Revenues
Net trading revenue increased 121.5% to $771.4 million in 1999, from $348.2 million in 1998. This increase was primarily due to higher trading volume, particularly higher trade volume for OTC securities. Total trade volume increased 121.8% to 90.7 million trades in 1999, from 40.9 million trades in 1998. Total share volume increased 111.1% to 81.0 billion shares traded in 1999, from 38.4 billion shares traded in 1998. Average net revenue per trade was $8.51 per trade in each of 1999 and 1998.

Commissions and fees increased 312.7% to $16.4 million in 1999, from $4.0 million in 1998. This increase is primarily due to higher trade and share volumes from institutional customers in listed securities and the receipt of fees for providing certain information to market data providers.

Interest, net increased 258.6% to $12.9 million in 1999, from $3.6 million in 1998. This increase was primarily due to larger cash balances held at banks and our clearing brokers, primarily as a result of our secondary offering in March 1999, which was offset in part by increased transaction-related interest expense resulting from a higher level of securities sold, not yet purchased and short-term debt outstanding in 1998.

Expenses
Employee compensation and benefits expense increased 123.5% to $242.1 million in 1999, from $108.3 million in 1998. As a percentage of net trading revenue, employee compensation and benefits expense was 31.4% in 1999 and 31.1% in 1998. The increase on a dollar basis was primarily due to increases in gross trading profits, decreases in payments for order flow and execution and clearance costs as a percentage of net trading revenues, and growth in the number of employees. Due to increased net trading revenue and profitability, profitability-based compensation increased 140% to $206.7 million in 1999, from $86.2 million in 1998. The number of employees increased to 615 employees as of December 31, 1999, from 446 employees as of December 31, 1998.

Payments for order flow increased 68.1% to $138.7 million in 1999, from $82.5 million in 1998. As a percentage of net trading revenue, payments for order flow decreased to 18.0% in 1999 from 23.7% in 1998. The increase in payments for order flow on a dollar basis was primarily due to a 111.1% increase in shares traded in 1999 to 81.0 billion shares, up from 38.4 billion in 1998. The decrease in payments for order flow as a percentage of net trading revenue resulted from changes in our order flow payment policy, changes in the mix of market orders versus limit orders and changes in our customer mix.

Execution and clearance fees increased 73.5% to $79.3 million in 1999, from $45.7 million in 1998. As a percentage of net trading revenue, execution and clearance fees decreased to 10.3% in 1999 from 13.1% in 1998. The increase on a dollar basis was primarily due to a 121.8% increase in trades in 1999, which was offset, in part, by a decrease in clearance rates charged by clearing brokers and growth in the volume of OTC securities transactions, which have lower execution costs than transactions in listed securities. The decrease in execution and clearance fees as a percentage of net trading revenue was primarily due to the decrease in clearance rates charged by clearing brokers and growth in the volume of OTC securities transactions.

Communications and data processing expense increased 69.3% to $18.0 million in 1999, from $10.6 million in 1998. This increase was generally attributable to higher trading volumes and an increase in the number of employees.

Depreciation and amortization expense increased 55.1% to $9.1 million in 1999, from $5.9 million in 1998. This increase was primarily due to the purchase of approximately $11.1 million of additional fixed assets and leasehold improvements during 1999 and the amortization of goodwill primarily related to the acquisition of the listed securities market-making businesses of Trimark and Tradetech.

Occupancy and equipment rentals expense increased 66.6% to $9.7 million in 1999, from $5.8 million in 1998. This increase was primarily attributable to additional office space and increased computer equipment lease expense. We occupied 93,687 square feet of office space at December 31, 1999, up from 80,718 square feet of office space at December 31, 1998.

Professional fees increased 100.2% to $6.8 million in 1999, up from $3.4 million in 1998. This increase was primarily due to increased consulting expenses related to our investments in technology, as well as legal fees and other professional fees.

Business development expense increased 279.1% to $9.0 million in 1999, from $2.4 million in 1998. This increase was primarily the result of increased advertising and higher travel and entertainment costs consistent with the growth in our business and our increased focus on the institutional sales business.

Interest on Preferred Units was zero in 1999 due to our redemption of all of the remaining Preferred A and B Units during 1998.

Merger-related expenses primarily consist of investment banking, legal and accounting costs incurred during 1999 in connection with our merger with Arbitrade Holdings LLC. This transaction closed in January 2000.

Other expenses increased 63.7% to $3.4 million in 1999, from $2.1 million in 1998. This was primarily the result of increased administrative expenses and other operating costs in connection with our overall business growth.

Income Tax
Pro forma income tax expense in 1998 for the period prior to the Company's reorganization and initial public offering in July 1998 was determined using an effective tax rate of 42.5%.