Holding the Line in Derivative Markets Knight's Derivative Markets business segment returned to operating profitability and maintained market share in 2003 despite industrywide challenges. In the course of our thorough review of this segment we lowered expenses, principally through staff cuts, and reduced rebates. We diversified our revenue stream by expanding our fixed income derivative market making and building a commodity derivative market-making business. To help our broker-dealer clients ensure best execution, we enhanced our proprietary order routing and management technology. At the same time, we increased our offering to our equity derivative clients by establishing an institutional options and exchange traded fund sales trading desk. Our review of Derivative Markets will continue in 2004. Today's heightened market structure dynamics, greater investment demands for technology innovation and increasingly competitive margins continue to test our ability to produce attractive returns. For the short term, we will navigate our course by leveraging our technology investment and trading expertise into a wider array of asset classes, continuing to offer unique services to our clients and controlling the marginal costs of clearing and execution. Establishing Long-Term Plans For Asset Management The most important event in 2003 in our Asset Management segment, Deephaven Capital Management, was the signing of long-term employment contracts with key members of that business' executive management. Deephaven and its market neutral funds have been a major contributor to our operating income, particularly in 2002 and 2003. Deephaven provides a diverse revenue stream compared to more market-sensitive equities and options. In addition, Knight's investment in the funds — which reached $201.1 million at the end of 2003 — generates solid returns for the company. Since Deephaven represents a clear value as part of Knight, and because traditional hedge fund investors are extremely sensitive to management stability, we believe these contracts work in everyone's favor. The Deephaven management team's goal in 2004, in addition to maintaining its strong fund performance record, is to expand its offerings and to grow assets under management by articulating its strengths and strategy to a broader client base than it has in the past. Moving From Foundation To Future Knight's effort to rebuild the company's foundation — all of the hard work I described — was helped by market conditions in 2003. Major indices finished higher through a year that saw investors begin to put more money back into the market. In 2004, we expect that there will be some interesting and potentially positive market structure developments. In late February the SEC asked for comment on a series of market structure proposals, due in late May 2004. The staff is considering changes to the tradethrough rule, the elimination of trading in sub-penny increments, caps on access fees, and adjustments to market data revenue distribution. Knight has always advocated a more level playing field and a competitive environment for the various participants in the market, and we are looking forward to contributing to this dialogue. As we manage through these market structure and other developments, seen and unseen, we look to our board of directors for continued insight and leadership. Over the last year, Knight's board has actively pursued best practices in corporate governance, adding two new independent directors as part of its efforts. Veteran news executive William L. Bolster was named a director in November 2003 after his retirement from CNBC, and former audit partner Thomas C. Lockburner joined the board in February 2004 after more than 40 years at Deloitte & Touche. If 2002 was a year of crisis and change for Knight, 2003 was a year of repair and transition. While hard work turned the company around and the market provided good reinforcement, it was the dedication, trust and loyalty of our employees, clients and shareholders that sustained us through the difficulties of the last few years. With their support, Knight not only produced strong 2003 financial results, but our market capitalization surpassed $1 billion. A company's reputation is, by all means, a hard thing to measure. But a survey from a respected third party indicated that Knight made significant progress. The company received higher scores for three attributes — quality of management, reputation and investment potential. We also know we are making headway because we've expanded our institutional client base and grown our institutional share ownership. These two groups are increasingly converging as our institutional shareholders learn more about Knight's execution capabilities, and our institutional clients recognize Knight's value as an investment. In 2004, we will build on the progress we've made. We also will better define Knight's value — to our clients, and to the marketplace. We will be a significant, long-term player. We believe we have what it takes. Thomas M. Joyce Chief Executive Officer & President Knight Trading Group, Inc. March 31, 2004