Years Ended December 31, 1998 and 1997

Revenues
Net trading revenue increased 55.5% to $348.2 million in 1998, from $223.9 million in 1997. This increase was primarily due to higher trading volume, particularly higher trade volume for OTC securities, which was offset in part by lower average net revenue per trade. Total trade volume increased 101.8% to 40.9 million trades in 1998, from 20.3 million trades in 1997. Total share volume increased 111.7% to 38.4 billion shares traded in 1998, from 18.1 billion shares traded in 1997. Average net revenue per trade decreased 23.0% to $8.51 per trade in 1998, from $11.05 per trade in 1997, principally as a result of the new Order Handling Rules, which were implemented during 1997, and the reduction in the increments by which securities are quoted.

Commissions and fees increased 465.2% to $4.0 million in 1998, from $700,000 in 1997. 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 80.9% to $3.6 million in 1998, from $2.0 million in 1997. This increase was primarily due to larger cash balances held at banks and our clearing brokers, 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.

Expenses
Employee compensation and benefits expense increased 87.2% to $108.3 million in 1998, from $57.9 million in 1997. As a percentage of net trading revenue, employee compensation and benefits expense increased to 31.1% in 1998, from 25.8% in 1997. The increase on a dollar basis and as a percentage of net trading revenue 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 91.6% to $86.2 million in 1998, from $45.0 million in 1997. The number of employees increased to 446 employees as of December 31, 1998, from 317 employees as of December 31, 1997.

Payments for order flow increased 23.3% to $82.5 million in 1998, from $66.9 million in 1997. As a percentage of net trading revenue, payments for order flow decreased to 23.7% in 1998 from 29.9% in 1997. The increase in payments for order flow on a dollar basis was primarily due to a 111.7% increase in shares traded in 1998 to 38.4 billion shares, up from 18.1 billion in 1997. The decrease in payments for order flow as a percentage of total revenue resulted from changes in our order flow payment policy, changes in the mix of market orders versus limit orders, and changes in customer mix.

Execution and clearance fees increased 42.6% to $45.7 million in 1998, from $32.1 million in 1997. As a percentage of net trading revenue, execution and clearance fees decreased to 13.1% in 1998 from 14.3% in 1997. The increase on a dollar basis was primarily due to a 101.8% increase in trades in 1998, 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 55.9% to $10.6 million in 1998, from $6.8 million in 1997. This increase was generally attributable to higher trading volumes and an increase in the number of employees.

Depreciation and amortization expense increased 39.3% to $5.9 million in 1998, from $4.2 million in 1997. This increase was primarily due to the purchase of approximately $8.9 million of additional fixed assets and leasehold improvements during 1998 and the amortization of goodwill related to the acquisition of the listed securities market-making businesses of Trimark and Tradetech.

Occupancy and equipment rentals expense increased 119.5% to $5.8 million in 1998, from $2.7 million in 1997. This increase was primarily attributable to additional office space and increased computer equipment lease expense. We occupied 80,718 square feet of office space at December 31, 1998, up from 56,351 square feet of office space at December 31, 1997.

Professional fees increased 114.8% to $3.4 million in 1998, up from $1.6 million in 1997. 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 54.6% to $2.4 million in 1998, from $1.5 million in 1997. This increase was primarily the result of 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 decreased 63.2% to $715,000 in 1998, from $1.9 million in 1997. This decrease is primarily due to our redemption of all of the remaining Preferred A and B Units during 1998.

Other expenses increased 119.4% to $2.1 million in 1998, from $941,000 in 1997. This was primarily the result of directors' fees, stock granted to directors in connection with the initial public offering and increased administrative expenses and other operating costs in connection with our overall business growth.

Income Tax
Pro forma income tax expense was determined using effective tax rates of 42.5% and 43.0% for 1998 and 1997, respectively.