9,~~ 2010, TradeStation Securities ~~and~~was ~~TradeStation~~served ~~Group~~with ~~were~~a ~~named~~CFTC asreparations complaint in the ~~only~~case ~~defendants~~styled inATS aCapital ~~complaint~~Management ~~filed~~Corp. inv. ~~the~~TradeStation ~~United~~Securities ~~States~~and ~~District~~John ~~Court~~Sendlosky, ~~Northern~~CFTC ~~District~~Docket No. 10-R015. ofThe ~~Illinois, Eastern~~complaint ~~Division,~~alleges ~~styled~~the ~~Trading~~wrongful ~~Technologies~~liquidation ~~International,~~of ~~Inc.~~two v.E-Mini ~~TradeStation~~futures ~~Securities~~positions, ~~Inc.~~one in 2007 and ~~TradeStation~~the ~~Group~~other in 2008, ~~Inc.~~and ~~The~~seeks ~~complaint,~~damages asof ~~amended~~$529,950. ~~alleges~~On ~~that~~September 2, ~~TradeStation~~2010, ~~Securities~~the ~~and~~Administrative ~~TradeStation~~Law ~~Group~~Judge ~~have~~dismissed ~~infringed~~the ~~and~~complaint ~~continue~~with toprejudice ~~infringe~~on ~~five~~the ~~patents~~grounds ~~held~~that bythe ~~Trading~~identical ~~Technologies~~case ~~International,~~was ~~Inc.~~decided ~~The~~in ~~plaintiff~~TradeStation ~~seeks~~Securities’ favor in a ~~judgment~~National ~~enjoining~~Futures ~~the~~Association ~~alleged~~arbitration ~~infringement~~conducted ~~and~~in ~~awarding~~May ~~unspecified~~2009. ~~damages~~On ~~and~~September 17, ~~costs.~~2010, ~~The~~the ~~plaintiff~~complainant filed ~~similar~~its ~~complaints~~Notice ~~against~~of atAppeal ~~least~~to ~~nine~~the ~~other~~Commodity ~~companies~~Futures inTrading ~~2010.~~Commission ~~Discovery~~and inthe ~~this~~parties ~~matter~~have ~~has~~since ~~commenced~~submitted ~~and~~their alegal ~~trial~~briefs isand ~~scheduled~~are ~~for~~awaiting ~~July 16,~~a ~~2012~~decision. While it is too early to predict the outcome of this matter, management believes the ~~case~~appeal to be without merit and ~~the Company~~ intends to ~~defend~~oppose it vigorously.

InOn May 3, ~~2010~~2011, ~~TradeStation~~a ~~Securities~~Direct ~~was~~Shareholder ~~served~~Class ~~with~~Action aComplaint ~~CFTC~~Based ~~reparations~~on ~~complaint~~Breach inof ~~the~~Fiduciary ~~case styled~~Duties ~~ATS~~titled ~~Capital~~Don ~~Management~~Coishi, ~~Corp.~~Individually, vand on Behalf of All Others Similarly Situated, Plaintiff, vs. TradeStation ~~Securities~~Group, Inc., Salomon Sredni, Denise E. Dickins, Michael W. Fipps, Nathan D. Leight, Charles F. Wright, Felix 2011 Acquisition Sub, Inc. and ~~John~~Monex ~~Sendlosky~~Group, ~~CFTC~~Inc., ~~Docket~~Defendants, Case No. 1011-~~R015.~~10195, ~~The~~was ~~complaint~~filed ~~alleges~~in the ~~wrongful~~Circuit ~~liquidation~~Court of ~~two~~the ~~E-Mini~~Seventeenth ~~futures~~Judicial ~~positions~~Circuit in and for Broward County, ~~one~~Florida in(the ~~2007~~“Coishi Complaint”). The Coishi Complaint names as defendants the Company and the ~~other~~members inof ~~2008~~its Board of Directors, as well as Monex Group, Inc. (“Monex Group”) and ~~seeks~~its ~~damages~~wholly-owned ~~of $529~~subsidiary,~~950~~ Felix 2011 Acquisition Sub, Inc. On(the ~~September 2~~“Merger Sub”). The Coishi Complaint alleges, ~~2010~~among other things, that the ~~Administrative~~Company’s ~~Law~~directors ~~Judge~~have ~~dismissed~~violated applicable law by breaching their fiduciary duties (including the ~~complaint~~duties ~~with~~of ~~prejudice~~loyalty, ondue care and candor) owed to the ~~grounds~~Plaintiff ~~that~~and the ~~identical~~proposed ~~case~~class ~~was~~of ~~decided~~holders inof ~~TradeStation~~the ~~Securities~~Company’s ~~favor~~common stock (other than the Defendants and affiliates thereof) in connection with the proposed acquisition of the Company by Monex Group and Merger Sub through a ~~National~~cash ~~Futures~~tender ~~Association~~offer ~~arbitration conducted~~followed inby ~~May~~a ~~2009.~~second Onstep ~~September 17~~merger (collectively, ~~2010~~the “Transaction”), and further alleges that the ~~complainant~~Company, ~~filed~~Monex ~~its~~Group ~~Notice~~and Merger Sub aided and abetted the alleged breaches of ~~Appeal~~the tofiduciary duties. The Coishi Complaint also alleges that the ~~Commodity~~Transaction ~~Futures~~yields ~~Trading~~an ~~Commission~~unfair price. ~~While~~The itCoishi Complaint isseeks ~~too~~injunctive ~~early~~relief (including to ~~predict~~enjoin the ~~outcome~~consummation of ~~this~~the ~~matter~~Transaction), ~~management~~rescission ~~believes~~of the ~~appeal~~Agreement toand bePlan ~~without merit~~of ~~and~~Merger dated April 20, 2011 among the Company, ~~intends~~Monex Group and Merger Sub and an award of reasonable attorney’s fees and expenses, in addition to ~~oppose~~other itrelief. The Company believes the allegations of the Coishi Complaint lack merit and will contest this action vigorously.

TradeStation Securities is also engaged in routine regulatory matters and civil litigation or other dispute resolution proceedings. The pending regulatory and other matters could ultimately result in censures, sanctions, fines, damage awards, settlement payments and/or other negative consequences.

~~While~~17 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.

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. The Company recently reviewed this insurance with insurance agents and the Company’s view remains unchanged.

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.

The Company decided, as of June 1, 2002, not to 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. The Company recently reviewed this insurance with insurance agents and its view remains unchanged.

Management Continuity Agreements

In December 2005, the Company entered into a management continuity agreement with three of its executive officers, one of whom is no longer with the Company. 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, of an amount equal to up to two years of the executive’s annual compensation. 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 did not represent new hires or appointments. As of ~~September~~March 3031, ~~2010~~2011, the aggregate potential severance payments under the management continuity agreements were approximately $1.10 million. See also Note 16 – SUBSEQUENT EVENTS.

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 or provision of leverage for various customer securities, ~~futures~~ and ~~forex~~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 ~~or leverage~~ 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’ and its clearing agents’ internal policies. New short sales rules have been imposed by regulatory authorities and more may be imposed in the near future. 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 margined and leveraged accounts in compliance with various regulatory requirements, internal requirements and the requirements of clearing agents. TradeStation Securities and its clearing agents monitor required margin and leverage 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 6 – RECEIVABLES FROM BROKERAGE CUSTOMERS, NET.

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 level of required 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.

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 organizations 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. However, management believes that the possibility of TradeStation Securities being required to make payments of any material amount under these arrangements is relatively remote. Accordingly, no liability has been recorded for these potential events.

(12) INCOME TAXES

During the three and nine months ended September 30, 2010, the Company recorded an income tax benefit of $2.7 million and a provision of $2.5 million, respectively, based upon its current estimated annual effective income tax rate of approximately 41% and a $2.9 million non-recurring benefit in the third quarter primarily resulting from changes to our allocations of taxable income within various states. During the three and nine months ended September 30, 2009, the Company recorded an income tax provision of $2.4 million and $8.4 million, respectively, based upon its then-estimated annual effective income tax rate of approximately 39%.

As of September 30, 2010, for financial reporting purposes, the Company estimates that it had available for federal income tax purposes total net operating loss carryforwards of approximately $316,000. These net operating loss carryforwards expire in 2019.

The Company had a liability for unrecognized tax benefits of $111,000 and $301,000 as of September 30, 2010 and December 31, 2009, respectively. If these tax benefits had been recognized in the consolidated financial statements, they would not have had a material impact on the Company’s annual effective tax rate because the difference is temporary in nature. The Company does not anticipate any significant changes in uncertain tax positions over the next twelve months.

As of September 30, 2010, the Company was subject to federal income taxes in the U.S. and income taxes in four states, and in the United Kingdom. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to be applied. In July 2009, the Company was notified by the Internal Revenue Service that it would undergo a routine U.S. federal tax examination for the 2007 fiscal year. In March 2010, the Company was notified that it will also undergo a routine U.S. federal tax examination for the 2008 fiscal year and that it will undergo routine tax examinations by a state tax authority for the 2007 and 2008 fiscal years. As of the date these financial statements were filed with the SEC, the Internal Revenue Service examinations were still open. The examinations by the state tax authority for the 2007 and 2008 fiscal years were completed with no adjustments. The Company is no longer subject to U.S. federal tax examinations or state and local tax examinations for periods prior to 2006.

Any interest and penalties, if incurred in connection with an income tax examination, would be recognized as components of income tax expense.

(13) SEGMENT AND RELATED INFORMATION

The Company operates in two principal business segments: (i) brokerage services; and (ii) software products and services. After elimination of intercompany charges, 93% and 94%, respectively, of the Company’s consolidated net revenues in the three and nine month periods ended September 30, 2010, and 93% of the Company’s consolidated net revenues in the three and nine month periods ended September 30, 2009, were generated by the brokerage services segment. 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 TradeStation Europe Limited and the software products and services segment represents the operations of TradeStation Technologies. Intercompany transactions between segments are based upon intercompany licensing and support and expense-sharing agreements, which reflect current business relationships and are designed to comply with applicable regulatory requirements. All significant intercompany transactions and balances have been eliminated in consolidation.

	For the Three MonthsEnded September 30,						For the Nine MonthsEnded September 30,
	2010			2009			2010			2009
	(in thousands)
Revenues:
Brokerage services
Revenues, excluding interest	$	25,623		$	28,219		$	82,359		$	92,449
Interest income		2,735			1,593			7,616			3,870
Interest expense		—			—			—			—
Gains (losses) on marketable securities, net		(728	)		344			4,175			344
		27,630			30,156			94,150			96,663
Software products and services
Revenues, excluding interest		16,581			15,667			49,116			45,647
Interest income		22			19			57			78
		16,603			15,686			49,173			45,725
Elimination of intercompany charges to brokerage services segment		(14,656	)		(13,486	)		(43,286	)		(38,865	)
	$	29,577		$	32,356		$	100,037		$	103,523
Income (loss) before income taxes:
Brokerage services	$	(6,678	)	$	(925	)	$	(6,761	)	$	1,225
Software products and services		7,004			6,988			19,916			20,253
	$	326		$	6,063		$	13,155		$	21,478

TradeStation Securities seeks to manage the risks associated with its customers’ activities by requiring customers to maintain collateral in their margin and leveraged accounts in compliance with various regulatory requirements, internal requirements, and the requirements of clearing agents. TradeStation Securities and its clearing agents monitor required margin and leverage levels on an intra-day basis and, pursuant to such guidelines, require the customers to deposit additional collateral or to reduce positions when necessary. TradeStation Forex, beginning in April 2011, is responsible for monitoring required leverage levels for all forex business (prior to April 2011, under TradeStation Securities’ contractual relationship with Gain Capital, Gain Capital had this responsibility). For further discussion, see Note 6 – RECEIVABLES FROM BROKERAGE CUSTOMERS.

	As ofSeptember 30,2010		As ofDecember 31,2009
	(in thousands)
Identifiable assets:
Brokerage services	$	1,478,889	$	980,147
Software products and services		56,083		69,049
	$	1,534,972	$	1,049,196

TradeStation Securities loans securities temporarily to other broker-dealers in connection with its broker-dealer business. TradeStation Securities receives cash as collateral for the securities loaned. Increases in securities prices may cause the market value of the securities loaned to exceed the amount of cash received as collateral. In the event the counterparty to these transactions does not return the loaned securities, TradeStation Securities may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy its client obligations. TradeStation Securities seeks to manage this risk by requiring credit approvals for counterparties, by monitoring the market value of securities loaned on a daily basis and requiring additional cash as collateral when necessary.

~~(14)~~TradeStation ~~STOCK~~Securities ~~BUY~~borrows securities temporarily from other broker-~~BACK~~dealers ~~PLAN~~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 level of required 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.

InThe ~~October 2006, the Company~~customers’s ~~Board~~financing ~~of Directors authorized,~~ and ~~the~~securities ~~Company~~settlement ~~announced,~~activities ~~the~~may ~~use~~require ofTradeStation upSecurities ~~to $60 million of the Company’s available~~ and ~~unrestricted~~its ~~cash,~~clearing ~~over~~agents ~~a four-year period,~~ to ~~repurchase~~pledge ~~shares~~customer ofsecurities ~~its~~as ~~common~~collateral ~~stock~~ in ~~the~~support ~~open~~of ~~market~~various orsecured financing ~~through~~sources, ~~privately-negotiated~~which ~~transactions.~~may ~~The~~include ~~stock~~bank ~~repurchases are authorized to be made pursuant to a Rule 10b5-1 plan~~loans. ~~The~~In ~~four-year~~the ~~period~~event ~~commenced~~the oncounterparty ~~November 13,~~is ~~2006~~unable ~~and ends on November 12, 2010. Pursuant~~ to ~~the~~meet ~~buy-back~~its ~~plan,~~contractual upobligation to ~~$1.25~~return ~~million~~customer ofsecurities ~~Company~~pledged ~~cash~~as ~~during~~collateral, ~~each~~TradeStation ~~full~~Securities ~~calendar~~may ~~month~~be ~~(and~~exposed ato ~~prorated amount during~~ the ~~first~~risk ~~and last months)~~ of ~~the~~needing ~~four-year period (i.e., up~~ to ~~$15 million per 12-month~~acquire ~~period and up to $60 million for~~ the ~~four-year~~securities ~~period)~~at ~~has~~prevailing ~~been~~market ~~authorized~~prices toin beorder ~~used~~ to ~~purchase~~satisfy ~~Company~~its ~~shares~~obligations. atTradeStation ~~prevailing~~Securities ~~prices,~~seeks ~~subject~~ to ~~compliance~~manage ~~with~~this ~~applicable~~risk ~~securities~~by ~~laws,~~monitoring ~~rules and regulations, including Rules 10b5-1 and 10b-18. The buy-back plan does not obligate~~ the ~~Company~~market tovalue ~~acquire any specific number~~ of ~~shares~~securities inpledged ~~any~~on ~~period,~~a ~~and~~daily ~~may be modified, suspended, extended or discontinued at any time without prior notice~~basis.

~~During~~TradeStation ~~the~~Securities ~~three months~~provides ~~ended~~guarantees ~~September 30,~~to ~~2010,~~its ~~the~~clearing ~~Company~~organizations ~~used~~and ~~approximately~~exchanges under ~~$3.75~~their ~~million~~standard tomembership ~~purchase 583~~agreements,~~079~~ ~~shares~~which ofrequire ~~its~~members ~~common~~to ~~stock~~guarantee atthe anperformance ~~average price~~ of ~~$6.43~~other ~~per share~~members. ~~During~~Under the ~~nine~~agreements, ~~months~~if ~~ended~~another ~~September 30,~~member ~~2010,~~becomes ~~the~~unable ~~Company~~to ~~used approximately~~satisfy ~~$11.2~~its ~~million~~obligations to ~~purchase~~the ~~1,601,231~~clearing ~~shares~~organization ofor ~~its~~exchange, ~~common~~other members ~~stock~~would atbe anrequired ~~average~~to ~~price~~meet ~~of $7~~shortfalls.01 ~~per~~TradeStation ~~share.~~Securities’ ~~Since~~liability ~~commencement~~under ofthese ~~this~~arrangements ~~buy-back~~is ~~plan~~not onquantifiable. ~~November 13~~However, ~~2006,~~management ~~through~~believes ~~September 30,~~that ~~2010,~~ the ~~Company~~possibility ~~has used approximately $58.1 million to purchase 6,751,486 shares~~ of ~~its~~TradeStation ~~common~~Securities ~~stock~~being atrequired anto ~~average~~make ~~price~~payments ofunder these ~~$8.60~~arrangements ~~per~~is ~~share.~~remote, ~~All~~although ~~shares~~less ~~purchased~~remote ~~have~~than ~~been~~it ~~retired.~~was ~~See~~prior ~~ITEM 2.~~to ~~UNREGISTERED~~the ~~SALES~~events OFthat ~~EQUITY~~led ~~SECURITIES~~to ~~AND~~the ~~USE~~recent OFglobal ~~PROCEEDS~~economic ~~– (c) Share~~crisis. ~~Repurchases~~Accordingly, inno ~~PART~~liability IIhas –been ~~OTHER~~recorded ~~INFORMATION~~for ofthese ~~this~~potential ~~report~~events.

(13)

INCOME TAXES

During the three months ended March 31, 2011, the Company recorded an income tax provision of $805,000 based upon its current estimated annual effective income tax rate of approximately 40%, and $89,000 of certain one-time state income tax accruals and other discrete items. During the three months ended March 31, 2010, the Company recorded an income tax provision of $1.8 million based upon its then-estimated annual effective income tax rate of approximately 40%.

As of March 31, 2011, the Company did not have any net operating loss carryforwards. The Company did not have an unrecognized tax benefit as of March 31, 2011, but had an unrecognized tax benefit of approximately $111,000 as of December 31, 2010. If these tax benefits had been recognized in the consolidated financial statements, they would not have had a material impact on the Company’s annual effective tax rate because the difference is temporary in nature. The Company does not anticipate any significant changes in uncertain tax positions over the next twelve months.

As of March 31, 2011, the Company was subject to federal income taxes in the U.S. and income taxes in six states, and in the United Kingdom. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to be applied. In March 2011, the Company was notified that it will undergo a routine tax examination by a state authority for the 2007 through 2009 fiscal years and such examinations are in progress. The Company is no longer subject to U.S. federal tax examinations or state and local tax examinations for periods prior to 2006.

Any interest and penalties, if incurred in connection with an income tax examination, would be recognized as components of income tax expense.

(14)

SEGMENT AND RELATED INFORMATION

The Company operates in two principal business segments: (i) brokerage services; and (ii) software products and services. After elimination of intercompany charges, 94% of the Company’s consolidated net revenues in the three month periods ended March 31, 2011 and 2010 were generated by the brokerage services segment. 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 TradeStation Europe Limited (and, beginning April 2011, TradeStation Forex) and the software products and services segment represents the operations of TradeStation Technologies. Intercompany transactions between segments are based upon intercompany licensing and support and expense-sharing agreements, which reflect current business relationships and are designed to comply with applicable regulatory requirements. All significant intercompany transactions and balances have been eliminated in consolidation.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


	For the Three Months Ended March 31,
	2011			2010
	(in thousands)
Revenues:
Brokerage services
Revenues, excluding interest	$	26,731		$	26,606
Interest income		3,538			2,281
Interest expense		—			—
Gains (losses) on marketable securities, net		(51	)		1,221

		30,218			30,108

Software products and services
Revenues, excluding interest		16,603			16,194
Interest income		38			12

		16,641			16,206

Eliminations of intercompany charges to brokerage services segment		(14,713	)		(14,224	)

	$	32,146		$	32,090


Income (loss) before income taxes:
Brokerage services	$	(4,651	)	$	(2,058	)
Software products and services		6,452			6,543

	$	1,801		$	4,485


	As of March 31, 2011			As of December 31, 2010
	(in thousands)
Identifiable assets:
Brokerage services	$	1,634,737		$	1,532,723
Software products and services		60,145			60,443

	$	1,694,882		$	1,593,166

~~This~~(15) ~~discussion~~STOCK should be read and evaluated in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements of TradeStation Group and its subsidiaries contained in this report and with the issues, uncertainties and risk factors related to our business and industry described in “ITEM 1A. RISK FACTORS” of PART I of the Annual Report on Form 10BUY-KBACK ~~of TradeStation Group for the year ended December 31, 2009. The results of operations for an interim period are not necessarily indicative of results for the year, or for any subsequent period.~~ PLAN

~~Overview~~In October 2006, the Company’s Board of Directors authorized, and ~~Recent~~the ~~Developments~~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 were authorized to be made pursuant to a Rule 10b5-1 plan. The four-year period commenced on November 13, 2006 and was completed on November 12, 2010. During the three months ended March 31, 2010, the Company used approximately $3.7 million to purchase 518,169 shares of its common stock at an average price of $7.19 per share. For the entire plan, the Company used $59.8 million to purchase 7,036,472 shares of its common stock at an average price of $8.50 per share. All shares purchased have been retired.

~~TradeStation Securities~~ (~~Member NYSE, FINRA, SIPC, DTCC, OCC & NFA~~16) isSUBSEQUENT a licensed securities broker-dealer and a registered futures commission merchant, and also a member (or shareholder with rights equivalent to membership) of the Boston Options Exchange, Chicago Board Options Exchange, Chicago Stock Exchange, International Securities Exchange and NASDAQ OMX. 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 and index options business, uses an established futures clearing firm to clear its futures business on an omnibus clearance basis (in January 2010, TradeStation Securities completed a transition of its futures clearance arrangement from a fully-disclosed relationship to an omnibus clearance relationship basis with a facilities management agreement), and uses an established forex dealer firm to clear its forex business, although we are in the process of establishing ourselves as a principal forex dealer that will act as counterparty to customers’ trades through the use of an established electronic market matching service and a prime brokerage relationship with a large U.S. financial firm. As part of this restructuring of our forex business model, we recently formed a wholly-owned subsidiary, TradeStation Forex, Inc., a Florida corporation, with the intent that TradeStation Forex, by the end of the 2010 year, will assume, own and conduct all TradeStation forex brokerage business as a Retail Foreign Exchange Dealer (RFED) with the National Futures Association (NFA), and registered under such classification with the CFTC. TradeStation Forex’s application for such CFTC registration and NFA membership was made with the NFA in June 2010. EVENT

~~TradeStation Securities’~~On ~~revenues~~April 20, ~~consist~~2011, ~~primarily~~the ofCompany ~~transactional~~announced ~~commissions~~that ~~and~~it ~~fees~~entered ~~(including~~into ~~monthly~~a ~~platform~~definitive ~~fees)~~agreement pursuant to which Monex Group, ~~and~~a ~~interest~~Japanese ~~income~~online ~~derived~~brokerage ~~from~~firm, ~~customer~~will ~~cash~~acquire ~~balances~~all ~~and~~the ~~margin~~outstanding ~~lending~~common tostock ~~customers~~of the Company for $9.75 per share, or approximately $411 million

As of September 30, 2010, TradeStation Securities had 47,434 equities, futures and forex accounts (the vast majority of which are equities and futures accounts), a net increase of 121 accounts, or 0.3%, when compared to 47,313 accounts as of June 30, 2010, and a net increase of 1,865 accounts, or 4%, when compared to 45,569 accounts as of September 30, 2009. We define a brokerage account as one 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 had less than a $200 balance and has had no activity within the past 180 days.

~~During~~ in aggregate, through a cash tender offer followed by a merger, subject to holders of a majority of the ~~three~~Company’s ~~and~~outstanding shares of common stock (on a fully diluted basis) tendering ~~nine~~their ~~months~~shares, ~~ended~~obtaining ~~September 30~~required regulatory approvals, ~~2010~~and satisfying other customary closing conditions. Pursuant to that definitive agreement, ~~TradeStation~~the ~~Securities’~~tender ~~brokerage~~offer ~~customer~~is ~~accounts~~to ~~had~~commence 75by May 10,~~746~~ 2011 and, 82once commenced,~~929~~ ~~daily~~is ~~average~~scheduled ~~revenue~~to ~~trades~~be concluded twenty (~~often~~20) business ~~called~~days ~~“DARTs”)~~from that date, ~~respectively~~or June 7, 2011, subject to a ~~decrease~~majority of 5%shares ~~and~~being ~~12%~~tendered, ~~respectively,~~the ~~when compared~~required toregulatory ~~79,577~~approvals ~~and~~being 94obtained,~~064~~ ~~DARTs~~and ~~during~~ the ~~three~~other ~~and~~customary ~~nine~~closing ~~months~~conditions ~~ended~~being ~~September 30,~~satisfied ~~2009~~by such date. The closing ~~following~~of ~~table~~the ~~presents~~tender ~~certain~~offer ~~brokerage~~is ~~metrics~~expected ~~and~~to ~~account~~be ~~information:~~followed promptly by a statutory merger, i.e., one that does not require shareholder approval.

	For the Three Months EndedSeptember 30,							For the Nine Months EndedSeptember 30,
	2010		2009		%Change			2010		2009		%Change
Daily average revenue trades (DARTs)		75,746		79,577		(5	)		82,929		94,064		(12	)
Self-clearing Client Balances
Average equities client credit balances (millions)	$	927	$	831		12		$	908	$	766		19
Average equities client margin balances (millions)	$	60	$	37		62		$	55	$	33		67
Client Trading Activity – Per Account
Annualized trades		404		445		(9	)		445		536		(17	)
Annualized average net revenue	$	2,288	$	2,614		(12	)	$	2,669	$	2,912		(8	)

Also on April 20, 2011, the Company and the Company’s Chief Executive Officer, Salomon Sredni, entered into an Employment and Management Continuity Agreement (the “Management Continuity Agreement”), pursuant to which Mr. Sredni would be employed as Chief Executive Officer of the Company, would have a position on the Global Management Committee of Monex (which will oversee the Asia, U.S. and E.U. operations of Monex) and would be a member of the Board. The term of the Management Continuity Agreement will commence on the effective time of the Merger and end on the three-year anniversary thereof unless extended by mutual agreement between the Company and Mr. Sredni. The terms and provisions of the Management Continuity Agreement are subject to and contingent upon the completion of the transactions contemplated by the Merger Agreement and will not become effective until the effective time of the Merger.

	As of September 30,
	2010		2009		% Change
Client Account Information
Total brokerage accounts		47,434		45,569		4
Average assets per account – equities	$	70,700	$	67,800		4
Average assets per account – futures	$	21,800	$	19,000		15

We compute DARTs as follows: For equities and equity and index 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 and index options, we charge commissions based on share volume (except for equities customers who opt for our per-trade basis commission structure commonly referred to as “flat-ticket” or “flat-commission”), and number of contracts traded. For futures, we charge commissions on a per contract basis. 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 and index options, futures, forex – each has a different per unit revenue structure and cost 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 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.

TradeStation Europe Limited is our subsidiary in the United Kingdom. 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 solicit and introduce UK clients who are active, experienced traders to its U.S. affiliate for equities, options, futures and forex

~~account~~ITEM ~~services~~2. In February 2007, TradeStation Europe obtained its “Passport” pursuant to which the company may use its FSA authorization to qualify to conduct similar business throughout the European Economic Area. As of September 30, 2010, and through the date of the filing of this report, TradeStation EuropeMANAGEMENT’sS ~~operations~~DISCUSSION ~~and~~AND ~~net~~ANALYSIS ~~assets~~OF ~~are~~FINANCIAL ~~not~~CONDITION ~~considered~~AND toRESULTS beOF ~~material to our consolidated financial statements.~~ OPERATIONS

WeThis ~~recently~~discussion ~~launched~~should ~~our~~be ~~new~~read ~~TradeStation~~and ~~Prime~~evaluated ~~Services~~in ~~division.~~conjunction ~~TradeStation~~with ~~Prime~~the ~~Services~~Consolidated ~~seeks~~Financial toStatements ~~fill~~ and the ~~growing~~Notes ~~need of start-up~~ to ~~mid-sized~~Consolidated Financial ~~hedge~~Statements ~~funds,~~of ~~registered~~TradeStation ~~investment~~Group ~~advisers, professional traders~~ and ~~asset~~its ~~managers~~subsidiaries ~~for~~contained ~~quality~~in ~~prime~~this ~~brokerage~~report ~~services~~and ~~which~~with ~~are no longer being provided by~~ the ~~larger~~issues, ~~firms~~uncertainties ~~that~~and ~~traditionally~~risk ~~served~~factors ~~this market~~related ~~segment, as well as~~ to ~~help~~our ~~serve~~business ~~the requirement of many hedge funds (~~and ~~their~~industry ~~investors)~~described ~~that~~in ~~multiple~~“ITEM ~~prime~~1A. ~~brokerage~~RISK ~~relationships~~FACTORS” beof ~~maintained~~PART ~~(to~~I ~~spread the risk~~ of ~~failure of~~ the ~~prime~~Annual Report ~~brokerage~~on ~~firm~~Form or10-K ~~relationship).~~of TradeStation ~~Prime~~ ~~Services~~Group ~~intends~~for tothe ~~provide~~year ~~execution~~ended ~~platforms~~December 31, ~~including~~2010 ~~TradeStation, clearance~~ and ~~settlement~~in of“ITEM ~~trades,~~1A. ~~and~~RISK aFACTORS” ~~variety~~ of ~~services,~~PART ~~including~~II ~~start-up~~– ~~assistance,~~OTHER ~~outsourced/direct~~INFORMATION ~~access~~of ~~trading,~~this ~~real-time risk management, portfolio reporting, securities lending, commission sharing agreements and capital introductions for its clients~~report. ~~TradeStation~~The ~~Securities’~~results ~~“Rule~~of ~~1017”~~operations ~~application~~ for ~~TradeStation~~an ~~Prime~~interim ~~Services~~period toare ~~clear~~not ~~trades executed~~necessarily ~~“away”~~indicative atof ~~other~~results ~~brokerage~~for ~~firms~~the ~~and~~year, toor ~~engage~~for inany ~~securities~~subsequent ~~lending was approved in September 2010~~period.

WeOverview ~~recently formed a wholly-owned subsidiary, TradeStation Forex, Inc., a Florida corporation (TradeStation Forex), with the intent that TradeStation Forex, by the end of the 2010 year, will assume, own~~ and ~~conduct~~Recent ~~all~~Developments TradeStation forex brokerage business (such business is currently owned and conducted by TradeStation Securities) as a forex dealer member (FDM) of the NFA, and registered under such classification with the CFTC. TradeStation Forex’s application for such CFTC registration and NFA membership was made with the NFA in June 2010.

InWe announced, the ~~2010~~evening ~~third~~of ~~quarter~~April 20, 2011, that we entered into a definitive agreement pursuant to which Monex Group, Inc. (Monex Group), a Japanese online brokerage firm, will acquire all the ~~Company~~outstanding ~~recognized~~common stock of TradeStation for $2.9.75 per share, or approximately $411 million in aggregate, through a cash tender offer followed by a merger, subject to holders of a ~~non-recurring~~majority ~~net~~of ~~income~~the ~~tax~~Company’s ~~benefits~~outstanding ~~primarily~~shares ~~resulting~~of common stock (on a fully diluted basis) tendering their shares, obtaining required regulatory approvals, and satisfying other customary closing conditions. Pursuant to that definitive agreement, the tender offer is to commence by May 10, 2011 and, once commenced, is scheduled to be concluded twenty (20) business days from ~~changes~~that date, or June 7, 2011, subject to ~~our~~a ~~allocations~~majority of ~~taxable~~shares ~~income~~being ~~within~~tendered, ~~various~~the ~~states.~~required ~~Additionally~~regulatory approvals being obtained, and the ~~Company~~other ~~capitalized~~customary ~~approximately~~closing $4conditions being satisfied by such date.7 ~~million~~The inclosing ~~assets~~of ~~(predominantly~~the ~~software~~tender ~~technology)~~offer ~~that~~is ~~it acquired~~expected ~~from~~to be followed promptly by a ~~third~~statutory ~~party~~merger, i.e., one that does not require shareholder approval.

~~Critical~~We ~~Accounting~~also ~~Policies~~announced, on the evening of April 20, 2011, that we entered into an Employment and ~~Estimates~~Management Continuity Agreement (the Management Continuity Agreement) with Mr. Sal Sredni, our Chief Executive Officer, pursuant to which Mr. Sredni would be employed as our Chief Executive Officer, would have a position on the Global Management Committee of Monex (which will oversee the Asia, U.S. and E.U. operations of Monex) and would be a member of the Board. The term of the Management Continuity Agreement will commence on the effective time of the Merger and end on the three-year anniversary thereof unless extended by mutual agreement between the Company and Mr. Sredni. The terms and provisions of the Management Continuity Agreement are subject to and contingent upon the completion of the transactions contemplated by the Merger Agreement and will not become effective until the effective time of the Merger.

~~The~~TradeStation ~~preparation~~Securities, ofInc. ~~financial~~(Member ~~statements~~NYSE, FINRA, ~~requires~~SIPC, ~~management~~DTCC, toOCC & ~~make~~NFA) ~~estimates~~is ~~and~~a ~~assumptions~~licensed ~~that~~securities ~~affect~~broker-dealer ~~the reported amounts of assets~~ and ~~liabilities~~a ~~and~~registered ~~disclosure~~futures ofcommission ~~contingent~~merchant, ~~assets~~ and ~~liabilities~~also ata ~~the~~member ~~date~~(or ofshareholder ~~the~~with ~~financial~~rights ~~statements,~~equivalent asto ~~well~~membership) ~~as the reported amounts~~ of ~~revenues~~various equities and ~~expenses~~equity ~~during~~options ~~the reporting period~~exchanges. ~~Actual results could differ materially from those~~ ~~estimates.~~TradeStation ~~Our~~Securities’ ~~significant~~business ~~accounting~~is ~~policies~~also ~~are~~subject ~~described~~to inthe ~~Note~~rules 2and requirements of ~~Notes~~the toSecurities ~~Consolidated~~and ~~Financial~~Exchange ~~Statements~~Commission ~~included~~(SEC), inCommodity ~~our~~Futures ~~Annual~~Trading ~~Report~~Commission on(CFTC) ~~Form~~and ~~10-K~~state ~~for~~regulatory authorities (the ~~year~~firm ~~ended~~is ~~December 31,~~registered ~~2009~~to –conduct ~~SUMMARY OF SIGNIFICANT ACCOUNTING~~its ~~POLICIES.~~brokerage ~~The~~business ~~following~~in ~~areas~~all ~~are~~50 ~~particularly~~states ~~subject to management’s judgments~~ and ~~estimates~~the orDistrict ~~are~~of ~~key~~Columbia). ~~components~~TradeStation ofSecurities ~~our~~self-clears ~~results~~most of ~~operations~~its equities and ~~financial~~equity ~~position: Brokerage Commissions~~ and ~~Fees,~~index ~~Net~~options ~~Interest Income~~business, ~~Income~~uses ~~Taxes,~~an ~~and Uninsured~~established ~~Loss~~futures ~~Reserves.~~clearing ~~Actual~~firm ~~results~~to ~~could~~clear ~~differ~~its ~~materially~~futures ~~from~~business ~~our~~on ~~estimates.~~an ~~These~~omnibus clearance ~~areas~~basis ~~are discussed~~ (in ~~further~~January ~~detail~~2010, ~~under~~TradeStation ~~the~~Securities ~~heading~~completed ~~“Critical~~a ~~Accounting~~transition ~~Policies and Estimates” in ITEM 7~~ of ~~our~~its ~~Annual~~futures ~~Report~~clearance ~~on Form~~arrangement ~~10-K~~from ~~for~~a ~~the year ended December 31, 2009.~~

Results of Operations

For the three and nine months ended September 30, 2010 and 2009, we operated in two principal business segments: (i) brokerage services; and (ii) software products and services. The brokerage services segment represents the operations of TradeStation Securities and TradeStation Europe Limited (and will include TradeStation Forex once it assumes our forex brokerage business) 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 the U.S. market in 2000.

~~Our~~fully-disclosed ~~primary~~relationship ~~sources~~to ofan ~~consolidated~~omnibus ~~revenue~~clearance ~~are~~relationship ~~generated~~basis ~~from~~with ~~the~~a ~~brokerage~~facilities ~~services~~management ~~segment~~agreement), and ~~the brokerage services segment should continue to produce most of our revenues for the foreseeable future. After elimination of intercompany charges~~, ~~93%~~through ~~and 94% of our consolidated net revenues in the three and nine month periods ended September~~March 3031, ~~2010~~2011, ~~respectively,~~used ~~and~~an ~~93%~~established offorex ~~our~~dealer ~~consolidated~~firm ~~net~~to ~~revenues~~clear its inforex ~~the~~business. ~~three~~On ~~and nine~~or ~~month~~about ~~periods ended September~~April 308, ~~2009~~2011, ~~were~~TradeStation ~~generated~~Forex byreceived ~~the~~a ~~brokerage~~transfer ~~services~~from ~~segment.~~Gain ~~Given~~Capital ~~the size~~ of ~~that~~substantially ~~percentage,~~all ~~other~~TradeStation ~~than~~Securities’ ~~our~~forex ~~discussion~~accounts ~~and~~that ~~the~~were ~~table~~previously inintroduced ~~Note~~by 13TradeStation –Securities ~~SEGMENT~~to ~~AND RELATED INFORMATION in ITEM 1.~~Gain ~~FINANCIAL STATEMENTS of PART I of this report~~Capital, weand ~~will~~commenced ~~discuss our results of~~ operations ~~for~~as ~~the overall company instead of on~~ a ~~segmented~~forex ~~basis.~~dealer ~~The~~using ~~following table presents, for~~ the ~~periods~~“agency ~~indicated,~~broker ~~our~~model” ~~consolidated~~(at ~~statements~~which oftime ~~income~~TradeStation ~~data~~Securities ~~and presentation~~ceased ofconducting ~~that~~any ~~data~~forex ~~as a percentage of change from period to period (unaudited~~business):.

	For the Three MonthsEnded September 30,											For the Nine MonthsEnded September 30,
						Change										Change
	2010			2009		$			%			2010		2009		$			%
	(in thousands, except percentages)											(in thousands, except percentages)
Revenues:
Brokerage commissions and fees	$	26,031		$	28,623	$	(2,592	)		(9	)	$	83,435	$	93,422	$	(9,987	)		(11	)
Interest income		2,757			1,612		1,145			71			7,673		3,948		3,725			94
Brokerage interest expense		—			—		—			—			—		—		—			—
Net interest income		2,757			1,612		1,145			71			7,673		3,948		3,725			94
Subscription fees and other		1,517			1,777		(260	)		(15	)		4,754		5,809		(1,055	)		(18	)
Gains (losses) on marketable securities, net		(728	)		344		(1,072	)		(312	)		4,175		344		3,831			1,114
Net revenues		29,577			32,356		(2,779	)		(9	)		100,037		103,523		(3,486	)		(3	)
Expenses:
Employee compensation and benefits		11,400			10,509		891			8			34,055		31,662		2,393			8
Clearing and execution		6,952			7,160		(208	)		(3	)		22,452		23,822		(1,370	)		(6	)
Data centers and communications		3,403			2,902		501			17			10,846		8,551		2,295			27
Marketing		1,791			1,453		338			23			5,070		5,046		24			1
Professional services		1,109			754		355			47			2,545		2,514		31			1
Occupancy and equipment		805			800		5			1			2,364		2,282		82			4
Depreciation and amortization		1,317			1,062		255			24			3,330		3,306		24			1
Other		2,474			1,653		821			50			6,220		4,862		1,358			28
Total expenses		29,251			26,293		2,958			11			86,882		82,045		4,837			6
Income before income taxes		326			6,063		(5,737	)		(95	)		13,155		21,478		(8,323	)		(39	)
Income tax (benefit) provision		(2,730	)		2,366		(5,096	)		(215	)		2,484		8,420		(5,936	)		(70	)
Net income	$	3,056		$	3,697	$	(641	)		(17	)	$	10,671	$	13,058	$	(2,387	)		(18	)

TradeStation Securities’ revenues consist primarily of transactional commissions and fees (including monthly service fees), and interest income derived from customer cash balances and margin lending to customers. Starting in April 2011, TradeStation Forex’s revenues consist primarily of reasonable “markups” included in the foreign currency spreads, which in effect represent TradeStation Forex’s commissions per transaction, offered to its forex customers (and no monthly service fees, separate commissions or fees for the use of forex data are charged). Prior to April 2011, revenues generated by forex accounts included payments by Gain Capital to TradeStation Securities which represented a portion of the spread Gain Capital was offering those customers plus, if applicable, a monthly service fee payable to TradeStation Securities.

~~Three~~As ~~Months~~of ~~Ended~~March 31, ~~September~~2011, TradeStation Securities had 47,853 equities, futures and forex accounts (the vast majority of which were equities and futures accounts), a net increase of 272 accounts, or 0.6%, when compared to 47,581 accounts as of December 3031, 2010, and ~~2009~~a net increase of 827 accounts, or 2%, when compared to 47,026 accounts as of March 31, 2010. We define a brokerage account as one 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 had less than a $200 balance and has had no activity within the past 180 days.

~~Net~~During ~~revenues were $29.6 million for~~ the three months ended ~~September~~March 3031, ~~2010~~2011, ~~compared~~TradeStation toSecurities’ ~~$32.4~~brokerage ~~million~~customer ~~for~~accounts ~~the~~had ~~three~~85,611 ~~months ended~~daily ~~September 30,~~average ~~2009,~~revenue atrades ~~decrease~~(often ofcalled ~~$2.8 million~~“DARTs”), oran ~~9%.~~increase ~~The primary reasons for this decrease were: (i) decreased brokerage commissions and fees~~ of ~~$2.6 million, a 9~~7% ~~decrease from 2009 third quarter results~~, ~~(ii) net~~when ~~losses on marketable securities of $728,000 during the 2010 third quarter,~~ compared to ~~net gains on marketable securities of $344~~80,~~000~~192 DARTs during the ~~2009~~three ~~third~~months ~~quarter,~~ended ~~resulting in a net decrease in revenue of $1.1 million; and (iii)~~March ~~decreased subscription fees and other revenues of $260~~31,~~000,~~ ~~or 15%~~2010. ~~These~~The ~~decreases~~following ~~were~~table ~~partially~~presents ~~offset~~certain ~~by an increase in net interest income of $1.1 million, or 71%, in the 2010 third quarter. We believe~~ brokerage ~~commissions~~metrics and ~~fees~~account ~~decreased~~information: ~~year-over-year due mainly to lower market volatility, as it appears that our brokerage~~


	For the Three Months Ended March 31,
	2011		2010		% Change

Daily average revenue trades (DARTs)		85,611		80,192		7

Self-clearing Client Balances
Average equities client credit balances (millions)	$	1,003	$	879		14
Average equities client margin balances (millions)	$	69	$	48		44

Client Trading Activity – Per Account
Annualized trades		452		434		4
Annualized average net revenue	$	2,551	$	2,652		(4	)

customers trade more actively when market volatility is higher. Our increase in interest income was due primarily to investments in longer-term U.S. Treasury securities, TradeStation’s conversion of its futures business to omnibus clearing (beginning in January 2010 we gained custody and control of our futures clients’ account assets), and an increase in our receivables from brokerage customers (margin balances). Of the $1.1 million decrease in revenue associated with net gains and losses on marketable securities, $988,000 resulted from marking our equity securities in CBOE Holdings, Inc. (CBOE) to market. TradeStation Securities received 80,000 shares in CBOE in place of its previously-held membership exchange seat when CBOE completed its initial public offering in June 2010. CBOE has announced a tender offer which covers, based upon shareholder response, between 15% and 100% of these shares. If we accept the tender offer (the final date for response is November 12, 2010), it would allow us to sell these shares for $22.50 per share. Otherwise, the shares in CBOE, which had a market value of $1.6 million as of September 30, 2010, are subject to a lock-up restriction that prohibits the sale of 50% of the shares until December 2010 and the remaining 50% until June 2011. We do not anticipate that we will sell any of our CBOE shares as part of the tender offer which expires on November 12, 2010. If TradeStation Securities holds its current portfolio of U.S. Treasury securities until maturity, unrealized gains of $2.6 million will reverse between September 30, 2010 and the maturity of each U.S. Treasury security as unrealized losses. As of September 30, 2010, the weighted average remaining maturity term of these investments was approximately eight months. Changes in the fair values of these and future investments may result in unrealized gains and losses, or, if such instruments are sold, realized gains or losses. We do not consider any of these unrealized gains (or future reversals thereof) or any future unrealized gains or losses to be important in evaluating our company or its operations, as ownership of these securities as investments is not core to our business or our business model.


	As of March 31,
	2011		2010		% Change
Client Account Information
Total brokerage accounts		47,853		47,026		2

Average assets per account – equities	$	75,500	$	69,000		9
Average assets per account – futures	$	23,000	$	20,000		15

~~Net~~We ~~income~~compute ~~was~~DARTs as ~~approximately~~follows: ~~$3.1~~For ~~million~~equities ~~for~~and ~~the~~equity ~~three~~and ~~months~~index ~~ended September 30~~options, ~~2010,~~a ~~compared~~revenue trade included to ~~$3.7~~calculate ~~million~~DARTs ~~for~~is ~~the~~a ~~three~~commissionable ~~months~~trade ~~ended~~order ~~September 30,~~placed ~~2009,~~by athe ~~decrease~~customer ofand ~~$641~~executed,~~000,~~ orregardless ~~17%.~~of ~~The~~the ~~decrease~~number ~~resulted~~of ~~primarily~~shares ~~from~~or acontracts ~~$3.0~~included ~~million,~~in orthe ~~11%,~~trade order. For ~~increase~~futures inand ~~total~~forex, ~~expenses~~a ~~(which~~revenue trade included ato ~~decrease~~calculate inDARTs ~~clearing~~is ~~and~~one ~~execution~~round-turn ~~expense~~commissionable offutures ~~$208~~contract traded,~~000,~~ or 3%one round-turn lot (or forex deal) traded, aregardless ~~decrease~~of the number of ~~$2.6~~individual ~~million~~orders made and executed (i.e., one futures or 9%forex order may contain numerous contracts or deals, inbut ~~brokerage~~each ~~commissions~~round-turn contract and ~~fees,~~deal is counted as a $1separate revenue trade).1 ~~million~~When ~~decrease~~viewing inour ~~revenue~~DARTs, ~~from~~it ~~net~~should ~~gains~~be ~~and~~taken ~~losses~~into ~~on marketable~~account ~~securities~~that, for equities and aequity ~~$260~~and index options,~~000~~ we charge commissions based, orfor ~~15%~~equities, ~~decrease~~on inshare ~~subscription~~volume ~~fees~~(except ~~and~~for ~~other~~equities ~~revenues,~~customers ~~partially~~who ~~offset~~opt byfor our $5per-trade basis commission structure commonly referred to as “flat-ticket” or “flat-commission”) or, for options, number of contracts traded.1 ~~million~~For ~~decrease~~futures, inwe ~~our~~charge ~~income~~commissions ~~tax~~on ~~provision~~a per contract basis and, for forex, we receive a ~~$1.1~~portion ~~million~~of the spread, orplus, ~~71%~~prior to April 2011, ~~increase~~a inseparate ~~interest~~commission ~~income~~per deal. ~~The~~It $5should be noted that all DARTs are not equal.1 ~~million~~The revenue we derive ~~decrease~~from each revenue trade depends on the asset in ~~our~~question ~~income~~(equities, ~~tax~~equity ~~provision~~and ~~included~~index ~~$2.9~~options, ~~million~~futures, offorex ~~non-recurring~~– ~~net~~each ~~income~~has ~~tax~~a ~~benefits~~different ~~primarily~~per ~~resulting~~unit ~~from~~revenue ~~changes~~structure and cost structure), and, within each asset class, revenue per equity, contract or deal varies to ~~our~~the ~~allocations~~extent ofhigher ~~taxable~~volume ~~income~~traders ~~within~~receive ~~various~~more ~~states~~favorable pricing, which they often do.

~~Income before income taxes was $326~~TradeStation Technologies,~~000~~ ~~(1% of net revenues) for the three months ended September 30, 2010, compared to $6~~Inc.1 ~~million (19%~~owns ofall ~~net revenues) for the three months ended September 30, 2009, a decrease~~ of ~~$5.7 million, or 95%. The $5.7 million decrease in income before income taxes was due primarily to~~ our ~~decrease~~intellectual ~~in brokerage commissions and fees of $2~~property.~~6 million,~~ aTradeStation ~~decrease~~Technologies inalso ~~revenues~~provides ~~from~~subscription ~~net~~services ~~gains~~for ~~and losses on marketable securities of $1~~TradeStation.1 ~~million,~~The ansubscription ~~increase~~version ~~in employee compensation and benefits expense~~ of ~~$891,000 (mostly resulting from the January 2010 merit salary increases for employees and the expansion of our~~ TradeStation ~~Prime~~is ~~Services division and our technology departments), a $768,000 accrual pertaining to certain potential state sales tax obligations, and~~ an ~~increase~~institutional-quality inservice ~~data~~that ~~centers~~offers ~~and communications costs of~~strategy ~~$501,000,~~trading ~~partially~~software ~~offset~~tools bythat angenerate ~~increase in net interest income of $1.1 million. Our pre~~real-~~tax~~time ~~margin~~buy ~~decreased from 19% to 1% due primarily to the decrease in brokerage commissions~~ and ~~fees,~~sell ~~the~~alerts ~~decrease~~based inupon ~~revenues from net gains and losses on marketable securities,~~ the ~~increase~~subscriber’s inprogrammed ~~employee compensation and benefits~~strategies, ~~the~~but ~~accrual~~does ~~pertaining~~not toinclude ~~certain~~order ~~potential state sales tax obligations, and the increase in data centers and communications costs, partially offset by the increase in net interest income~~execution. ~~Excluding~~Subscribers ~~the~~are ~~$728,000~~charged of net losses on marketable securities, our pre-tax margin (income before income taxes divided by net revenues) for the three months ended September 30, 2010 would have been 3%. Excluding the $344,000 of net gains on marketable securities, our pre-tax margin for the three months ended September 30, 2009 would have been 18%. We believe that excluding the gains and losses on marketable securities from our pre-tax margin calculation provides investors with a ~~more~~monthly ~~accurate~~subscription ~~view of our operating results since we do not believe those unrealized gains are important to our core business~~fee.

TradeStation Europe Limited is our subsidiary in the United Kingdom. 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, and currently introduces accounts solely to TradeStation Securities and TradeStation Forex. The FSA category of authorization is “ISD Category D Arranger,” meaning that TradeStation Europe may solicit and introduce UK clients who are active, experienced traders to its US affiliates for equities, options, futures and forex account services. In February 2007, TradeStation Europe obtained its “passport” pursuant to which the company may use its FSA authorization to qualify to conduct similar business throughout the European Economic Area (EEA), and in fact has used that “passport” to register in all EEA countries.

TradeStation Forex, Inc. was formed in 2010 with the plan that it would, exclusively, assume, own and conduct all of our forex brokerage business (such business was historically owned and conducted by TradeStation Securities using the forex dealer Gain Capital to clear such forex business on a fully-disclosed basis). In January 2011, TradeStation Forex was

~~During~~ registered with the ~~three months~~Commodity ~~ended~~Futures ~~September 30,~~Trading ~~2010,~~Commission we(CFTC) ~~recorded~~as a ~~net~~Retail ~~income~~Foreign ~~tax~~Exchange ~~benefit~~Dealer of(RFED) ~~$2.7~~and ~~million,~~approved ~~which~~by ~~includes~~the aNational ~~$2.9~~Futures ~~million~~Association ~~non-recurring~~(NFA) ~~net~~as ~~benefit~~a ~~primarily~~forex ~~resulting~~dealer ~~from~~member ~~changes~~(FDM). In toApril ~~our~~2011, ~~allocations~~TradeStation ofForex ~~taxable~~received ~~income~~$30.3 ~~within~~million ~~various~~as ~~states, partially offset by~~ a ~~tax~~transfer ~~provision~~from ~~for~~Gain ~~the~~Capital ~~current~~of ~~period~~substantially ~~which~~all isof ~~based~~TradeStation ~~upon~~Securities’ ~~our~~forex ~~current~~accounts ~~estimated~~that ~~annual~~were ~~effective~~introduced ~~income~~by ~~tax~~TradeStation ~~rate~~Securities ofto ~~approximately~~Gain ~~41%. During the three months ended September 30~~Capital, ~~2009,~~and wecommenced ~~recorded~~operations as ana ~~income~~forex ~~tax~~dealer ~~provision~~using ~~of $2.4~~the ~~million~~“agency ~~based~~broker ~~upon~~model” ~~our~~(at ~~then-estimated~~which ~~annual~~time ~~effective~~TradeStation ~~income~~Securities ~~tax~~ceased ~~rate~~conducting ofany ~~approximately~~forex ~~39%~~business). ~~See Income Taxes below.~~

~~Revenues~~ Critical Accounting Policies and Estimates

~~Brokerage~~The ~~Commissions~~preparation ~~and~~of ~~Fees~~financial –statements ~~Brokerage~~requires ~~commissions~~management ~~and~~to ~~fees~~make ~~consist~~estimates ofand ~~commissions~~assumptions ~~for~~that ~~equities,~~affect ~~futures and~~the ~~forex~~reported ~~transactions~~amounts of assets and, toliabilities aand ~~lesser~~disclosure ~~extent,~~of ~~monthly~~contingent ~~platform~~assets and ~~other~~liabilities at ~~fees~~the ~~earned~~date ~~from~~of ~~brokerage customers using~~ the ~~TradeStation~~financial ~~online~~statements, ~~trading~~as ~~platform.~~well ~~For~~as the ~~three~~reported ~~months~~amounts ~~ended~~of ~~September 30,~~revenues ~~2010,~~and ~~brokerage~~expenses ~~commissions~~during ~~and~~the ~~fees were~~reporting ~~approximately $26~~period.0 ~~million,~~Actual ~~compared~~results tocould ~~$28.6~~differ ~~million~~materially ~~for~~from ~~the~~those ~~three~~estimates. ~~months~~Our ~~ended~~significant ~~September 30,~~accounting ~~2009.~~policies ~~This~~are ~~$2.6~~described ~~million,~~in orNote ~~9%,~~2 of ~~decrease~~Notes ~~was~~to ~~due~~Consolidated ~~primarily~~Financial toStatements ~~decreased~~included ~~brokerage~~in ~~commissions~~our ~~and~~Annual ~~fees~~Report ofon ~~$2.2~~Form ~~million~~10-K ~~from~~for ~~lower~~the ~~trading volume~~year ~~related~~ended ~~mostly~~December 31, we2010 ~~believe,~~– toSUMMARY ~~lower~~OF ~~market~~SIGNIFICANT ~~volatility~~ACCOUNTING ~~during~~POLICIES. ~~the~~The ~~2010~~following ~~third~~areas ~~quarter~~are asparticularly ~~compared~~subject to ~~the~~management’s judgments ~~2009~~and ~~third~~estimates ~~quarter~~or ~~(generally,~~are askey ~~market~~components ~~volatility~~of ~~decreases~~ our ~~customer~~results ~~accounts’~~of ~~trade~~operations ~~volume~~and ~~decreases).~~financial Weposition: ~~continuously~~Brokerage ~~review~~ Commissions and ~~assess~~Fees, ~~our~~Net ~~pricing~~Interest Income, ~~and~~Income weTaxes, ~~may~~and ~~adjust~~Uninsured orLoss ~~restructure~~Reserves. ~~our~~Actual ~~commission~~results ~~and~~could ~~fee~~differ ~~offerings~~materially from ~~time~~our estimates. toThese ~~time~~areas are discussed in ~~response~~further todetail ~~competitive~~under ~~pressures~~the ifheading “Critical Accounting Policies and ~~when~~Estimates” ~~they~~in ~~arise~~ITEM 7 orof asour ~~strategic~~Annual ~~pricing~~Report ~~initiatives~~on Form 10-K for the year ended December 31, 2010.

~~Interest~~Results ~~Income – Interest income consists~~ of ~~interest~~Operations earned on securities brokerage customer cash balances and margin lending balances, interest earned on futures brokerage customer cash balances (in 2010) and interest shared with us by our futures clearance agent (prior to 2010), and interest earned on corporate cash and cash equivalents and certain marketable securities. For the three months ended September 30, 2010, interest income was $2.8 million, compared to $1.6 million for the three months ended September 30, 2009. This $1.1 million, or 71%, increase was due primarily to investments in longer-term U.S. Treasury securities, TradeStation’s conversion of its futures business to an omnibus relationship with its clearance agent, and an increase in receivables from our brokerage customers (margin balances). The conversion to a futures omnibus clearance relationship on January 4, 2010 increased customer funds in our custody. As of September 30, 2010, funds in our custody related to commodities accounts totaled $398.7 million. The average margin balances on our equities accounts increased to an average of $60.2 million during the third quarter of 2010, compared to an average balance of $36.6 million during the third quarter of 2009. During the 2009 second quarter, the Company reallocated most of its investments to U.S. Treasury securities and, to a lesser extent, money market funds that invest primarily in U.S. Treasury securities (collectively, “U.S. Treasury Investment”). We estimate, based on the size and nature of our customer assets as of September 30, 2010 (and assuming for these purposes that the size and nature of our customer assets do not change), that each basis point increase or decrease in the U.S. Treasury Investments yield (based upon the tenure of the U.S. Treasury Investments) will impact our annual net income by approximately $33,000. Interest income for future periods may be materially affected by changes in the U.S. Treasury Investments yield and the extent, if any, to which our customer cash account balances and/or margin lending 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~~For ~~Interest~~the ~~Expense~~three –months ~~Brokerage~~ended ~~interest~~March 31, ~~expense~~2011 ~~consists~~and of2010, ~~amounts~~we ~~paid~~operated orin ~~payable~~two toprincipal ~~brokerage~~business ~~customers~~segments: ~~based~~(i) brokerage onservices; and ~~credit~~(ii) software ~~balances~~products ~~maintained~~and inservices. The brokerage ~~accounts~~services ~~and~~segment ~~other~~represents ~~brokerage-related~~the ~~interest~~operations ~~expense.~~of ~~Brokerage~~TradeStation ~~interest~~Securities, ~~expense~~TradeStation ~~does~~Europe ~~not~~Limited ~~include~~and, ~~interest~~after ~~on company borrowings~~March 31, ~~which~~2011, ifof ~~any~~TradeStation Forex, ~~would~~and bethe ~~included~~software inproducts ~~Expenses~~and –services segment ~~Other~~represents ~~below~~the operations of TradeStation Technologies. We ~~did not~~ceased ~~incur~~marketing ~~any~~our ~~interest~~legacy ~~expense~~software ~~during~~products ~~the~~and ~~three~~subscription ~~months~~software ~~ended~~services ~~September 30,~~in ~~2010~~the orU.S. ~~2009~~market in 2000. ~~Factors~~Our ~~that~~primary ~~could~~sources ~~affect~~of ~~brokerage~~consolidated ~~interest~~revenue ~~expense~~are ingenerated from the brokerage ~~future~~services ~~include:~~segment, and the ~~growth~~brokerage ~~(if~~services ~~any)~~segment ~~and~~should ~~mix~~continue to produce most of ~~business~~our inrevenues for the foreseeable future. After elimination of intercompany charges, 94% of our ~~brokerage~~consolidated ~~customer~~net ~~base~~revenues ~~among~~in the three month periods ~~equities~~ended March 31, ~~futures~~2011 and ~~forex;~~2010 ~~average~~were ~~assets~~generated ~~per~~by ~~account~~the ~~and~~brokerage services segment. Given the ~~portion~~size of ~~account~~that ~~assets~~percentage, ~~held~~other inthan ~~cash;~~our discussion and ~~future~~the ~~decisions~~table ~~concerning~~in ~~credit~~Note or14 ~~debit~~– ~~interest~~SEGMENT ~~rates~~AND ~~offered~~RELATED toINFORMATION ~~our~~in ~~equities~~ITEM 1. FINANCIAL STATEMENTS of PART I of this report, ~~futures~~we ~~and~~will ~~forex~~discuss ~~customers~~our ~~(as~~results of operations for the overall company instead of on a ~~result~~segmented basis. The following table presents, for the periods indicated, our consolidated statements of ~~changes~~income indata and presentation of that ~~short-term~~data ~~interest~~as ~~rates~~a orpercentage ~~for~~of ~~other~~change ~~business~~from ~~reasons~~period to period (unaudited).:

Subscription Fees and Other – Subscription fees and other revenues consist of, primarily, monthly fees earned for providing streaming real-time, Internet-based trading analysis software tools and market data services to non-brokerage customers and, to a lesser extent, fees for our training workshops that are designed to help customers take fuller advantage of the features and functions of the TradeStation electronic trading platform. For the three months ended September 30, 2010, subscription fees and other revenues were approximately $1.5 million, compared to $1.8 million during the three months ended September 30, 2009. The $260,000, or 15%, decrease was due primarily to a decrease in the number of subscribers. The amount of subscription fees in the future will depend upon the number of subscription terminations and the number of new subscriptions each month. Subscription services have not been actively marketed in the U.S. since 2000, so it is expected that subscription terminations will continue to exceed new subscriptions.


	For The Three Months Ended March 31,
						Change
	2011			2010		$			%
	(In thousands, except percentages)

Revenues:
Brokerage commissions and fees	$	27,123		$	26,948	$	175			1

Interest income		3,576			2,293		1,283			56
Brokerage interest expense		—			—		—			—

Net interest income		3,576			2,293		1,283			56

Subscription fees and other		1,498			1,628		(130	)		(8	)
Gains (losses) on marketable securities, net		(51	)		1,221		(1,272	)		(104	)


Net revenues		32,146			32,090		56			—


Expenses:
Employee compensation and benefits		11,694			11,194		500			4
Clearing and execution		7,258			7,184		74			1
Data centers and communications		3,828			3,502		326			9
Marketing		2,392			1,532		860			56
Professional services		751			697		54			8
Occupancy and equipment		802			752		50			7
Depreciation and amortization		1,918			950		968			102
Other		1,702			1,794		(92	)		(5	)


Total expenses		30,345			27,605		2,740			10


Income before income taxes		1,801			4,485		(2,684	)		(60	)

Income tax provision		805			1,811		(1,006	)		(56	)


Net income	$	996		$	2,674	$	(1,678	)		(63	)

~~Gains~~Three ~~(Losses)~~Months onEnded ~~Marketable Securities~~March 31, ~~Net –~~2011 ~~Gains (losses) on marketable securities, net, consist of realized~~ and unrealized gains or losses from TradeStation Securities’ investments in U.S. Treasury securities and realized and unrealized gains or losses from equity securities. For the three months ended September 30, 2010, the net loss on marketable securities of $728,000 resulted from a $988,000 unrealized loss from marking our investment in CBOE to market, partially offset by $101,000 in net unrealized gains from marking TradeStation Securities’ U.S. Treasury securities to fair value, and a gain of $159,000 from the sale of NYSE equity securities. TradeStation Securities unrealized gains of $344,000 during the three months ended September 30, 2009 were a result of marking its U.S. Treasury securities to fair value.

~~Expenses~~Net revenues were $32.1 million for the three months ended March 31, 2011 and March 31, 2010. Brokerage commissions and fees were substantially the same in both three-month periods, and we had an increase in net interest income during the 2011 first quarter of $1.3 million, or 56%, that was offset by a $1.3 million decrease in unrealized mark-to-market net gains and losses on marketable securities. The increase in net interest income was primarily a result of an increase in our receivables from brokerage customers (margin balances) and interest income generated by our recently-launched securities lending business conducted by the prime services division of TradeStation Securities. Changes in the fair values of our U.S. Treasury securities and our CBOE Holdings investment, as well as future investments, may result in unrealized gains and losses or, if such instruments are sold, realized gains or losses. We do not consider any of these unrealized net gains (or future reversals thereof) or any future unrealized gains or losses to be important in evaluating our company or its operations, as ownership of these securities as investments is not core to our business or our business model.

Employee Compensation and Benefits – Employee compensation and benefits expenses consist primarily of employee salaries, sales commissions and bonuses, 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 $11.4 million for the three months ended September 30, 2010, compared to $10.5 million for the three months ended September 30, 2009, an increase of approximately $891,000, or 8%. This increase was due primarily to increases in wages paid to employees of $829,000 mostly resulting from the January 2010 merit salary increases for employees and the expansion of our TradeStation Prime Services Division and technology departments, partially offset by decreased sales commissions and employee bonuses. During the three months ended September 30, 2010, there were an average of 398 full-time equivalent employees, compared to 395 full-time equivalent employees during the three months ended September 30, 2009.

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 $7.0 million for the three months ended September 30, 2010, compared to $7.2 million for the three months ended September 30, 2009, a decrease of approximately $208,000, or 3%. The decrease in clearing and execution expenses, which as a percentage of brokerage commissions and fees was 27% during the three months ended September 30, 2010 and 25% during the three months ended September 30, 2009, was due primarily to a change in our mix of business among asset classes and a $245,000 increase in the fixed portion of futures clearing costs due to our conversion to a futures omnibus clearance relationship with our clearing agent in January 2010.

Data Centers and Communications – Data centers and communications expenses consist 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 $3.4 million for the three months ended September 30, 2010, compared to $2.9 million for the three months ended September 30, 2009, an increase of $501,000, or 17%. This increase was due primarily to increases in server farm costs of $274,000 and increases in exchange fees of $177,000. The increases in server farm costs resulted from increases in rack space, power and bandwidth charges and a new server farm which is under development.

~~Marketing –~~Net ~~Marketing~~income ~~expenses~~was ~~are~~approximately ~~comprised of marketing programs~~$996,000 primarily: advertising in various media, including Internet, direct mail, television and print media; account opening kits, and related postage; brochures; and other promotional items, including exhibit costs for ~~industry events. Marketing expenses were $1.8 million for~~ the three months ended ~~September~~March 3031, ~~2010~~2011, compared to $12.57 million for the three months ended ~~September~~March 3031, ~~2009~~2010, ana ~~increase~~decrease of $~~338~~1.7 million,~~000,~~ or 2363%. ~~Our marketing~~The ~~expenses~~decrease inresulted ~~future~~primarily ~~quarters~~from ~~may vary significantly as~~ a ~~result~~$2.7 ofmillion, ~~several~~or ~~factors~~10%, ~~which~~increase ~~may~~in ~~include~~total ~~the~~expenses ~~success of current~~ and ~~future~~a ~~sales~~$1.3 ~~and~~million, ~~marketing~~or ~~campaigns and strategies~~104%, ~~the~~decrease ~~mix~~in ofrevenue from ~~advertising~~unrealized ~~media~~gains weand ~~use~~losses ~~for~~on ~~marketing~~marketable securities, ~~the launch~~partially oroffset ~~release~~by ofa ~~new~~$1.0 ~~platform~~million ~~versions,~~decrease ~~products~~in orour ~~services,~~income ~~the~~tax ~~offering~~provision ~~of sales seminars,~~ and ~~economic~~a ~~and market conditions~~$1.3 Wemillion, ~~expect~~or ~~marketing~~56%, ~~expenses to~~ increase in ~~the~~interest ~~first half of 2011 as result of our current marketing plans~~income.

~~Professional~~Income ~~Services~~before –income ~~Professional~~taxes ~~services~~was ~~expenses~~$1.8 ~~consist~~million (6% of ~~fees~~net revenues) for ~~legal,~~the ~~accounting,~~three ~~tax,~~months ~~and~~ended ~~other professional~~March 31, ~~and~~2011, ~~consulting~~compared ~~services.~~to ~~Professional services expenses were approximately~~ $14.15 million (14% of net revenues) for the three months ended ~~September~~March 3031, 2010, ~~compared~~a decrease of $2.7 million, or 60%. The $2.7 million decrease in income before income taxes was due primarily to our decrease in revenues from unrealized gains and losses on marketable securities of $~~754~~1.3 million,~~000~~ ~~for~~an ~~the~~increase ~~three~~in ~~months~~depreciation ~~ended~~and ~~September 30~~amortization expense of $968,000, ~~2009~~an increase in marketing of $860,000, an increase in employee compensation and benefits expense of $500,000, and an increase in data centers and communications costs of $~~355~~326,000, orpartially ~~47%.~~offset ~~The~~by an increase isin net interest income of $1.3 million. Our pre-tax margin (income before income taxes divided by net revenues) decreased from 14% to 6% due primarily to the ~~result~~same reasons that explain our decrease in income before income taxes. Excluding the $1.2 million of ~~consulting~~unrealized net gains on marketable securities in the 2010 first quarter, our pre-tax margin for the three months ended March 31, 2010 would have been 11%. We believe that excluding the gains and ~~legal~~losses ~~fees~~on marketable securities from our pre-tax margin calculation provides investors with a more accurate view of our operating results since we do not believe those unrealized gains or losses are important to our core business.

~~Occupancy~~During ~~and~~the ~~Equipment~~three ~~– Occupancy~~months ~~and~~ended ~~equipment~~March 31, ~~expenses~~2011, ~~consist~~we recorded an income tax provision of ~~rent~~$805,000 ~~utilities,~~based ~~property~~upon ~~taxes,~~our current ~~repairs,~~estimated ~~maintenance~~annual ~~and~~effective ~~other~~income ~~expenses~~tax ~~pertaining~~rate toof ~~our~~approximately ~~office~~40%, and ~~facilities~~$89,000 ~~space.~~of ~~Occupancy~~certain ~~and~~one-time ~~equipment~~state ~~expenses~~income ~~were~~tax ~~$805,000~~accruals ~~for~~and other discrete items. During the three months ended ~~September~~ March 3031, 2010, ~~compared~~we torecorded an income tax provision of $~~800,000~~1.8 ~~for~~million ~~the~~based ~~three~~upon ~~months~~our ~~ended~~then-estimated ~~September 30,~~annual ~~2009~~effective income tax rate of approximately 40%.

~~Depreciation~~Revenues 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 $1.3 million for the three months ended September 30, 2010, compared to $1.1 million for the three months ended September 30, 2009, an increase of $255,000, or 24%. Depreciation expense is expected to increase in the future based upon the level of capital expenditures we deem necessary to support our current business and the growth in our business (assuming that growth occurs) and to enhance and improve the quality, reliability, speed and capacity of our brokerage services and systems, as well as recent and possible future acquisitions of software technology from third parties. See Liquidity and Capital Resources below.

~~Other~~Brokerage –Commissions ~~Other~~and ~~expenses~~Fees ~~consist~~– ofBrokerage ~~insurance,~~commissions ~~regulatory~~and fees ~~and~~consist ~~related~~of ~~costs,~~commissions ~~employee~~for ~~travel~~equities, futures and ~~entertainment~~forex transactions and, ~~settlements~~to ~~for~~a ~~legal~~lesser ~~matters~~extent, ~~costs~~monthly ~~related~~service toand ~~training~~other ~~workshops,~~fees ~~software maintenance,~~earned ~~public~~from ~~company~~brokerage ~~expenses,~~customers ~~supplies,~~using ~~postage~~the ~~(unrelated~~TradeStation toonline ~~sales~~trading ~~and~~platform. ~~marketing),~~For ~~exchange~~the ~~memberships,~~three ~~customer~~months ~~debits~~ended ~~and~~March 31, ~~errors~~2011, ~~bank~~brokerage ~~charges~~commissions and ~~other~~fees ~~administrative~~were approximately ~~expenses~~$27.1 ~~Other~~million, ~~expenses~~compared ~~were~~to $226.59 million for the three months ended ~~September~~ March 3031, 2010, ~~and~~a $175,000 or 1%, increase.7 ~~million~~We ~~for~~continuously ~~the~~review ~~three~~and ~~months~~assess ~~ended~~our ~~September 30~~pricing, ~~2009~~and we may adjust or restructure our commission and fee offerings from time to time in response to competitive pressures if and when they arise or as strategic pricing initiatives. For example, anour ~~increase~~new offorex ~~$821~~offering,~~000~~ which we launched in April 2011, orcharges ~~50%.~~no ~~The~~service ~~increase~~fees, ispremium ~~primarily~~software ~~due~~fees or commissions to forex customers, and seeks to derive transactional revenue solely by adding a ~~sales~~reasonable ~~tax~~“mark-up” ~~accrual~~to ofthe ~~$768,000~~forex spreads (this “mark-up” will be reflected as brokerage commissions and fees in our consolidated statements of income).

~~Nine~~Interest ~~Months~~Income ~~Ended~~– ~~September~~Interest income consists of interest earned on securities brokerage customer cash balances and margin lending balances, interest earned on futures brokerage customer cash balances, interest shared with us by our forex clearance agent, net interest income earned from our securities lending business, and interest earned on corporate cash and cash equivalents and certain marketable securities. For the three months ended March 3031, 2011, interest income was $3.6 million, compared to $2.3 million for the three months ended March 31, 2010. ~~and~~This ~~2009~~$1.3 million, or 56%, increase was due primarily to a higher yield on our U.S. Treasury securities

Net revenues were $100.0 million for the nine months ended September 30, 2010, compared to $103.5 million for the nine months ended September 30, 2009, a decrease of $3.5 million, or 3%. The primary reason for this decline was a $10.0 million, or 11%, decrease in brokerage commissions and fees, as a result, we believe, of lower market volatility and slower account growth and decreased subscription fees and other revenues of $1.1 million, or 18%, partially offset by a $3.8 million increase in gains on marketable securities and a $3.7 million, or 94%, increase in net interest income. The increase in net interest income was a result primarily of investments in longer-term U.S. Treasury securities, TradeStation’s conversion of its futures business to omnibus clearing (beginning in January 2010 we have custody and control of futures client account assets), and an increase in our receivables from brokerage customers (margin balances). Of the $3.8 million increase in revenue from net gains and losses on marketable securities, $1.3 million was a result of TradeStation Securities’ marking securities in CBOE to market. The

~~remaining~~portfolio, ~~$2.5~~an ~~million~~increase ~~gain~~in ~~was~~receivables ~~primarily~~from ~~composed~~our ofbrokerage ~~unrealized~~customers ~~gains~~(margin onbalances) ~~U.S.~~and ~~Treasury~~interest from our securities. Iflending ~~TradeStation~~business, ~~Securities~~which ~~holds~~did ~~its~~not ~~current~~exist ~~portfolio~~in ofthe ~~U.S.~~2010 ~~Treasury~~first ~~securities~~quarter. ~~until~~The average ~~maturity,~~margin ~~unrealized~~balances ~~gains~~on our equities accounts increased to an average of $269.62 million ~~will~~during ~~reverse~~the ~~between~~first ~~September 30~~quarter of 2011, ~~2010~~compared ~~and~~to ~~the~~an ~~maturity~~average balance of ~~each U~~$48.S.0 ~~Treasury~~million ~~security~~during asthe ~~unrealized~~first ~~losses.~~quarter As of ~~September 30,~~ 2010,. ~~the~~Net ~~weighted~~interest ~~average~~income ~~remaining~~from ~~maturity~~our ~~term~~securities ~~of these~~lending ~~investments~~business was approximately ~~eight~~$329,000 during the three months ended March 31, 2011. ~~Changes~~We inestimate, based on the ~~fair~~size ~~values~~and nature of ~~these~~our customer assets as of March 31, 2011 (and ~~future~~assuming ~~investments~~for ~~may~~these ~~result~~purposes inthat ~~unrealized~~the ~~gains~~size and ~~losses~~nature ~~or,~~of ifour customer ~~such~~assets ~~instruments~~do ~~are~~not ~~sold~~change), ~~realized~~that ~~gains~~each basis point increase or ~~losses~~decrease in the yield on our U.S. WeTreasury dosecurities ~~not~~(based ~~consider~~upon ~~any~~the tenure of ~~these~~our ~~unrealized net~~U.S. ~~gains~~Treasury ~~(or~~securities) ~~future~~will ~~reversals~~impact ~~thereof)~~our orannual ~~any~~net ~~future~~income ~~unrealized~~by ~~gains~~approximately or$43,000. ~~losses~~Interest income tofor future periods may be ~~important~~materially affected by changes in ~~evaluating~~the yield on our ~~company~~U.S. orTreasury ~~its~~securities ~~operations~~and the extent, asif ~~ownership~~any, ofto ~~these~~which ~~securities~~our customer cash account balances and/or margin lending balances increase or decrease, as ~~investments~~well isas ~~not~~any decisions ~~core~~we may make to ~~our~~provide ~~business~~more or ~~our~~less ~~business~~favorable ~~model~~debit or credit interest rates to our customers.

~~Net~~Brokerage Interest ~~income~~Expense ~~was~~– ~~approximately~~Brokerage ~~$10.7~~interest ~~million~~expense ~~for~~consists ~~the~~of ~~nine~~amounts ~~months~~paid ~~ended~~or ~~September 30,~~payable ~~2010, compared~~ to ~~$13.1~~brokerage ~~million~~customers ~~for the~~based ~~nine~~on ~~months~~credit ~~ended~~balances ~~September 30,~~maintained ~~2009,~~in abrokerage ~~decrease~~accounts ofand ~~$2.4~~other ~~million,~~brokerage-related orinterest ~~18%,~~expense. ~~due~~Brokerage ~~primarily~~interest toexpense adoes not ~~decrease~~include ininterest ~~brokerage~~on ~~commissions~~company ~~and fees of $10.0 million~~borrowings, ~~or 11%~~which, aif ~~$1.1 million~~any, orwould ~~18%,~~be ~~decrease~~included in ~~subscription~~Expenses ~~fees~~– ~~and~~Other ~~other, a $4~~below.~~8 million,~~ orWe ~~6%,~~did ~~increase~~not inincur ~~total~~any ~~expenses~~interest ~~(which~~expense ~~includes~~during athe ~~decrease~~three inmonths ~~clearing~~ended ~~and~~March 31, ~~execution~~2011 ~~fees~~or ~~of $1~~2010.4 ~~million,~~Factors orthat ~~6%,~~could ~~resulting~~affect ~~from~~brokerage interest ~~the~~expense ~~decrease~~ in ~~brokerage~~the ~~commissions~~future ~~and~~include: ~~fees),~~the ~~partially~~growth ~~offset~~(if byany) ~~an increase in revenue from net gains~~ and ~~losses~~mix onof ~~marketable~~business ~~securities~~in ofour ~~$3.8~~brokerage ~~million,~~customer abase ~~$3.7~~among ~~million~~equities, orfutures ~~94%,~~and ~~increase~~forex; inaverage ~~net~~assets ~~interest~~per ~~income,~~account and athe ~~$5.9~~portion ~~million,~~of oraccount ~~70%,~~assets ~~decrease~~held in ~~income~~cash; ~~tax~~and ~~provision.~~future ~~The~~decisions concerning ~~$5.9~~credit ~~million~~or ~~decrease~~debit ininterest ~~our~~rates ~~income~~offered ~~tax~~to ~~provision~~our ~~included~~equities, ~~$2.9~~futures ~~million of~~and ~~non-recurring~~forex ~~net~~customers ~~income~~(as ~~tax~~a ~~benefits~~result ~~primarily~~of ~~resulting from~~ changes toin ~~our~~short-term ~~allocations~~interest ofrates ~~taxable~~or ~~income~~for ~~within~~other ~~various~~business ~~states~~reasons).

~~Income~~Subscription ~~before~~Fees ~~income~~and ~~taxes~~Other ~~was~~– ~~$13.2~~Subscription ~~million~~fees ~~(13%~~and ofother ~~net~~ revenues) ~~for~~consist ~~the nine months ended September 30~~of, ~~2010~~primarily, ~~compared~~monthly tofees ~~$21.5~~earned ~~million (21% of net revenues)~~ for ~~the nine months ended~~providing ~~September 30,~~streaming ~~2009~~real-time, aInternet-based ~~decrease~~trading ofanalysis ~~$8.3~~software ~~million,~~tools orand ~~39%.~~market ~~Our~~data ~~$8.3~~services ~~million decrease in income before income taxes was due primarily~~ to ~~our decrease in~~ non-brokerage ~~commissions~~customers and, ~~fees~~to ofa ~~$10.0~~lesser ~~million~~extent, afees ~~decrease~~for inour ~~subscription~~training ~~fees~~workshops ~~and~~that ~~other~~are ~~of $1.1~~designed ~~million,~~to anhelp ~~increase~~customers intake ~~employee~~fuller ~~compensation~~advantage ~~and benefits~~ of ~~$2.4 million (mostly resulting from~~ the features ~~January 2010 merit salary increases for employees~~ and ~~the~~functions ~~expansion~~ of ~~our~~the ~~technology departments and our~~ TradeStation ~~Prime~~electronic ~~Services division),~~trading anplatform. ~~increase~~For inthe ~~data~~three ~~centers~~months ~~and~~ended ~~communications~~March 31, ~~expenses~~2011, ofsubscription ~~$2.3~~fees ~~million,~~ and ~~an increase in~~ other ~~expenses~~revenues ofwere approximately $1.45 million, ~~partially~~compared ~~offset~~to ~~by an increase in net gains on marketable securities of~~ $31.86 million, anduring ~~increase~~the inthree ~~net interest~~months ~~income~~ended ofMarch 31, $32010.7 ~~million,~~The ~~and a decrease in clearing and execution expenses of~~ $~~1.4~~130,000, ~~million.~~or ~~Our pre-tax margin (income before income taxes divided by net revenues) decreased from 21~~8%, todecrease ~~13%~~was due primarily to ~~the~~a decrease in ~~brokerage~~the ~~commissions~~number ~~and fees,~~of ~~the~~subscribers. ~~decrease~~The inamount of subscription fees ~~and~~in ~~other,~~ the ~~increase~~future inwill ~~employee~~depend ~~compensation~~upon ~~and benefits expenses,~~ the ~~increase~~number inof ~~data~~subscription ~~centers~~terminations and ~~communications expenses and an increase in other expenses, partially offset by~~ the ~~increase~~number inof ~~revenue~~new ~~from~~subscriptions ~~net~~each ~~gains~~month. ~~and~~Subscription ~~losses~~services onhave ~~marketable~~not ~~securities,~~been ~~the~~actively ~~increase~~marketed in ~~net interest income, and~~ the ~~decrease in clearing and execution expenses~~U. ~~Excluding the $4~~S.2 ~~million~~since ~~of net gains on marketable securities~~2000, ~~our~~so ~~pre-tax~~it ~~margin~~is ~~for~~expected the nine months ended September 30, 2010 would have been 9%. Excluding the $344,000 of net gains on marketable securities, our pre-tax margin for the nine months ended September 30, 2009 would have been 20%. We believe that ~~excluding~~subscription ~~the~~terminations ~~gains~~will ~~and~~continue ~~losses from our pre-tax margin calculation provides investors with a more accurate view of the results of our operations since we do not believe those gains and losses are important~~ to ~~our~~exceed ~~core~~new ~~business~~subscriptions.

~~During~~Gains ~~the~~(Losses) ~~nine~~on ~~months~~Marketable ~~ended September 30~~Securities, ~~2010,~~Net we– ~~recorded~~Gains an(losses) ~~income~~on ~~tax~~marketable ~~provision~~securities, net, consist of $2realized gains and losses from U.5S. ~~million~~Treasury securities, ~~which~~as ~~includes~~well aas, ~~non-recurring net~~for ~~benefit~~TradeStation Securities and TradeStation Forex, unrealized gains or losses from U.S. Treasury securities and investments in equity securities. For the ~~third~~three ~~quarter~~months ~~primarily~~ended ~~resulting~~March 31, ~~from~~2011, ~~changes~~the net toloss ~~our~~on ~~allocations~~marketable securities of ~~taxable~~$51,000 ~~income~~resulted ~~within~~from ~~various states~~$540,000 ~~partially~~in ~~offset~~net byunrealized aloss ~~tax~~from ~~provision~~marking ~~for~~TradeStation ~~the~~Securities’ ~~current~~U.S. ~~period~~Treasury ~~based~~securities ~~upon~~to ~~our~~fair ~~current~~value, ~~estimated~~partially ~~annual~~offset ~~effective~~by ~~income~~$489,000 ~~tax~~of unrealized gain from marking our investment ~~rate~~in ofCBOE ~~approximately~~Holdings ~~41%~~to market. During the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~2010, weTradeStation ~~recorded~~Securities’ anunrealized ~~income~~gains ~~tax provision~~ of $81.42 million ~~based~~were ~~upon~~a ~~our~~result ~~then-estimated~~of ~~annual~~marking ~~effective~~its ~~income~~U.S. ~~tax~~Treasury ~~rate~~securities ofto ~~approximately~~fair ~~39%~~value. ~~See Income Taxes below.~~

Revenues

Brokerage Commissions and Fees – For the nine months ended September 30, 2010, brokerage commissions and fees were approximately $83.4 million, compared to $93.4 million for the nine months ended September 30, 2009. This $10.0 million, or 11%, decrease was due primarily to decreased brokerage commissions and fees of $10.4 million from lower trading volume related mostly, we believe,

toExpenses lower market volatility during the nine months ended September 30, 2010 (generally, as market volatility decreases our customer accounts’ trade volume decreases), partially offset by a $440,000 increase in revenues from platform fees. We continuously review and assess our pricing, which includes commissions and platform and other fees, and we may adjust such fees from time to time in response to competitive pressures, if and when they arise, or as strategic pricing initiatives.

~~Interest~~Employee ~~Income~~Compensation –and ~~For~~Benefits ~~the~~– ~~nine~~Employee ~~months~~compensation ~~ended September 30,~~and ~~2010,~~benefits ~~interest~~expenses ~~income~~consist ~~was~~primarily ~~$7.7~~of ~~million,~~employee ~~compared to $3.9 million for the nine months ended September 30~~salaries, ~~2009.~~sales ~~This~~commissions ~~$3.7~~and ~~million~~bonuses, ~~or 94%, increase was due primarily to investments in longer~~stock-~~term~~based ~~U.S.~~compensation ~~Treasury securities~~and, ~~TradeStation’s~~ ~~conversion of its futures business~~ to ana lesser ~~omnibus~~extent, ~~relationship~~payroll ~~with its clearing agent~~taxes, ~~and~~employee anbenefits ~~increase~~(including ingroup ~~our~~health ~~receivables~~insurance ~~from~~and ~~brokerage~~employer ~~customers~~contributions ~~(margin balances). The conversion~~ to abenefit ~~futures omnibus relationship with our clearing agent increased our customer funds by $349.0 million on January 4~~programs), ~~2010. As of September 30~~recruitment, ~~2010,~~temporary ~~funds~~employee inservices ~~our~~and ~~custody~~other ~~relating~~related toemployee ~~these commodities accounts totaled $398~~costs.7 ~~million.~~Employee ~~The~~compensation ~~average~~and ~~margin~~benefits ~~balances on our equities~~expenses ~~accounts~~were ~~increased to an average of~~ $5411.27 million ~~during~~for the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011, compared to ~~the average balance of~~ $3211.52 million ~~during~~for the ~~nine~~three months ended ~~September~~March 3031, ~~2009. During the 2009 second quarter~~2010, ~~the Company~~an ~~reallocated~~increase ~~most~~ of ~~its~~approximately ~~investments to U.S. Treasury securities~~$500, ~~and~~000, toor a4%. ~~lesser~~This ~~extent,~~increase ~~money~~was ~~market~~due ~~funds~~primarily ~~that~~to ~~invest~~increases ~~primarily~~ in ~~U.S.~~stock compensation ~~Treasury~~of ~~securities (collectively~~$251, ~~U.S. Treasury Investments). As a result~~000, ~~the~~commissions ~~Company’s interest income is now affected principally by the yields obtained from such investments. Historically, the weighted average rate~~ of ~~interest for equities accounts was based upon the federal funds daily effective rate of interest and~~$249, ~~for futures accounts~~000, ~~was~~bonuses ~~based on the federal funds target rate~~ of ~~interest. We estimate~~$187,000, ~~based on the size~~ and ~~nature~~wages of ~~our~~$124,000, ~~customer~~partially ~~assets~~offset asby ofdecreased ~~September 30,~~severance ~~2010 (~~and ~~assuming~~other ~~for~~personnel ~~these~~expenses ~~purposes that the size and nature~~ of ~~our customer assets do not change)~~$212,000 ~~that~~and ~~each~~employee ~~basis~~benefits ~~point increase or decrease in the U.S. Treasury Investments yield (based upon the tenure~~ of ~~the U.S. Treasury Investments) will impact our annual net income by approximately~~ $33165,000. ~~Interest~~During ~~income for future periods may be materially affected by: changes in~~ the ~~U.S.~~three ~~Treasury~~months ~~Investments yield and the extent~~ended March 31, ~~if any~~2011, tothere ~~which~~was ~~our~~an ~~customer~~average ~~cash~~of ~~account~~391 ~~balances~~full-time ~~and/or~~equivalent ~~margin lending balances increase or decrease~~employees, ascompared ~~well as any decisions we may make~~ to ~~provide~~396 ~~more~~full-time ~~or less~~equivalent ~~favorable~~employees ~~debit~~during orthe ~~credit~~three ~~interest~~months ~~rates~~ended toMarch 31, ~~our customers~~2010.

~~Brokerage~~Clearing ~~Interest~~and ~~Expense~~Execution – WeClearing ~~did~~and ~~not~~execution ~~incur~~expenses ~~any interest~~include ~~expense~~the ~~during~~costs ~~the~~associated ~~nine~~with ~~months~~executing ~~ended~~and ~~September 30~~clearing customer trades, ~~2010~~including orfees ~~2009.~~paid ~~Factors~~to ~~that~~clearing ~~could~~agents ~~affect~~and ~~brokerage~~clearing ~~interest~~organizations, ~~expense~~exchanges inand ~~the~~other ~~future~~market ~~include:~~centers, ~~the~~fees ~~growth~~and ~~(if~~royalties ~~any)~~paid ~~and~~for ~~mix~~the licensing of ~~business~~self-clearing, inback-office ~~our~~software ~~brokerage~~systems ~~customer~~and ~~base~~related ~~among equities~~services, ~~futures~~ and ~~forex;~~commissions ~~average~~paid ~~assets~~to third-party ~~per~~broker-dealers. ~~account~~Clearing and execution expenses were approximately $7.3 million for the ~~portion~~three ofmonths ~~account~~ended ~~assets~~March 31, ~~held~~2011, incompared ~~cash;~~to ~~and~~$7.2 ~~future~~million ~~decisions~~for ~~concerning~~the ~~credit~~three ormonths ~~debit~~ended ~~interest~~March 31, ~~rates~~2010, ~~offered~~an toincrease ~~our~~of ~~equities~~approximately $74,000, ~~futures~~or 1%. Clearing and ~~forex~~execution ~~customers~~expenses ~~(as~~were aapproximately ~~result~~27% of ~~changes~~brokerage incommissions ~~short-term~~and ~~interest rates~~fees orduring ~~for~~the ~~other~~three ~~business~~months ~~reasons)~~ended March 31, 2011 and 2010.

~~Subscription~~Data ~~Fees~~Centers and ~~Other~~Communications – ~~For~~Data ~~the~~centers ~~nine~~and ~~months~~communications ~~ended~~expenses ~~September~~consist of: (i) ~~30,~~data communications costs necessary to connect our server farms directly to electronic ~~2010~~marketplaces, ~~subscription~~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 ~~revenues~~costs. ~~were~~Data ~~approximately~~centers and communications expenses were $43.8 million for the three months ended March 31, 2011, compared to $53.85 million ~~during~~for the ~~nine~~three months ended ~~September~~March 3031, ~~2009.~~2010, ~~This~~an ~~$1.1~~increase ~~million~~of $326,000, or 189%,. ~~decrease~~This increase was due primarily to ~~the~~increases ~~decrease~~ in ~~the~~server ~~number~~farm ~~of subscribers.~~costs ~~The amount~~ of ~~subscription~~$242,000 ~~fees~~and increases in ~~the~~exchange ~~future~~fees ~~will~~of ~~depend~~$155,000, ~~upon~~partially ~~the~~offset ~~number~~by ofa ~~subscription~~decrease ~~terminations~~in ~~and~~circuit ~~the~~costs ~~number~~ of ~~new~~$121,000. ~~subscriptions~~The ~~each~~increases ~~month.~~in ~~Subscription~~server ~~services~~farm ~~have~~costs ~~not~~resulted ~~been~~from ~~actively~~increases ~~marketed~~ in ~~the~~rack ~~U.S. since 2000~~space, ~~so it~~power isand ~~expected~~bandwidth ~~that~~charges ~~subscription~~associated ~~terminations~~with ~~will~~our ~~continue to exceed~~ new ~~subscriptions~~server farm.

~~Gains~~Marketing ~~(Losses)~~– onMarketing ~~Marketable~~expenses are composed of ~~Securities~~marketing programs, ~~Net~~primarily: –advertising ~~For~~in ~~the~~various ~~nine~~media, ~~months~~including ~~ended September 30~~Internet, ~~2010~~direct mail, ~~net~~television ~~gains~~and onprint ~~marketable~~media; ~~securities~~account ~~were~~opening ~~approximately~~kits, ~~$4.2~~and ~~million~~related postage; brochures; and other promotional items, ~~compared~~including toexhibit costs for industry events. Marketing expenses were $~~344,000~~2.4 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011, compared to $1.5 ~~For~~million for the ~~nine~~three months ended ~~September~~ March 3031, 2010, ~~the~~an ~~net~~increase ~~gains~~of on$860,000, ~~marketable~~or ~~securities~~56%. ofThe ~~$4.2~~increase ~~million~~was ~~included~~due primarily to a ~~$2.7~~new ~~million~~marketing campaign, ~~unrealized~~launched ~~gain~~in ~~from~~March ~~marking~~2011, ~~U.S.~~that ~~Treasury~~is ~~securities~~designed to ~~fair~~attract ~~value,~~ a ~~$1.3~~broader ~~million~~range ~~unrealized~~of ~~gain~~active ~~from~~trader ~~marking~~customers ~~our~~to ~~investment~~TradeStation, inand ~~CBOE~~portions of which are dedicated to ~~market~~, and focused exclusively on, our new forex offering. Our marketing expenses in future quarters may vary significantly as a ~~gain~~result of ~~$159~~several factors,~~000~~ ~~from~~which may include the ~~sale~~success of ~~NYSE~~current ~~equity~~and ~~securities.~~future ~~TradeStation~~sales ~~Securities’~~and ~~unrealized~~marketing ~~gains~~campaigns ofand ~~$344~~strategies,~~000~~ ~~during~~the mix of advertising media we use for marketing, the ~~nine~~launch ~~months~~or ~~ended~~release ~~September 30~~of new platform versions, ~~2009~~products ~~were~~or aservices, ~~result~~the offering of ~~marking~~sales Useminars, and economic and market conditions.S. ~~Treasury~~There ~~securities~~can be no assurance that the new or modified marketing messages, or methods or focuses we use, or the increased dollars we commit to this ~~fair~~new ~~value~~marketing campaign will improve our net account growth or otherwise have favorable results to our business.

~~Expenses~~Professional Services – Professional services expenses consist of fees for legal, accounting, tax, and other professional and consulting services. Professional services expenses were approximately $751,000 for the three months ended March 31, 2011, compared to $697,000 for the three months ended March 31, 2010, an increase of $54,000, or 8%. The increase is primarily the result of an increase in legal fees of $208,000, partially offset by decreases in consulting fees of $100,000 and accounting and taxes of $55,000. We expect that, in the 2011 second quarter, we will spend approximately an additional $1.0 million for legal, accounting and other professional services related solely to our announced acquisition by Monex Group.

~~Employee~~Occupancy ~~Compensation~~ and ~~Benefits~~Equipment – ~~Employee~~Occupancy ~~compensation~~ and ~~benefits~~equipment expenses ~~were~~consist ~~$34.1~~of ~~million for the nine months ended September 30~~rent, ~~2010~~utilities, ~~compared~~property ~~to $31.7 million for the nine months ended September 30~~taxes, ~~2009~~repairs, anmaintenance and ~~increase~~other ofexpenses ~~approximately~~pertaining ~~$2.4 million, or 8%. This increase was due primarily~~ to ~~increases~~our inoffice ~~wages~~and ~~paid~~facilities ~~to employees of $3~~space.0 ~~million, partially~~Occupancy ~~offset by a decrease in commissions of $606,000~~ and ~~bonus~~equipment ~~expense~~expenses ofwere $~~526~~802,000. ~~The $3.0 million increase in wages paid to employees mostly resulted from the January 2010 merit salary increases~~ for ~~employees and~~ the ~~expansion~~three ofmonths ~~our TradeStation~~ended ~~Prime~~March 31, ~~Services~~2011, ~~Division~~compared ~~and~~to ~~technology~~$752,000 ~~departments.~~for ~~During~~ the ~~nine~~three months ended ~~September~~March 3031, 2010, ~~there were~~ an ~~average~~increase of ~~397 full-time equivalent employees, compared to 377 full-time equivalent employees during~~ ~~the nine months ended September 30~~$50,000, ~~2009~~or 7%.

~~Clearing~~Depreciation and ~~Execution~~Amortization – ~~Clearing~~Depreciation and ~~execution~~amortization expenses ~~were approximately~~consist ~~$22.5~~primarily ~~million~~of depreciation ~~for~~on ~~the~~property ~~nine~~and ~~months~~equipment ~~ended September 30~~and, ~~2010, compared~~ to ~~$23.8~~a ~~million~~lesser ~~for~~extent, ~~the~~amortization ~~nine~~of ~~months~~intangible ~~ended~~assets. ~~September 30,~~Depreciation ~~2009,~~and aamortization ~~decrease~~expenses ofwere ~~approximately~~ $1.49 million, orfor ~~6%. The decrease in clearing and execution expenses, which, as a percentage of brokerage commissions and fees, increased to 27% during~~ the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011, compared to ~~26%~~$950,000 ~~during~~for the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~2010, ~~was~~an ~~primarily~~increase ~~a result~~ of a$968,000, ~~change~~or ~~in our~~102%, ~~mix~~due ofprimarily ~~business~~to ~~among~~capital ~~asset~~expenditures ~~classes~~for hardware and ~~a $734,000 increase in~~ the ~~fixed~~acquisition ~~portion~~ of ~~futures~~trading ~~clearing~~analysis ~~costs~~software ~~due~~technology toin ~~our~~2010 ~~conversion~~in totwo aseparate ~~futures~~transactions. ~~omnibus~~See ~~relationship~~Liquidity ~~with~~and ~~our~~Capital Resources ~~clearing agent in January 2010~~below.

~~Data~~Other ~~Centers and Communications~~ – ~~Data~~Other ~~centers and communications~~ expenses ~~were~~consist ~~$10.8~~of ~~million~~insurance, ~~for~~regulatory ~~the~~fees ~~nine~~and ~~months~~related ~~ended September 30~~costs, ~~2010,~~employee travel ~~compared~~and toentertainment, ~~$8.6~~settlements ~~million~~ for ~~the~~legal ~~nine months ended September 30~~matters, ~~2009,~~costs anrelated ~~increase~~to ofour ~~$2.3 million~~conferences, ortraining ~~27%.~~workshops, ~~This~~software ~~increase~~maintenance, ~~was~~public ~~due~~company ~~primarily~~expenses, tosupplies, ~~an $892~~postage,~~000~~ ~~increase in~~ exchange ~~fees~~memberships, ancustomer ~~$852~~debits and errors,~~000~~ ~~increase~~bank incharges ~~server~~and ~~farm~~other ~~costs,~~administrative ~~and~~expenses. aOther expenses were $~~588,000~~1.7 ~~increase~~million for ~~circuit~~the ~~costs~~three tomonths ~~connect~~ended ~~our~~March 31, ~~server~~2011, ~~farms~~compared to ~~data providers and electronic marketplaces~~$1.8 ~~The~~million ~~increase~~for inthe ~~server~~three ~~farm~~months ~~costs~~ended ~~resulted~~March 31, ~~from increases in rack space~~2010, ~~power and bandwidth charges and~~ a ~~new~~decrease ~~server~~of ~~farm which~~$92,000, isor ~~under development~~5%.

Marketing – Marketing expenses for the nine months ended September 30, 2010 were $5.1 million, compared to $5.0 million for the nine months ended September 30, 2009, an increase of $24,000, or 1%. Our marketing expenses in future quarters may vary significantly as a result of several factors, which may include the success of current and future sales and marketing campaigns and strategies, the launch or release of new platform versions, products or services, the offering of sales seminars, and economic and market conditions. We expect marketing expenses to increase in the first half of 2011 as result of our current marketing plans.

Professional Services – Professional services expenses for the nine months ended September 30, 2010 were $2.5 million, compared to $2.5 million for the nine months ended September 30, 2009, an increase of $31,000, or 1%.

Occupancy and Equipment – Occupancy and equipment expenses for the nine months ended September 30, 2010 were $2.4 million, compared to $2.3 million for the nine months ended September 30, 2009, an increase of $82,000, or 4%.

Depreciation and Amortization – Depreciation and amortization expenses were $3.3 million for the nine months ended September 30, 2010, compared to $3.3 million for the nine months ended September 30, 2009, an increase of $24,000 or 1%. Depreciation expense is expected to increase in the future based upon the level of capital expenditures we deem necessary to support our current business and the growth in our business (assuming that growth continues) and to enhance and improve the quality, reliability, speed and capacity of our brokerage services and systems, as well as recent and possible future acquisitions of software technology from third parties. See Liquidity and Capital Resources below.

Other – Other expenses were $6.2 million for the nine months ended September 30, 2010, compared to $4.9 million for the nine months ended September 30, 2009, an increase of $1.4 million, or 28%, due primarily to an accrual for sales taxes of $768,000 and increases in travel and entertainment expenses of $257,000, software maintenance of $249,000, bank charges of $205,000, referral fees of $165,000, and regulatory fees and expenses of $103,000, partially offset by decreased customer debits and errors of $477,000.

Variability of Quarterly 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 materially in the past, and are likely to vary materially in the future. Such fluctuations may result in volatility in the price of our common stock. Our stock price has been very volatile throughout our history as a public company. For information regarding the risks related to the variability of quarterly results, see “ITEM 1A. RISK FACTORS” of PART I of the Annual Report on Form 10-K of TradeStation Group for the year ended December 31, ~~2009~~2010 and in “ITEM 1A. RISK FACTORS” of PART II – OTHER INFORMATION of this report.

Income Taxes

During the three months ended ~~September~~March 3031, ~~2010~~2011, we recorded an income tax ~~benefit~~provision of $~~2.7~~805,000 ~~million~~ based upon our current estimated annual effective income tax rate of approximately 4140% and a $~~2.9~~89,000 of ~~million~~certain ~~non~~one-~~recurring~~time ~~net~~state income tax ~~benefit~~accruals ~~primarily~~and ~~resulting~~other ~~from~~discrete ~~changes to our allocations of taxable income within various states~~items. During the three months ended ~~September~~March 3031, ~~2009~~2011, we recorded an income tax provision of $21.48 million based upon our then-estimated annual effective income tax rate of approximately 3940%.

As of ~~September~~March 3031, ~~2010~~2011, ~~for financial reporting purposes,~~ we ~~estimate~~did ~~that~~not wehave ~~had~~any ~~available~~net ~~for~~operating ~~federal~~loss ~~income~~carryforwards. ~~tax~~We ~~purposes~~did ~~total~~not ~~net~~have ~~operating~~an unrecognized ~~loss~~tax ~~carryforwards~~benefit as of ~~approximately~~March 31, ~~$316~~2011,~~000.~~ ~~These~~but ~~net~~had ~~operating~~an ~~loss~~unrecognized ~~carryforwards~~tax ~~expire~~benefit inof ~~2019.~~

~~We had unrecognized tax benefits of $111,000 and $301,000 as of September 30, 2010 and December~~ 31, 2009, respectively. If these tax benefits had been recognized in the consolidated financial statements, they would not have had a material impact on our annual effective tax rate because the difference is temporary in nature. We do not anticipate any significant changes in uncertain tax positions over the next twelve months.

~~See~~ approximately ~~Note~~$111,000 12as –of ~~INCOME~~December 31, ~~TAXES~~2010. If these tax benefits had been recognized in the consolidated financial statements, they would not have had a material impact on our annual ~~ITEM 1~~effective tax rate because the difference is temporary in nature. ~~FINANCIAL~~We ~~STATEMENTS~~do ofnot ~~PART~~anticipate Iany ofsignificant ~~this~~changes ~~report~~in ~~for~~uncertain ~~additional~~tax ~~discussion~~positions ofover ~~income~~the ~~taxes~~next twelve months.

As of March 31, 2011, we were subject to federal income taxes in the U.S. and income taxes in six states, and in the United Kingdom. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to be applied. In March 2011, we were notified that we would undergo a routine tax examination by a state authority for the 2007 through 2009 fiscal years and such examinations are in progress. We are no longer subject to U.S. federal tax examinations or state and local tax examinations for periods prior to 2006.

See Note 13 – INCOME TAXES in ITEM 1. FINANCIAL STATEMENTS of PART I of this report for additional discussion of income taxes.

Liquidity and Capital Resources

As of ~~September~~March 3031, ~~2010~~2011, we had cash and cash equivalents of approximately $5256.54 million, of which $478,000 was restricted in support of a facility lease. We had marketable securities of approximately $5660.79 million as of ~~September~~March 3031, ~~2010~~2011, of which $5.7 million could be tendered for sale upon notice (generally no longer than seven days) to the remarketing agent. The remaining $5155.02 million was composed of $4952.49 million in U.S. Treasury Bills with original maturities greater than three months and $12.63 million in equity securities in CBOE Holdings. On ~~October~~April 1, ~~2010~~2011, as a result of TradeStation Securities’ ~~September~~March 3031, ~~2010~~2011 month-end calculation under Rule 15c3-1 ofunder the Securities Exchange Act of 1934 (see below), $411.07 million was transferred from cash and cash equivalents to cash and investments segregated in compliance with federal ~~regulations~~ ~~to marketable securities~~regulations.

As of ~~September~~March 3031, ~~2010~~2011, TradeStation Securities had: $1.2833 billion of cash and investments ~~(U.S. Treasury Bills and U.S. Treasury Notes)~~ segregated in compliance with federal regulations in special reserve accounts for the exclusive benefit of customers under Rule 15c3-3 under the Securities Exchange Act of 1934 (Rule 15c3-3) and other regulations; receivables from brokerage customers, ~~net~~ of $5370.29 million; and receivables from brokers, dealers, clearing organizations and clearing agents of $36117.74 million. Receivables from brokerage customers, ~~net~~ are principally client margin loans which are demand loan obligations in customer equities accounts 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 $1.46 billion at March 31, 2011. Management believes that brokerage cash balances and operating earnings will continue to be the primary source of liquidity for TradeStation Securities (and for TradeStation Forex) in the future.

TradeStation Securities is subject to the net capital requirements of the SEC’s Uniform Net Capital Rule (Rule 15c3-1), which is administered by the SEC and the Financial Industry Regulatory Authority (FINRA), and the CFTC financial requirement (Regulation 1.17 under the Commodity Exchange Act), which is administered by the CFTC and the NFA. Under these rules, TradeStation Securities calculates its net capital requirements using the “alternative

~~loan~~method,” ~~obligations~~which inrequires ~~customer~~the ~~equities~~maintenance ~~accounts~~of ~~secured~~minimum innet ~~part~~capital, as defined by ~~cash~~the ~~and/or~~rules, ~~readily~~equal ~~marketable~~to ~~securities~~the highest of: (i) $1,000,000; (ii) 8.0% ~~Receivables~~of ~~from~~domestic and ~~payables~~foreign todomiciled customer ~~brokers,~~and ~~dealers~~non-customer (excluding proprietary) risk maintenance margin/performance bond requirements for all domestic and foreign futures, ~~clearing~~options ~~organizations~~on futures contracts and ~~clearing~~cleared over-the-counter derivatives positions excluding the risk margin ~~agents~~associated ~~represent~~with naked long option positions; or (iii) 2.0% of aggregate customer debit balances. At March 31, ~~primarily~~2011, ~~current~~TradeStation ~~open~~Securities ~~transactions~~had ~~which~~net ~~usually~~capital ~~settle,~~of orapproximately ~~can~~$60.2 bemillion ~~closed~~(40.4% ~~out~~of aggregate debit items), ~~within~~which awas approximately ~~few~~$57.0 ~~business~~million ~~days~~in excess of its required net capital of approximately $3.2 million.

~~Liquidity~~As ~~needs~~an ~~relating~~RFED, TradeStation Forex is subject to ~~client~~the ~~trading~~Adjusted Net Capital requirements of the CFTC (17 C.F.R. §5.7) and ~~margin~~the ~~borrowing~~NFA ~~activities~~Financial ~~are~~Requirement ~~met~~Rule ~~primarily~~(§ ~~through~~11(a)(i)). ~~cash~~Under ~~balances~~these inrules, ~~brokerage~~TradeStation ~~customer~~Forex is required to maintain Adjusted Net Capital of at least ~~accounts~~$20.0 million. In anticipation of TradeStation Forex being approved as an RFED, ~~which~~we ~~were~~contributed $123.350 ~~billion~~million atto ~~September~~TradeStation Forex on August 3013, 2010. ~~Management~~In ~~believes~~April 2011, TradeStation Forex received a transfer from Gain Capital of substantially all TradeStation Securities’ forex accounts that ~~brokerage~~were ~~cash~~introduced ~~balances~~by TradeStation Securities to Gain Capital, and ~~operating~~commenced ~~earnings~~operations ~~will~~as ~~continue~~a toforex bedealer using the ~~primary~~“agency ~~source~~broker ofmodel” ~~liquidity~~(at ~~for~~which time TradeStation Securities ceased conducting any forex business).

~~TradeStation~~In ~~Securities~~addition ~~is subject~~ to ~~the~~ net capital requirements, ofas ~~the~~a ~~SEC’s~~self-clearing ~~Uniform Net Capital Rule (Rule 15c3~~broker-~~1),~~dealer ~~which~~TradeStation Securities is ~~administered~~ bysubject ~~the~~to ~~SEC~~DTCC, OCC and ~~the~~other ~~Financial~~cash ~~Industry~~deposit ~~Regulatory~~requirements, ~~Authority~~which ~~(FINRA),~~are and ~~the~~may ~~CFTC~~continue ~~financial~~to ~~requirement~~be ~~(Regulation~~large ~~1.17~~in ~~under~~relation ~~the~~to ~~Commodity Exchange Act), which is administered by~~ the ~~CFTC~~company’s ~~and~~total ~~the~~liquid ~~NFA. Under these rules~~assets, ~~TradeStation Securities~~and ~~calculates~~which ~~its~~may ~~net~~fluctuate ~~capital~~significantly ~~requirements~~from ~~using~~time ~~the~~to ~~“alternative~~time ~~method,”~~based ~~which~~upon ~~requires~~ the ~~maintenance~~nature and size of ~~minimum~~TradeStation ~~net~~Securities’ ~~capital,~~active astrader ~~defined~~clients’ bysecurities ~~the~~trading ~~rules,~~activity. ~~equal~~As ~~to the highest~~ of: ~~(i)~~March $131,~~000~~ 2011,~~000;~~ ~~(ii) 8.0%~~we ofhad ~~domestic~~security ~~and foreign~~deposits ~~domiciled customer~~ and ~~non-customer~~U.S. ~~(excluding~~Treasury ~~proprietary)~~Bills ~~risk~~totaling ~~maintenance~~$35.5 ~~margin/performance~~million ~~bond~~with ~~requirements~~clearing organizations for ~~all~~the ~~domestic and foreign futures, options on futures contracts and cleared over~~self-~~the-counter~~clearing ~~derivatives positions excluding~~of ~~the~~equities ~~risk~~and ~~margin~~standardized ~~associated~~equity ~~with naked long~~ option ~~positions; or (iii) 2~~trades.0% ofOur ~~aggregate~~cash ~~customer~~deposits ~~debit~~with ~~balances.~~DTCC Atand ~~September 30,~~OCC ~~2010,~~fluctuate ~~TradeStation Securities had net capital of approximately $72.0 million (70.5% of aggregate debit items)~~significantly, ~~which~~and ~~was~~may ~~approximately~~increase ~~$69.0~~or ~~million~~decrease significantly in ~~excess~~future ~~of its required net capital of approximately $3~~periods.0 ~~million.~~

~~Once registered~~As asof anMarch 31, ~~RFED with the NFA~~2011, ~~TradeStation~~we ~~Forex,~~had ~~Inc.~~no ~~will~~long-term bedebt ~~subject~~obligations toor ~~the~~capital ~~Adjusted~~lease ~~Net~~obligations. ~~Capital~~A ~~requirements~~summary of ~~the~~our ~~CFTC~~operating ~~(17~~lease ~~C.F.R.~~obligations ~~§5.7)~~ and ~~the~~minimum ~~NFA~~purchase ~~Financial~~obligations ~~Requirement Rule~~ (§primarily ~~11(a)(i)).~~related ~~Under these rules, TradeStation Forex~~to isback-office ~~required~~systems toand ~~maintain~~telecommunications ~~Adjusted~~services) ~~Net~~is ~~Capital of at least $20,000,000. In anticipation of becoming registered~~ as anfollows ~~RFED,~~(in wethousands): ~~contributed $23.0 million to TradeStation Forex on August 13, 2010.~~

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 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’ securities trading activity. As of September 30, 2010, we had security deposits and U.S. Treasury Bills totaling $35.5 million with clearing organizations for the self-clearing of equities and standardized equity option trades. Our cash deposits with DTCC and OCC fluctuate significantly, and may increase or decrease significantly in future periods.


	Payments Due By Period
Contractual obligations	Total		2011		2012 - 2013		2014 - 2016

Operating lease obligations	$	10,126	$	4,593	$	4,558	$	975

Purchase obligations		3,589		2,682		861		46


Total	$	13,715	$	7,275	$	5,419	$	1,021

~~As of~~We ~~September 30,~~have ~~2010, we had~~ no ~~long-term debt obligations or capital lease obligations. A summary of our~~ operating lease obligations ~~and~~or minimum purchase obligations ~~(primarily~~extending ~~related~~beyond to2016. ~~back-office systems and telecommunications services) is as follows (in thousands):~~

	Payments Due By Period
Contractual obligations	Total		2010		2011 -2012		2013 -2015
Operating lease obligations	$	10,056	$	1,811	$	7,839	$	406
Purchase obligations		4,290		1,039		3,135		116
Total	$	14,346	$	2,850	$	10,974	$	522

In addition to the purchase obligations set forth in the table above, we currently anticipate, in order to provide for growth of our business (there being no assurance growth will occur), capital expenditures of approximately $4.5 million for the remainder of 2011. These capital expenditures are primarily for the purchase of computer hardware and to support the growth of our data server farms and back-office systems to help support our business. These expenditures are expected to be funded through operating cash flows, capital leases, or a combination of the two.

We have no operating lease obligations or minimum purchase obligations extending beyond 2015.

In addition to the purchase obligations set forth in the table above, we currently anticipate, in order to provide for growth of our business (there being no assurance growth will occur), capital expenditures of approximately $4.1 million for the remainder of 2010. These capital expenditures are primarily for the purchase of computer hardware and to support the growth of our data server farms and back-office systems to help support our business. These expenditures are expected to be funded through operating cash flows, capital leases, or a combination of the two.

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, up to $1.25 million of company cash during each full calendar month (and a prorated amount during the first and last months) of the four-year period (i.e., up to $15 million per 12-month period and up to $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. For the three months ended September 30, 2010, we used approximately $3.75 million to purchase 583,079 shares of our common stock at an average price of $6.43 per share. During the nine months ended September 30, 2010, we used approximately $11.2 million to purchase 1,601,231 shares of our common stock at an average price of $7.01 per share. Since commencement of this buy-back plan on November 13, 2006, through September 30, 2010, we used approximately $58.1 million to purchase 6,751,486 shares of our common stock at an average price of $8.60 per share. All shares purchased have been retired. See ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS – (c) Share Repurchases in PART II – OTHER INFORMATION of this report.

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.

Net cash provided by operating activities totaled approximately $1421.4 million during the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011, compared to net cash ~~used~~provided inby operating activities of $1120.86 million during the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~2010. The increase of $~~26.2~~799,000 ~~million~~ was due primarily to ~~changes~~a decrease in net brokerage assets of $273.18 million, and an increase in net ~~changes~~income ofas ~~$6.8~~adjusted ~~million in~~for non-~~brokerage~~cash ~~working~~items, ~~capital~~of ~~items~~$788,000, partially offset by ~~a decrease in~~ net changes ~~income,~~of as$3.8 ~~adjusted~~million ~~for~~in non-~~cash~~brokerage ~~items,~~working ofcapital $7items.7 ~~million.~~ The ~~increase~~decrease in net brokerage assets was primarily a result of a $15330.01 million ~~increase~~decrease in ~~excess~~trading ~~deposits~~investments ~~held~~transactions, ~~at clearing~~net, ~~organizations~~partially ~~and~~offset anby a $11326.84 million ~~increase~~decrease in payables ~~excess~~to ~~reserve~~brokerage ~~deposits~~customers ~~transferred from our marketable securities~~ during the ~~nine~~three months ended ~~September~~March 3031, ~~2010 in connection with TradeStation Securities’ conversion to a futures omnibus arrangement~~2011.

Investing activities used cash of $87.4 3 million and provided cash of $2612.19 million during the ~~nine~~three months ended ~~September~~ March 3031, ~~2010~~2011 and ~~2009~~2010, respectively. The decrease of $1720.72 million was primarily due to increases in ~~proceeds~~purchases ~~from maturities~~ of available-for-sale marketable securities of $2916.5 0 million, ~~partially~~and ~~offset~~decreases ~~by increases of $8.6 million~~ in ~~capital~~ ~~expenditures~~proceeds ~~and~~from ~~$3.2~~maturities ~~million in purchases~~ of available-for-sale marketable securities. ~~The increase in capital expenditures is primarily related to purchases~~ of ~~computer~~$5.5 ~~hardware to support the growth of our data server farms and computer software to support our growing infrastructure~~million.

Financing activities ~~used~~provided cash of $~~10.7~~380,000 ~~million~~ and used cash of $103.24 million during the ~~nine~~ three months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010, respectively. The ~~primary~~source ~~use~~ of cash for financing activities ~~was~~for ~~$11.2~~the ~~million~~three ~~and~~months ~~$11.1~~ended ~~million~~March 31, ~~for~~2011 was from the excess ~~repurchase~~tax ofbenefits ~~company~~from ~~shares~~stock-based ~~during~~compensation of $235,000 and the ~~nine~~proceeds ~~months~~from ~~ended~~issuance ~~September 30,~~of ~~2010~~common ~~and 2009,~~stock ~~respectively~~of $145,000. The ~~increase~~primary inuse ~~the~~of ~~net~~ cash ~~used~~during inthe ~~financing~~three ~~activities~~months isended ~~due~~March 31, ~~primarily~~2010 towas ~~the~~$3.7 ~~decrease~~million infor ~~proceeds from~~ the ~~issuance~~repurchase of ~~common stock~~company shares.

Recently Issued Accounting Standards

In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements (ASU 2010-06). ASU 2010-06 amends the Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification to require additional disclosures regarding fair value measurements. The amended guidance requires entities to disclose additional information regarding assets and liabilities that are transferred between levels of the fair value hierarchy. Entities are also required to disclose information in the Level 3 Rollforward about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosure requirements, ASU 2010-06 clarifies existing guidance pertaining to the level of disaggregation at which fair value disclosures should be made and the requirements to disclose information about the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. The guidance in ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the requirement to separately disclose purchases, sales, issuances and settlements in the Level 3 Rollforward, which becomes effective for fiscal years (and for interim periods within those fiscal years) beginning after December 15, 2010. Our adoption of ASU 2010-06, effective January 1, 2010, and the deferred portion of ASU 2010-06, effective January 1, 2011, did not have a material impact on our consolidated financial position, results of operations or cash flows.

Recently Issued Accounting Standards

In July 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-20, Receivables, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (ASU 2010-20). ASU 2010-20 requires entities to provide extensive new disclosures in their financial statements about their financing receivables, including credit risk exposures and the allowance for credit losses. Public entities are required to adopt ASU 2010-20 for disclosures of financing receivables as of the end of a reporting period for interim and annual reporting periods ending on or after December 15, 2010. The financing receivables disclosures related to activity that occurs during a reporting period are required to be adopted by public entities for interim and annual reporting periods beginning on or after December 15, 2010. We will adopt this guidance beginning on January 1, 2011 and we do not expect its adoption of ASU 2010-20 to have a material impact on our consolidated financial statements.

In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements (ASU 2010-06). ASU 2010-06 amends the Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification to require additional disclosures regarding fair value measurements. The amended guidance requires entities to disclose additional information regarding assets and liabilities that are transferred between levels of the fair value hierarchy. Entities are also required to disclose information in the Level 3 Rollforward about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosure requirements, ASU 2010-06 clarifies existing guidance pertaining to the level of disaggregation at which fair value disclosures should be made and the requirements to disclose information about the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. The guidance in ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the requirement to separately disclose purchases, sales, issuances and settlements in the Level 3 Rollforward, which becomes effective for fiscal years (and for interim periods within those fiscal years) beginning after December 15, 2010. Our adoption of ASU 2010-06, effective January 1, 2010, did not have a material impact on our consolidated financial position, results of operations or cash flows during the nine months ended September 30, 2010. We do not expect the deferred portion of the adoption of ASU 2010-06 to have a material impact on our consolidated financial statements.

In October 2009, the FASB issued accounting guidance that amends the criteria for allocating a contract’s consideration to individual services or products in multiple deliverable arrangements. This guidance is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. We will adopt this guidance beginning on January 1, 2011 and do not expect a material impact on our consolidated financial statements.

Off-Balance Sheet Arrangements

In the ordinary course of business, there are various contingencies which are not reflected in the consolidated financial statements. In addition to the operating leases and purchase commitments discussed above, these include customer activities involving the execution, settlement and financing or provision of leverage for various customer securities, futures, and ~~futures~~off-exchange foreign currency (“forex”) 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 equities customer accounts are margin accounts and all futures and forex accounts use leverage. In margin transactions, TradeStation Securities may be obligated for credit extended to its customers by it or its clearing agents that are 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’ and its clearing agents’ internal policies. New short sales rules have been imposed by regulatory authorities and more may be imposed in the near future. Additionally, TradeStation Securities may be obligated for credit extended to its customers by its clearing agents for futures and forex transactions that are collateralized by cash (and futures or forex positions, as the case may be) 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 Forex also has direct responsibility to ensure full compliance with respect to applicable laws and regulations relating to forex leverage (prior to April 2011, under TradeStation Securities’ contractual relationship with Gain Capital, Gain Capital had this responsibility).

TradeStation Securities seeks to manage the risks associated with its customers’ activities by requiring customers to maintain collateral in their margin and leveraged accounts in compliance with various regulatory requirements, internal requirements, and the requirements of clearing agents. TradeStation Securities and its clearing agents monitor required margin and leverage 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. TradeStation Forex is responsible for monitoring required leverage levels for all forex business.

TradeStation Securities provides guarantees to its clearing organizations 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 exchanges, other members would be required to meet shortfalls. TradeStation Securities’ liability under these arrangements is not quantifiable. However, management believes that the possibility of the company being required to make payments under these arrangements is remote, although less remote than it was prior to the recent events that led to the global economic crisis. No liability has been recorded for these potential events.

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 margined and leveraged accounts in compliance with various regulatory requirements, internal requirements and the requirements of clearing agents. TradeStation Securities and its clearing agents monitor required margin and leverage 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.

TradeStation Securities provides guarantees to its clearing organizations 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 organizations or exchanges other members would be required to meet shortfalls. TradeStation Securities’ liability under these arrangements is not quantifiable. 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.

ITEM 3.

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 engage in proprietary trading and do not hold any market risk sensitive instruments for trading purposes.

TradeStation Securities seeks to manage the risks associated with its customers’ activities by requiring them to maintain margin and leverage collateral levels and reduce concentrated positions in compliance with regulatory and internal guidelines. TradeStation Securities and its clearing agents monitor required margin and leverage levels on an intra-day basis and, pursuant to such guidelines, requires customers to deposit additional collateral, or to reduce positions, when necessary. TradeStation Forex, beginning in April 2011, is responsible for monitoring required leverage levels for all forex business (prior to April 2011, under TradeStation Securities’ contractual relationship with Gain Capital, Gain Capital had this responsibility).

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 $1.2833 billion at ~~September~~March 3031, ~~2010~~2011. Interest-earning assets are financed primarily by short-term liabilities, which totaled $1.3546 billion at ~~September~~March 3031, ~~2010~~2011, in the form of customer cash balances. In addition to earning interest on the ~~customer~~ 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 paid on customer cash balances (we are currently not ~~paying~~ paying any interest to customers on their cash balances). TradeStation Securities also earns interest from interest revenue-sharing arrangements with its clearing agents. Changes in interest rates also affect the interest earned on our cash and cash equivalents, marketable securities and security deposits. As of ~~September~~March 3031, ~~2010~~2011: our cash and cash equivalents consisted primarily of ~~short-term~~ U.S. Treasury securities; our marketable securities consisted primarily of U.S. Treasury ~~Bills, our~~securities ~~federal~~and federal tax-exempt variable rate demand note securities that are secured by a letter of credit from Bank of America (which can be tendered for sale upon notice of no longer than seven days) ~~and the shares of common stock owned in CBOE~~; and our security deposits consisted primarily of U.S. Treasury bills ~~Bills~~ and cash deposits. Most of our cash and investments segregated in compliance with federal regulations are invested in U.S. Treasury Bills and ~~U.S.~~ Treasury Notes of various maturities.

We estimate, based on the size and nature of our customer assets as of ~~September~~March 3031, ~~2010~~2011 (and assuming for these purposes that the size and nature of those assets do not change), that each basis point increase or decrease in the USU.S. Treasury ~~Investment~~securities yield, based on current maturities, results in an annual impact of approximately $3343,000 to our net income.

Equity price risk results from exposures to changes in prices and volatilities of individual equities. As of March 31, 2011, we held 80,000 shares in CBOE Holdings which had an aggregate market value of $2.3 million. Our shares in CBOE Holdings are subject to a lock-up restriction that prohibited the sale of 50% of the shares until December 2010 and the remaining 50% until June 2011. Fluctuations in the price of CBOE Holdings stock may affect our results of operations as unrealized gains or losses (or as realized gains or losses if the shares are sold). We do not consider the shares we own in CBOE Holdings to be held for trading and, we will consider selling them after the full lock-up restrictions lapse.

~~Equity~~TradeStation ~~price~~Securities ~~risk results~~seeks ~~from exposures~~ to ~~changes~~manage inrisks ~~prices~~associated ~~and~~with ~~volatilities~~its ofsecurities ~~individual equities. As of September 30, 2010, we held 80,000 shares in CBOE which had an aggregate market value of $1.6 million. CBOE has announced a tender offer which covers,~~borrowing ~~based~~activities ~~upon~~by ~~shareholder~~requiring ~~response,~~credit ~~between~~approvals ~~15% and 100% of these shares. If we accept the tender offer (the final date~~ for ~~response is November 12~~counterparties, ~~2010),~~by itmonitoring ~~would~~the ~~allow~~collateral usvalues ~~to sell these shares~~ for ~~$22.50~~securities ~~per~~borrowed ~~share.~~on ~~Otherwise, such shares are subject to~~ a ~~lock-up~~daily ~~restriction~~basis ~~that prohibits the sale of 50% of the shares until December 2010~~ and ~~the~~by ~~remaining~~obtaining ~~50%~~additional ~~until~~collateral ~~June~~as ~~2011~~needed. WeSee doNote ~~not~~12 ~~anticipate~~– ~~that~~COMMITMENTS weAND ~~will~~CONTINGENCIES ~~sell~~– General ~~any~~Contingencies ofand ~~our~~Guarantees ~~CBOE~~in ~~shares as part of the tender offer~~ITEM 1. ~~Fluctuations~~FINANCIAL inSTATEMENTS ~~the price~~ of ~~CBOE~~PART ~~stock~~I ~~may affect our results~~ of ~~operations~~this ~~as unrealized gains or losses (or as realized gains or losses if the shares are sold)~~report. ~~We do not consider the shares we own in CBOE to be held for trading and, unless we accept the tender offer, we will consider selling them after the restrictions lapse.~~

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 11 – COMMITMENTS AND CONTINGENCIES – General Contingencies and Guarantees in ITEM 1. FINANCIAL STATEMENTS of PART I of this report.

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

ITEM 4.

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.

There have been no changes in the company’s internal control over financial reporting that occurred during the ~~third~~first quarter of ~~2010~~2011 that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.

PART II -– OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

On or about December 20, 2007, TradeStation Technologies was named as one of several defendants in a complaint filed in the United States District Court, Southern District of Texas, styled Amacker, et. al. v. Renaissance Asset Management (RAM), et. al. Other named defendants include Anthony Michael Ramunno, Man Financial Inc., MF Global, Inc., Lind-Waldock & Company, LLC, Vision, LP, Vision Financial Markets, LLC, R.J. O’Brien & Associates, Inc., and FXCM Holdings, LLC. The initial complaint alleged that over forty plaintiffs are entitled to damages because the plaintiffs were investors in a fraudulent commodity pool operated by Mr. Ramunno and RAM. The initial complaint alleged that TradeStation Technologies conducted trades on behalf of and at the request of Mr. Ramunno and RAM. The initial complaint attempted to allege the following claims: (i) violations of the Commodity Exchange Act and accompanying regulations; (ii) common law fraud under Texas law; (iii) statutory fraud under the Texas Business and Commerce Code; (iv) breach of fiduciary duties under Texas law; (v) negligent and intentional misrepresentations under Texas law; and (vi) negligence under Texas law. Plaintiffs filed a Second Amended Complaint that contained similar factual allegations and attempted to allege a single claim for aiding and abetting liability under the Commodity Exchange Act. The Second Amended Complaint asserted actual damages of at least $32.0 million. On October 10, 2008, the court dismissed the case for failure to state a claim upon which relief may be granted. On December 2, 2008, plaintiffs filed a notice of appeal with the United States Court of Appeals for the Fifth Circuit, and, on February 2, 2009, plaintiffs filed their Appellants’ Brief with that court. On March 6, 2009, TradeStation Technologies filed its Opposition Brief. Oral arguments on the appeal were held on September 2, 2009. No decision has yet been issued by the appeals court.

~~TradeStation Securities~~On ~~was~~or ~~contacted~~about February 9, by2010, ~~Canadian~~TradeStation ~~regulatory~~Securities ~~authorities~~and ~~regarding~~TradeStation ~~its~~Group ~~acceptance~~were ofnamed ~~Canadian residents~~ as ~~clients~~the ~~and~~only ~~trading~~defendants in ~~securities~~a oncomplaint ~~behalf~~filed ofin ~~Canadian~~the ~~residents~~United ~~without~~States ~~being~~District ~~registered~~Court, inNorthern ~~Canada.~~District ~~(TradeStation~~of ~~Securities~~Illinois, ~~does~~Eastern ~~not accept~~Division, ~~equities~~styled ~~accounts~~Trading ~~from~~Technologies International, ~~Canadian~~Inc. ~~residents~~v. ~~but~~TradeStation ~~has~~Securities, ~~historically,~~Inc. ~~accepted unsolicited futures~~ and ~~forex~~TradeStation ~~accounts~~Group, ~~from~~Inc. ~~certain~~The ~~provinces~~complaint, ~~based~~as onamended, ~~what~~alleges ~~it believed to be certain relevant exemptions or other applicable legal theories.) Since receiving~~ that ~~notification,~~ TradeStation Securities ~~has~~and ~~closed~~TradeStation ~~all~~Group ~~British~~have ~~Columbian~~infringed ~~accounts~~ and ~~agreed~~continue to ~~not~~infringe ~~open~~several ~~any~~patents ~~new~~held ~~accounts~~by ~~for~~Trading Technologies ~~residents~~International, ofInc. ~~British~~The ~~Columbia~~plaintiff ~~without~~seeks ~~applying~~a ~~for~~judgment ~~registration~~enjoining orthe ~~qualifying~~alleged ~~under~~infringement anand ~~exemption.~~awarding Nounspecified ~~money~~damages ~~is being~~and ~~paid~~costs. toTradeStation ~~British~~Securities ~~Columbia~~and byTradeStation ~~virtue~~Group offiled ~~this~~their ~~resolution.~~answer ~~TradeStation~~on ~~Securities~~August 31, ~~has~~2010 ~~also~~generally denying ~~closed~~the ~~all~~allegations ~~accounts~~and ofasserting ~~residents~~a variety of ~~New~~affirmative ~~Brunswick~~defenses. ~~and~~The ~~has~~FRCP ~~agreed~~Rule to 26(a)(1) ~~non-public~~Initial ~~undertaking~~Disclosures ~~for~~have ~~the~~been ~~province~~exchanged, ofand ~~New~~plaintiff’s ~~Brunswick~~Initial toInfringement ~~not~~Contentions ~~open~~and ~~any~~Defendants’ ~~new~~Non-Infringement ~~accounts~~Contentions have ~~for~~been ~~residents~~filed. ofDiscovery ~~New~~has ~~Brunswick~~commenced ~~without~~and ~~applying~~trial ~~for~~was ~~registration~~initially orscheduled ~~qualifying~~for ~~under~~July 16, an2012, ~~exemption.~~but Nowill ~~money~~not isgo ~~being~~forward ~~paid~~at tothat ~~New~~time ~~Brunswick~~because, inon ~~connection~~February 3, ~~with~~2011, ~~this~~a ~~undertaking.~~Federal ~~TradeStation~~Judge ~~Securities~~granted ~~also~~Trading ~~closed~~Technologies’ ~~all~~motion ~~accounts~~to ofconsolidate ~~residents~~12 ~~in Nova~~similar ~~Scotia~~actions ~~and~~against onvarious ~~October 26~~defendants, ~~2010,~~including the ~~Nova~~case ~~Scotia~~against ~~Securities Commission approved a settlement agreement between~~ TradeStation Securities and ~~the~~TradeStation ~~Nova~~Group, ~~Scotia~~into ~~Securities~~one ~~Commission~~case. ~~enforcement~~On ~~staff~~February 26, ~~under~~2011, ~~which~~ TradeStation ~~Securities~~filed ~~agreed to pay~~ a ~~C$7,500~~motion ~~administrative~~to ~~penalty~~de-consolidate ~~and~~itself. ~~C$2,500~~The incase ~~costs~~had ~~for~~a ~~having~~status ~~maintained,~~conference ~~between January~~on February 128, ~~2006~~2011. ~~and~~At ~~December 31~~that conference, ~~2008~~TradeStation ~~four~~was ~~self-directed~~given ~~futures~~permission ~~accounts~~by ~~for~~the ~~investors~~judge ~~resident~~to infile ~~Nova~~a ~~Scotia~~summary ~~without~~judgment ~~being~~motion ~~licensed~~that, ~~under~~in ~~applicable law.~~our ~~TradeStation Securities has not heard from~~opinion, ~~nor~~seeks ~~has~~to iteliminate ~~undertaken~~the ~~any~~crux ~~negotiations with, any~~ of the ~~other~~plaintiff’s ~~Canadian~~claims. ~~provinces~~While ~~and~~it ~~territories.~~is ~~The~~too ~~loss~~early ofto ~~all~~predict ~~Canadian~~the outcome ~~resident~~of ~~accounts~~this ~~would~~matter, ~~not~~management ~~have~~believes athe ~~material~~case ~~adverse~~to ~~impact~~be onwithout ~~TradeStation Securities’~~merit ~~consolidated~~and ~~net~~we ~~revenues~~intend orto ~~net~~defend ~~income~~it vigorously.

On or about February 9, 2010, TradeStation Securities and TradeStation Group were named as the only defendants in a complaint filed in the United States District Court, Northern District of Illinois, Eastern Division, styled Trading Technologies International, Inc. v. TradeStation Securities, Inc. and TradeStation Group, Inc. The complaint, as amended, alleges that TradeStation Securities and TradeStation Group have infringed and continue to infringe five patents held by Trading Technologies International, Inc. The plaintiff seeks a judgment enjoining the alleged infringement and awarding unspecified damages and costs. The plaintiff filed similar complaints against at least nine other

~~companies~~In inMay 2010, TradeStation Securities was served with a CFTC reparations complaint in the case styled ATS Capital Management Corp. ~~Discovery~~v. TradeStation Securities and John Sendlosky, CFTC Docket No. 10-R015. The complaint alleges the wrongful liquidation of two E-Mini futures positions, one in ~~this~~2007 ~~matter~~and ~~has~~the ~~commenced~~other in 2008, and seeks damages of $529,950. On September 2, 2010, the Administrative Law Judge dismissed the complaint with prejudice on the grounds that the identical case was decided in TradeStation Securities’ favor in a ~~trial~~National isFutures ~~scheduled~~Association arbitration ~~for~~conducted ~~July~~in May 2009. On September 1617, ~~2012~~2010, the complainant filed its Notice of Appeal to the Commodity Futures Trading Commission and the parties have since submitted their legal briefs and are awaiting a decision. While it is too early to predict the outcome of this matter, management believes the ~~case~~ appeal to be without merit ~~and we intend to defend it vigorously~~.

InOn May 3, ~~2010~~2011, ~~TradeStation~~a Direct ~~Securities~~Shareholder ~~was~~Class ~~served~~Action ~~with~~Complaint aBased ~~CFTC reparations~~on ~~complaint~~Breach inof ~~the~~Fiduciary ~~case~~Duties ~~styled~~titled ~~ATS~~Don ~~Capital~~Coishi, ~~Management~~Individually, ~~Corp.~~and von Behalf of All Others Similarly Situated, Plaintiff, vs. TradeStation ~~Securities~~Group, Inc., Salomon Sredni, Denise E. Dickins, Michael W. Fipps, Nathan D. Leight, Charles F. Wright, Felix 2011 Acquisition Sub, Inc. and ~~John~~Monex ~~Sendlosky~~Group, ~~CFTC~~Inc., ~~Docket~~Defendants, Case No. 1011-~~R015.~~10195, ~~The~~was ~~complaint~~filed ~~alleges~~in the ~~wrongful~~Circuit ~~liquidation~~Court of ~~two~~the ~~E-Mini~~Seventeenth ~~futures~~Judicial ~~positions~~Circuit in and for Broward County, ~~one~~Florida in(the “Coishi ~~2007~~Complaint”). The Coishi Complaint names as defendants TradeStation Group, Inc. and the ~~other~~members inof ~~2008~~its Board of Directors, as well as Monex Group and ~~seeks~~its ~~damages~~wholly-owned ofsubsidiary, ~~$529~~Felix 2011 Acquisition Sub,~~950~~ Inc. On(the ~~September 2~~“Merger Sub”). The Coishi Complaint alleges, ~~2010~~among other things, ~~the~~that ~~Administrative~~our ~~Law~~directors ~~Judge~~have ~~dismissed~~violated applicable law by breaching their fiduciary duties (including the ~~complaint~~duties ~~with~~of ~~prejudice~~loyalty, ondue care and candor) owed to the ~~grounds~~Plaintiff ~~that~~and the ~~identical~~proposed ~~case~~class ~~was~~of holders ~~decided~~of our common stock (other than the Defendants and affiliates thereof) in connection with the proposed acquisition of TradeStation ~~Securities’~~Group ~~favor~~by inMonex Group and Merger Sub through a ~~National Futures~~cash ~~Association~~tender ~~arbitration~~offer ~~conducted~~followed inby ~~May~~a ~~2009.~~second Onstep ~~September 17~~merger (collectively, ~~2010~~the “Transaction”), ~~the~~and ~~complainant~~further ~~filed~~alleges ~~its~~that ~~Notice~~TradeStation Group, Monex Group and Merger Sub aided and abetted the alleged breaches of ~~Appeal~~the tofiduciary duties. The Coishi Complaint also alleges that the ~~Commodity~~Transaction ~~Futures~~yields ~~Trading~~an unfair ~~Commission~~price. ~~While~~The itCoishi isComplaint ~~too~~seeks ~~early~~injunctive relief (including to ~~predict~~enjoin the ~~outcome~~consummation of ~~this~~the ~~matter~~Transaction), ~~management believes~~rescission of the ~~appeal~~Agreement toand bePlan ~~without~~of ~~merit~~Merger dated April 20, 2011 among the TradeStation Group, Monex Group and weMerger ~~intend~~Sub and an award of reasonable attorney’s fees and expenses, in addition to ~~oppose~~other itrelief. We believe the allegations of the Coishi Complaint lack merit and will contest this action vigorously.

~~Also~~TradeStation ~~see~~Securities ~~Note~~is 11also –engaged ~~COMMITMENTS~~in ~~AND CONTINGENCIES~~routine –regulatory ~~Litigation~~matters and ~~Claims~~civil inlitigation ~~ITEM 1~~or other dispute resolution proceedings. ~~FINANCIAL~~The pending ~~STATEMENTS~~regulatory ofand ~~PART~~other Imatters ofcould ~~this~~ultimately ~~report~~result in censures, sanctions, fines, damage awards, settlement payments and/or other negative consequences.

~~ITEM~~While ~~1A.~~no ~~RISK~~assurances ~~FACTORS~~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.

~~There~~We ~~have been~~decided, noas ~~material~~of ~~changes~~June 1, in2002, ~~risk~~not ~~factors~~to ~~during~~carry ~~2010~~errors ~~through~~or ~~the~~omissions ~~date~~insurance ofthat covers ~~this~~third-party ~~report~~claims ~~from~~made ~~those~~by ~~previously~~brokerage ~~discussed~~customers inor ~~ITEM 1A.~~software ~~RISK~~subscribers ~~FACTORS~~as a result of ~~PART~~alleged Ihuman ofor ~~the~~system ~~Annual~~errors, ~~Report~~failures, onacts ~~Form~~or ~~10-K~~omissions. ofThis ~~TradeStation~~decision ~~Group~~was ~~for~~made based upon our assessment of the ~~year~~potential ~~ended~~risks ~~December 31~~and benefits, including ~~2009.~~significant Inincreases ~~reading~~in ~~and~~premium ~~evaluating~~rates, ~~the~~deductibles ~~information~~and ~~set~~coinsurance ~~forth~~amounts, reductions in ~~this~~available ~~report~~per weoccurrence ~~refer~~and ~~you~~aggregate tocoverage amounts, and the ~~issues,~~unavailability ~~uncertainties~~of ~~and~~policies ~~risk~~that ~~factors~~sufficiently ~~disclosed~~cover inthe types of risks that relate to our business. ~~Annual~~We ~~Report~~recently onreviewed ~~Form~~this ~~10-K~~insurance ~~for~~with ~~the~~insurance ~~year~~agents ~~ended~~and ~~December 31,~~our ~~2009~~view remains unchanged.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth information on our common stock buy-back program for the quarter ended September 30, 2010:

	Total number ofsharespurchased		Averageprice paidper share		Total number ofshares purchased aspart of publiclyannounced plan		Approximate dollarvalue of shares thatmay yet be purchasedunder the plan
July 2010		186,455	$	6.70		6,354,862	$	4,250,000
August 2010		205,974		6.07		6,560,836		3,000,000
September 2010		190,650		6.56		6,751,486		1,750,000
Total		583,079		6.43

Also see Note 12 – COMMITMENTS AND CONTINGENCIES – Litigation and Claims in ITEM 1. FINANCIAL STATEMENTS of PART I of this report.

ITEM 1A.

RISK FACTORS

There have been no material changes in risk factors during 2011 through the date of this report from those previously discussed in ITEM 1A. RISK FACTORS of PART I of the Annual Report on Form 10-K of TradeStation Group for the year ended December 31, 2010, except as set forth below with respect to the contemplated acquisition of our company by Monex Group, which was announced April 20, 2011. In reading and evaluating the information set forth in this report we refer you to the issues, uncertainties and risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010 and our Forms 8-K filed April 21, 2011 concerning the transaction with Monex Group.

Statements in this report with respect to the acquisition of the company by Monex Group may include statements that are forward-looking and are subject to risks and uncertainties that could cause actual results to differ materially from those described. All statements, other than statements of historical fact, are statements that could be deemed forward-looking, including all statements and information regarding the intent, belief or current expectations of the Company and members of its senior management team concerning the transaction with Monex Group and related matters. All such forward-looking statements are based largely on current expectations and beliefs concerning future events, approvals and transactions that are subject to substantial risks and uncertainties. Factors that may cause or contribute to the actual results or outcomes being different from those contemplated by such forward-looking statements include:

•

uncertainties as to the timing of the tender offer;

•

uncertainties as to how many of the Company’s shareholders will tender their shares in the offer;

•

the possibility that competing offers will be made;

•

the possibility that various closing conditions for the transactions may not be satisfied or waived, including that a governmental or regulatory authority may prohibit, delay or refuse to grant approval for the consummation of the transactions;

•

the effects of disruption from the proposed transactions which make it more difficult to maintain relationships with employees, customers and/or other business relationships;

•

other business effects, including the effects of industry, regulatory, economic and/or market conditions that are outside of Monex Group’s or the Company’s control;

•

unexpected transaction costs and actual or contingent liabilities; and

•

other risks and uncertainties discussed in documents filed by the Company with the SEC, including, but not limited to, its Annual Report on Form 10-K for the fiscal year ended December 31, 2010, Amendment No. 1 to such Annual Report on Form 10-K/A

containing Part III information, and the tender offer documents and solicitation/recommendation statement to be filed with the SEC in connection with the tender offer.

The Company undertakes no obligation to update any forward-looking statements relating to the transaction with Monex Group as a result of new information, future developments or otherwise, except as expressly required by law.

Notice to Investors and Shareholders (Regarding the Tender Offer by Monex Group Described in this Report)

The tender offer for the outstanding shares of the Company’s common stock referred to in this report has not yet commenced. This report is neither an offer to purchase nor a solicitation of an offer to sell any securities. The solicitation and the offer to buy shares of the Company’s common stock will be made pursuant to an offer to purchase and related materials that Monex Group and its wholly-owned subsidiary (“Merger Sub”) expect to file with the SEC. At the time the offer is commenced, Merger Sub and Monex Group will file a tender offer statement on Schedule TO with the SEC, and the Company will file a solicitation/recommendation statement on Schedule 14D-9 with respect to the tender offer. Investors and Company shareholders are strongly advised to read both the tender offer statement (including an offer to purchase, a related letter of transmittal and other offer documents) and the solicitation/recommendation statement when they become available, as they will contain important information that should be considered before any decision is made with respect to the tender offer. These materials (and all other materials filed by the Company with the SEC) will be available at no charge from the SEC through its website at www.sec.gov. Free copies of the tender offer statement and related materials and the solicitation/recommendation statement, when available, may be obtained from the information agent for the tender offer. Investors and Company shareholders may also obtain free copies of the documents filed by the Company with the SEC by contacting the Company’s Chief Financial Officer, David H. Fleischman, at 8050 SW 10th Street, Suite 4000, Plantation, FL 33324, telephone number 954-652-7000.

ITEM 6.

EXHIBITS

The following exhibits are filed as part of this report:

Exhibit No.		Description
10.1		First Amendment to TradeStation Group, Inc. Nonemployee Director Incentive Stock Plan.#
2.1		Agreement and Plan of Merger, dated as of April 20, 2011, among Monex Group, Inc., Felix 2011 Acquisition Sub, Inc. and TradeStation Group, Inc. (incorporated by reference to Exhibit 2.1 to TradeStation Group’s Current Report on Form 8-K filed with the Commission on April 21, 2011, which was its second and later filed Form 8-K on that date).
10.2		Asset Purchase Agreement, dated as of August 23, 2010, between TradeStation Technologies, Inc. and RINA Technologies, LLC (incorporated by reference to Exhibit 10.1 to TradeStation Group’s Current Report on Form 8-K filed with the Commission on August 23, 2010).
10.1		Employment and Management Continuity Agreement, dated as of April 21, 2011, between TradeStation Group, Inc. and Salomon Sredni (incorporated by reference to Exhibit 10.1 to TradeStation Group’s Current Report on Form 8-K filed with the Commission on April 21, 2011, which was its second and later filed Form 8-K on that date).#
31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
32.1		Certification of Chief Executive Officer under 18 U.S.C. §1350.
32.2		Certification of Chief Financial Officer under 18 U.S.C. §1350.

#	Indicates a management contract or compensatory plan or arrangement.

4042

SIGNATURE

Pursuant to the requirements 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.

		TradeStation Group, Inc.
		Registrant
November 5, 2010		/s/ David H. Fleischman
May 5, 2011		/s/ David H. Fleischman
Date		David H. Fleischman
		Chief Financial Officer,
		Chief Financial Officer,Vice President of Finance and Treasurer
		Vice President of Finance and Treasurer
		(Signing in his capacity as duly authorized officer
		and as Principal Financial Officer of the Registrant)

4143

EXHIBIT INDEX

Exhibit No.		Description
10.1		First Amendment to TradeStation Group, Inc. Nonemployee Director Incentive Stock Plan.#
2.1		Agreement and Plan of Merger, dated as of April 20, 2011, among Monex Group, Inc., Felix 2011 Acquisition Sub, Inc. and TradeStation Group, Inc. (incorporated by reference to Exhibit 2.1 to TradeStation Group’s Current Report on Form 8-K filed with the Commission on April 21, 2011, which was its second and later filed Form 8-K on that date).
10.2		Asset Purchase Agreement, dated as of August 23, 2010, between TradeStation Technologies, Inc. and RINA Technologies, LLC (incorporated by reference to Exhibit 10.1 to TradeStation Group’s Current Report on Form 8-K filed with the Commission on August 23, 2010).
10.1		Employment and Management Continuity Agreement, dated as of April 21, 2011, between TradeStation Group, Inc. and Salomon Sredni (incorporated by reference to Exhibit 10.1 to TradeStation Group’s Current Report on Form 8-K filed with the Commission on April 21, 2011, which was its second and later filed Form 8-K on that date).#
31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
32.1		Certification of Chief Executive Officer under 18 U.S.C. §1350.
32.2		Certification of Chief Financial Officer under 18 U.S.C. §1350.

#	Indicates a management contract or compensatory plan or arrangement.

4244

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