UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2005

OR

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

For the transition period from             to             

Commission file number 0-31049

TradeStation Group, Inc.

(Exact name of registrant as specified in its charter)

Florida	65-0977576
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

8050 S.W. 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)

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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

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

As of November 1, 2005, there were 43,409,728 shares of the Registrant’s Common Stock outstanding.

TRADESTATION GROUP, INC. AND SUBSIDIARIES

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheets   September 30, 2005 (unaudited) and December 31, 2004	3
	Consolidated Statements of Income   Three and Nine Months Ended September 30, 2005 and 2004 (unaudited)	4
	Consolidated Statements of Cash Flows   Nine Months Ended September 30, 2005 and 2004 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39
Item 4.	Controls and Procedures	40
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 4.	Submission of Matters to a Vote of Security Holders	41
Item 6.	Exhibits	42
Signature		43

2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TRADESTATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30, 2005		December 31, 2004
	(Unaudited)
ASSETS:
Cash and cash equivalents, including restricted cash of $1,627,497 at September 30, 2005 and $1,911,426 at December 31, 2004	$	47,811,853	$	32,111,235
Cash segregated in compliance with federal regulations		409,756,241		347,094,597
Receivables from brokers, dealers, clearing organizations and clearing agents		30,173,733		19,404,102
Receivables from brokerage customers, net		60,744,299		56,984,622
Property and equipment, net		3,190,459		3,075,186
Prepaid income taxes		1,657,454		—
Deferred income taxes, net		1,237,559		3,811,716
Deposits with clearing organizations and clearing agents		11,254,434		14,498,375
Other assets		3,376,865		2,695,996
Total assets	$	569,202,897	$	479,675,829
LIABILITIES AND SHAREHOLDERS’ EQUITY:
LIABILITIES:
Payables to brokers, dealers and clearing organizations	$	827,612	$	3,089,950
Payables to brokerage customers		490,365,139		420,709,173
Accounts payable		2,382,254		2,204,845
Accrued expenses		5,145,478		4,346,621
Total liabilities		498,720,483		430,350,589
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, 43,409,728 and 41,857,654 shares issued and outstanding at September 30, 2005 and December 31, 2004, respectively		434,097		418,577
Additional paid-in capital		62,837,030		55,421,283
Retained earnings (accumulated deficit)		7,211,287		(6,514,620	)
Total shareholders’ equity		70,482,414		49,325,240
Total liabilities and shareholders’ equity	$	569,202,897	$	479,675,829

See accompanying notes.

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TRADESTATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2005		2004		2005		2004
REVENUES:
Commissions and fees	$	16,183,062	$	13,419,246	$	48,392,825	$	41,569,402
Interest income		6,442,805		1,368,657		15,408,459		3,061,509
Interest expense		1,048,668		113,441		2,548,169		113,441
Net interest income		5,394,137		1,255,216		12,860,290		2,948,068
Net brokerage revenues		21,577,199		14,674,462		61,253,115		44,517,470
Subscription fees and other		2,508,794		2,521,996		7,417,067		7,358,864
Net revenues		24,085,993		17,196,458		68,670,182		51,876,334
OPERATING EXPENSES:
Clearing and execution costs		5,453,374		5,527,725		16,802,994		16,762,562
Data center costs		1,331,807		1,288,722		4,286,159		4,460,869
Technology development		1,983,276		1,833,934		5,896,998		5,592,309
Sales and marketing		3,456,273		2,905,573		10,100,713		8,224,629
General and administrative		3,524,038		2,810,780		10,390,117		7,952,035
Total operating expenses		15,748,768		14,366,734		47,476,981		42,992,404
Income from operations		8,337,225		2,829,724		21,193,201		8,883,930
OTHER INCOME, net		539,064		77,946		1,067,800		202,834
Income before income taxes		8,876,289		2,907,670		22,261,001		9,086,764
INCOME TAX PROVISION (BENEFIT)		3,606,086		1,075,269		8,535,094		(2,053,311	)
Net income	$	5,270,203	$	1,832,401	$	13,725,907	$	11,140,075
EARNINGS PER SHARE:
Basic	$	0.12	$	0.04	$	0.32	$	0.27
Diluted	$	0.12	$	0.04	$	0.31	$	0.25
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		43,147,365		41,728,054		42,396,269		41,613,718
Diluted		44,481,956		44,119,043		43,870,783		44,320,478

See accompanying notes.

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TRADESTATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	13,725,907		$	11,140,075
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		1,330,390			1,529,132
Tax benefit on exercise of stock options		3,701,521			3,590,378
Deferred income tax provision (benefit)		2,574,157			(2,202,678	)
Gain on exchange membership transaction		(123,320	)		—
(Increase) decrease in:
Cash segregated in compliance with federal regulations		(62,661,644	)		(352,080,555	)
Receivables from brokers, dealers, clearing organizations and clearing agents		(10,769,631	)		(22,484,902	)
Receivables from brokerage customers		(3,759,677	)		(46,641,685	)
Prepaid income taxes		(1,657,454	)		—
Deposits with clearing organizations and clearing agents		3,243,941			(9,030,790	)
Other assets		(708,647	)		(4,461,274	)
Increase (decrease) in:
Payables to brokers, dealers and clearing organizations		(2,262,338	)		(226,843	)
Payables to brokerage customers		69,655,966			418,287,837
Accounts payable		177,409			113,348
Accrued expenses		801,910			(529,629	)
Net cash provided by (used in) operating activities		13,268,490			(2,997,586	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(1,442,885	)		(1,009,172	)
Decrease in restricted cash		238,929			238,928
Proceeds from exchange membership transaction		148,320			—
Acquisition of exchange memberships		—			(415,000	)
Proceeds from maturity of marketable securities		—			1,997,060
Net cash (used in) provided by investing activities		(1,055,636	)		811,816
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		3,729,746			796,132
Repayment of capital lease obligations		(3,053	)		(182,149	)
Net cash provided by financing activities		3,726,693			613,983
NET INCREASE (DECREASE) IN UNRESTRICTED CASH AND CASH EQUIVALENTS		15,939,547			(1,571,787	)
UNRESTRICTED CASH AND CASH EQUIVALENTS, beginning of period		30,199,809			28,334,875
UNRESTRICTED CASH AND CASH EQUIVALENTS, end of period	$	46,139,356		$	26,763,088
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	2,557,392		$	121,291
Cash paid for income taxes	$	3,952,868		$	23,960

See accompanying notes.

5

TRADESTATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All notes and related disclosures applicable to the

three and nine months ended September 30, 2005 and 2004 are unaudited)

(1) NATURE OF OPERATIONS AND BASIS OF PRESENTATION

TradeStation Group, Inc. (the “Company”) is listed on The Nasdaq National Market under the symbol “TRAD.” TradeStation Securities, Inc. and TradeStation Technologies, Inc. are TradeStation Group’s two operating subsidiaries. TradeStation Securities is a securities broker-dealer and futures commission merchant. TradeStation Technologies develops and offers strategy trading software tools and subscription services.

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, 2004. 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 30, 2005 and the consolidated results of operations and cash flows for each of the periods presented have been recorded. Certain prior period amounts have been reclassified to conform to the current period presentation as a result of the Company commencing self-clearing of equities trades for its active trader client base in September 2004 and the related increase of brokerage interest income and interest expense in 2005. 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.

Recently Issued Accounting Standards

In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 154, Accounting Changes and Error Corrections, which is a replacement of Accounting Principles Board (“APB”) Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154 provides guidance on accounting for and reporting of accounting changes and error corrections. It requires a voluntary change in accounting principle to be applied retrospectively to all prior periods’ financial statements as if the principle had always been applied. Previously, voluntary changes in accounting principles were required to be recognized by including, in net income of the period of change, the cumulative effect of changing to the new accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company presently has no plans to adopt a voluntary change in accounting principle, and is not aware of any errors in its financial statements that would require correction; therefore, the Company believes that the adoption of SFAS No. 154 will not have an effect on the Company’s consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”), which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. In April 2005, the Securities and Exchange Commission (“SEC”) announced a deferral of the effective date of SFAS 123(R) for calendar year companies until the beginning of 2006. The Company expects to adopt SFAS 123(R) on January 1, 2006, but has not yet determined if it will use the modified-prospective method or the modified-retrospective

6

method. As permitted by SFAS No. 123, the Company currently accounts for share-based payments to employees using the intrinsic value method in accordance with the recognition and measurement principles of APB Opinion No. 25, and, as such, generally recognizes no compensation cost for employee stock options, as options granted under the Company’s plans have an exercise price equal to the fair value of the underlying common stock on the date of grant. Accordingly, the adoption of SFAS 123(R)’s fair value method may have a significant impact on the Company’s consolidated results of operations, although it will have no impact on the Company’s overall consolidated financial position. The impact of adoption of SFAS 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had the Company adopted SFAS 123(R) in prior periods, the impact of that standard would have been approximately as described in the disclosure of pro forma net income and earnings per share in Note 2 – STOCK BASED COMPENSATION – PRO FORMA NET INCOME. SFAS 123(R) also requires the benefits of tax deductions in excess of recognized compensation costs to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While the Company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized as a result of tax deductions in excess of recognized compensation costs during the nine months ended September 30, 2005 and 2004 was approximately $3.7 million and $3.6 million, respectively.

(2) STOCK-BASED COMPENSATION – PRO FORMA NET INCOME

In accordance with SFAS No. 123, in accounting for stock-based transactions with non-employees the Company records compensation expense in the statement of income when such equity instruments are issued. There were no stock-based transactions with non-employees during the nine months ended September 30, 2005 or 2004; therefore, no such compensation expense was recorded.

As currently permitted by SFAS No. 123, the Company accounts for its stock-based transactions with employees using the intrinsic value method proscribed by APB Opinion No. 25. Under this method, compensation is generally not required to be recognized as all options granted under the Company’s plans have an exercise price equal to the fair value of the underlying common stock on the date of grant.

The following table illustrates the pro forma effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee transactions.

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2005			2004			2005			2004
Net income, as reported	$	5,270,203		$	1,832,401		$	13,725,907		$	11,140,075
Deduct: Stock-based employee compensation under the fair value method for all awards, net of tax impact		(242,055	)		(261,747	)		(757,887	)		(886,884	)
Pro forma net income	$	5,028,148		$	1,570,654		$	12,968,020		$	10,253,191
Earnings per share:
Basic, as reported	$	0.12		$	0.04		$	0.32		$	0.27
Diluted, as reported	$	0.12		$	0.04		$	0.31		$	0.25
Basic, pro forma	$	0.12		$	0.04		$	0.31		$	0.25
Diluted, pro forma	$	0.11		$	0.04		$	0.30		$	0.23

7

The fair value of each option grant is estimated on the date of grant using the Black-Scholes model with the following assumptions:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2005		2004		2005		2004
Risk free interest rate	4	%	3	%	3	%	3	%
Dividend yield	—		—		—		—
Volatility factor	53	%	63	%	62	%	63	%
Weighted average life (years)	4		4		4		4

When the Company adopts SFAS 123(R), currently scheduled for the beginning of 2006, the Company will include the expenses associated with share-based transactions with its employees in the consolidated statements of income. See Note 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION – Recently Issued Accounting Standards.

(3) EARNINGS PER SHARE

Weighted average shares outstanding for the three and nine months ended September 30, 2005 and 2004 are calculated as follows:

	For the Three Months Ended September 30,		For the Nine Months Ended September 30,
	2005	2004	2005	2004
Weighted average shares outstanding (basic)	43,147,365	41,728,054	42,396,269	41,613,718
Impact of dilutive stock options after applying the treasury stock method	1,334,591	2,390,989	1,474,514	2,706,760
Weighted average shares outstanding (diluted)	44,481,956	44,119,043	43,870,783	44,320,478

Stock options outstanding, which were not included in the calculation of diluted earnings per share because their weighted average effect would have been anti-dilutive (as their exercise prices exceeded the average market price of the common stock during the period), are presented below.

	For the Three Months Ended September 30,		For the Nine Months Ended September 30,
	2005	2004	2005	2004
Stock options	78,625	1,343,089	78,625	792,553

(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. Comprehensive income equals net income for all periods presented.

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(5) RECEIVABLES FROM BROKERAGE CUSTOMERS, NET

Receivables from brokerage customers, net, consist primarily of margin loans to TradeStation Securities’ brokerage customers of $60.7 million (net of a $221,000 allowance for a potential credit loss) and $57.0 million (net of a $209,000 allowance for a potential credit loss) at September 30, 2005 and December 31, 2004, respectively. Securities owned by brokerage customers are held as collateral for margin loans. Such collateral is not reflected in the consolidated financial statements. At September 30, 2005 and December 31, 2004, TradeStation Securities was charging a base margin debit interest rate of 8.125% and 6.375% per annum, respectively, on debit balances in brokerage customer accounts.

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

In September 2004, a sudden, adverse price movement in a stock for which a brokerage client account held a concentrated short position resulted in an unsecured net debit in that account of approximately $207,000 (subsequent interest charges have been recorded). TradeStation Securities has filed an NASD arbitration demand to try to collect this unsecured debit, but no assurance can be given that any of this unsecured debit will be collected. At September 30, 2005 and December 31, 2004, a full allowance was recorded for this unsecured debit (including subsequent interest charges). See Note 10 – COMMITMENTS AND CONTINGENCIES – General Contingencies and Guarantees.

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

Amounts receivable from brokers, dealers, clearing organizations and clearing agents consist of the following as of September 30, 2005 and December 31, 2004:

	September 30, 2005		December 31, 2004
Securities borrowed from broker-dealers	$	29,501,457	$	18,614,800
Fees and commissions receivable from clearing agents and other		672,276		789,302
	$	30,173,733	$	19,404,102

Securities borrowed transactions 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 10 – COMMITMENTS AND CONTINGENCIES – General Contingencies and Guarantees.

9

TradeStation Securities services its institutional equities accounts through Bear, Stearns Securities Corp. on a fully-disclosed basis. Futures trades are cleared through R.J. O’Brien & Associates, and forex trades, through July 15, 2005, were cleared through R.J. O’Brien Foreign Exchange, each on a fully-disclosed basis. Subsequent to July 15, 2005, forex trades have been cleared through Gain Capital Group, Inc. on a fully-disclosed basis (Bear, Stearns Securities Corp., R.J. O’Brien & Associates, R.J. O’Brien Foreign Exchange, and Gain Capital Group, Inc. are collectively referred to as “clearing agents” or “clearing agent firms”). These clearing agents provide services, handle TradeStation Securities’ customers’ funds, hold securities, futures and forex positions, and remit monthly activity statements to the customers on behalf of TradeStation Securities.

(7) PAYABLES TO BROKERS, DEALERS AND CLEARING ORGANIZATIONS

Amounts payable to brokers, dealers and clearing organizations consist of the following as of September 30, 2005 and December 31, 2004:

	September 30, 2005		December 31, 2004
Payables to clearing organizations for unsettled trades	$	754,333	$	2,850,402
Other		73,279		239,548
	$	827,612	$	3,089,950

(8) PAYABLES TO BROKERAGE CUSTOMERS

Amounts payable to brokerage customers consist of the following as of September 30, 2005 and December 31, 2004:

	September 30, 2005		December 31, 2004
Cash balances in brokerage customer accounts	$	489,825,756	$	420,173,601
Customer credits and other		539,383		535,572
	$	490,365,139	$	420,709,173

Cash balances in brokerage customer accounts are the principal source of funding for margin lending. At September 30, 2005 and December 31, 2004, TradeStation Securities was paying interest at a rate of 1.125% and 0.75% per annum, respectively, on cash balances in excess of $10,000 in brokerage customer accounts.

(9) NET CAPITAL REQUIREMENTS

TradeStation Securities is subject to the net capital requirements of the SEC’s Uniform Net Capital Rule (Rule 15c3-1) and the Commodity Futures Trading Commission’s financial requirement (Regulation 1.17). TradeStation Securities calculates its net capital requirements using the “alternative method,” which requires the maintenance of minimum net capital, as defined by the rules, equal to the greater of (i) $250,000 and (ii) 2.0% of aggregate customer debit balances. Customer debit items are a function of customer margin receivables and may fluctuate significantly, resulting in a significant fluctuation in our net capital requirements. At September 30, 2005, TradeStation Securities had net capital of approximately $31.1 million (32.8% of aggregate debit items), which was approximately $29.2 million in excess of its required net capital. At December 31, 2004, TradeStation Securities had net capital of approximately $23.6 million (27.0% of aggregate debit items), which was approximately $21.8 million in excess of its required net capital.

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(10) COMMITMENTS AND CONTINGENCIES

Restricted Cash

At September 30, 2005 and December 31, 2004, the Company had $1.7 million and $1.9 million of restricted cash, respectively, supporting a ten-year lease agreement for its corporate headquarters.

Line of Credit and Guarantee

In June 2005, TradeStation Securities entered into a loan agreement for a revolving credit facility which the Company has guaranteed. The revolving credit facility provides for borrowings up to $10 million, expires on its first anniversary (June 16, 2006) if not renewed, and is payable on demand. The credit facility is available for TradeStation Securities’ short-term working capital needs. Borrowings under the credit facility bear interest at the LIBOR Market Index Rate plus 1.7%, (5.6% as of September 30, 2005) and the outstanding balance must be paid down to a maximum balance of $1,000 on at least five days each month. Accrued interest is payable monthly. There is an unused line of credit fee equal to 25 basis points per annum on the average daily unused available principal balance for the preceding calendar quarter, which shall be waived if the Company and/or any of its subsidiaries maintain, in the aggregate, on average during a quarterly period, over $1 million of deposits with the counter-party during the first year and, if renewed, over $10 million thereafter. There have not been any borrowings under this line of credit and the Company has not incurred any unused line of credit fees.

Operating Leases

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

In addition to its corporate headquarters, the Company has four non-cancelable operating leases for facilities (including two data centers) with expirations ranging from April 2006 to July 2007. In addition to the leases for facilities, the Company leases certain office equipment. Future minimum lease payments as of September 30, 2005, under all operating leases, are as follows:

	Gross Payments		Sublease Rentals			Net Payments
2005	$	682,795	$	(64,709	)	$	618,086
2006		2,530,557		(264,689	)		2,265,868
2007		1,978,402		(45,163	)		1,933,239
2008		1,867,935		—			1,867,935
2009		1,904,344		—			1,904,344
Thereafter		5,260,138		—			5,260,138
	$	14,224,171	$	(374,561	)	$	13,849,610

Total rent expense for the three months ended September 30, 2005 and 2004 was approximately $765,000 and $776,000, respectively. Total rent expense for the nine months ended September 30, 2005 and 2004 was approximately $2.4 million and $2.7 million, respectively.

Purchase Obligations

As of September 30, 2005, the Company had various purchase obligations through September 2007 of approximately $482,000, $1.1 million and $490,000 for the remainder of 2005, 2006 and 2007, respectively, related primarily to back office systems and telecommunications services.

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Litigation and Claims

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

TradeStation Securities is also engaged in routine regulatory matters and civil litigation or other dispute resolution proceedings, including matters relating to NASD OATS reporting, NYSE OTS reporting, short sales procedures, and NASD arbitrations, incidental to, and part of the ordinary course of, its business. The OATS reporting, OTS reporting and short sale procedures matters could ultimately result in censures and fines. As of the date of the Company’s last quarterly report, three NASD arbitrations were pending against the Company seeking, in the aggregate, tens of millions of dollars of actual and punitive damages. In one of those cases, the arbitrators awarded the claimants $196,000 (inclusive of interest) and in another of those cases the claims were settled for $100,000. The remaining pending arbitration is set for hearing in January 2006, and the Company believes the claims made in that case are baseless.

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.

Beginning June 1, 2002, the Company has not carried 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.

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General Contingencies and Guarantees

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

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

TradeStation Securities seeks to manage the risks associated with its customers’ activities by requiring customers to maintain collateral in their margin accounts in compliance with various regulatory requirements, internal requirements, and the requirements of clearing agents. TradeStation Securities and its clearing agents monitor required margin levels on an intra-day basis and, pursuant to such guidelines, require the customers to deposit additional collateral or to reduce positions when necessary. For further discussion, see Note 5 – 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 amount of cash deposited as collateral. In the event the counterparty to these transactions does not return the cash deposited, TradeStation Securities may be exposed to the risk of selling the securities at prevailing market prices. TradeStation Securities seeks to manage this risk by requiring credit approvals for counterparties, by monitoring the collateral values on a daily basis, and by requiring additional collateral as needed.

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

TradeStation Securities provides guarantees to its clearing organization and exchanges under their standard membership agreements, which require members to guarantee the performance of other members. Under the agreements, if another member becomes unable to satisfy its obligations to the clearing organization or exchange, other members would be required to meet shortfalls. TradeStation Securities’ liability under these arrangements is not quantifiable and may exceed the cash and securities it has posted as collateral. However, 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.

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(11) INCOME TAXES

During the three and nine months ended September 30, 2005, the Company recorded an income tax provision of $3.6 million and $8.5 million, respectively, based upon its current estimated annual effective income tax rate of approximately 38%, certain deferred income tax net adjustments and final reconciliation of the Company’s 2004 federal and state income tax returns. During the three and nine months ended September 30, 2004, the Company recorded an income tax provision of $1.1 million and an income tax net benefit of $2.1 million, respectively. In 2004, income taxes were based upon an estimated annual effective income tax rate of 37%. For the nine months ended September 30, 2004, the income tax provision was more than offset by the reversal of a significant portion of a valuation allowance on deferred income tax assets (see below).

As of September 30, 2005 and December 31, 2004, the Company had net deferred income tax assets of $1.2 million and $3.8 million, respectively, which included a valuation allowance of $926,500 as of both dates. In accordance with SFAS No. 109, Accounting for Income Taxes, deferred income tax assets should be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred income tax assets will not be realized. In June 2004, the Company reversed a significant portion of the valuation allowance that was previously provided on its deferred income tax assets, because, in the opinion of management, it was more likely than not that those benefits would be realized. Management evaluates and determines, on a periodic basis, the amount of the valuation allowance required and adjusts the valuation allowance, as needed. The June 2004 decision to reverse a significant portion of the valuation allowance was based on several factors, including TradeStation Securities receiving final approval of the Depository Trust & Clearing Corporation to begin self-clearing for equities, the rollout of TradeStation 8 (which included integrated options execution), and eight consecutive quarters of income from operations. In the 2004 second quarter, the result of this reversal was an income tax net benefit of $3.2 million recorded in the consolidated statement of income and a $3.3 million credit to additional paid-in capital (relating to the tax benefit of stock option exercises).

As of September 30, 2005, the Company estimates, for federal income tax purposes, that it has net operating loss carryforwards of approximately $3.0 million (expiring in 2019) and income tax credits of approximately $124,000 (expiring in 2010 through 2019) related to a 1999 acquisition. Since the deferred income tax assets related to these net operating loss carryforwards and income tax credits are subject to annual usage limitations of $545,000, the Company continues to maintain a $926,500 valuation allowance pertaining to these assets. The valuation allowance represents approximately the last five years of the annual limitation amount, due to the Company’s inability to estimate taxable income that far into the future. Additionally, for Florida state income tax purposes, as of September 30, 2005, the Company estimates that it has net operating loss carryforwards of approximately $3.2 million (expiring in 2020 through 2023), of which the benefit has been recorded through additional-paid-in capital (relating to the tax benefit of stock option exercises).

In April 2005, a letter from the Internal Revenue Service was received notifying the Company that its federal income tax return for the year ended December 31, 2003 has been selected for examination. Management believes this examination, which is currently in progress, to be a routine examination in the ordinary course. While no assurances can be given, the Company believes that this examination will not have a material impact on the Company’s financial position or results of operations.

(12) SEGMENT AND RELATED INFORMATION

For the three and nine months ended September 30, 2005 and 2004, TradeStation Group operated in two principal business segments: (i) brokerage services; and (ii) software products and services. The Company evaluates the performance of its segments based on revenue and operating income. The brokerage services segment represents the operations of TradeStation Securities and the software products and services segment represents the operations of TradeStation Technologies.

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	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2005			2004			2005			2004
Revenues:
Brokerage services	$	21,630,465		$	14,728,443		$	61,476,532		$	44,731,908
Software products and services		7,804,903			6,997,765			22,343,900			19,506,426
Eliminations		(5,349,375	)		(4,529,750	)		(15,150,250	)		(12,362,000	)
	$	24,085,993		$	17,196,458		$	68,670,182		$	51,876,334
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2005			2004			2005			2004
Income from operations:
Brokerage services	$	4,495,620		$	(285,725	)	$	11,489,556		$	1,839,021
Software products and services		3,841,605			3,115,449			9,703,645			7,044,909
	$	8,337,225		$	2,829,724		$	21,193,201		$	8,883,930

	As of September 30, 2005		As of December 31, 2004
Identifiable assets:
Brokerage services	$	538,116,793	$	457,181,965
Software products and services		31,086,104		22,493,864
	$	569,202,897	$	479,675,829

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

This discussion should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements of TradeStation Group and its subsidiaries contained herein. The results of operations for an interim period are not necessarily indicative of results for the year, or for any subsequent period.

Overview and Recent Developments

TradeStation Securities, a leading online brokerage firm serving the active trader and certain institutional trader markets, is the company’s principal operating subsidiary. TradeStation Securities is a registered broker-dealer and futures commission merchant, and a member of the National Association of Securities Dealers (“NASD”), New York Stock Exchange (“NYSE”), Securities Investor Protection Corporation (“SIPC”), National Futures Association (“NFA”), National Securities Clearing Corporation and the Depository Trust Company (together, the Depository Trust & Clearing Corporation or “DTCC”), Options Clearing Corporation (“OCC”), American Stock Exchange (“AMEX”), Archipelago Exchange (“ArcaEx” or “ARCX”), Boston Options Exchange (“BOX”), Chicago Board Options Exchange (“CBOE”), Eurex US, International Securities Exchange (“ISE”), Pacific Exchange (“PCX”) and Philadelphia Stock Exchange (“PHLX”). TradeStation Securities’ business is also subject to the rules and requirements of the Securities and Exchange Commission (“SEC”), Commodity Futures Trading Commission (“CFTC”) and state regulatory authorities.

TradeStation Securities’ core brokerage service is the TradeStation electronic trading platform, which is focused on rule-based trading. The TradeStation electronic trading platform seamlessly integrates powerful strategy trading software tools, historical and streaming real-time market data, and “intelligent” direct-access order-routing and execution. Direct-access trading means, with respect to equities, equity options and futures transactions, direct Internet connections to electronic marketplaces. These include, for stocks and Exchange Traded Funds (ETF’s), electronic communication networks (ECN’s), ARCX, SuperDOT (for listed securities) and Nasdaq Market Center (for Nasdaq and listed securities), for futures, electronic futures exchanges such as the Chicago Mercantile Exchange’s (CME’s) Globex and the Chicago Board of Trade’s (CBOT’s) eCBOT, and, for equity options, electronic options exchanges offered by the AMEX, BOX, CBOE, ISE, PCX and PHLX. In each of these electronic marketplaces, anonymous buyers and sellers participating on the network are matched, often instantaneously following the placement of their orders. In addition to strategy trading tools, real-time market data and direct-access order execution, the TradeStation electronic trading platform offers state-of-the-art advanced order placement functions, unique automated and manual order placement capabilities, and numerous advanced charting and analytics features. A formal patent application covering the TradeStation electronic trading platform has been filed with the United States Patent and Trademark Office.

TradeStation Securities’ brokerage revenues consist of transactional commissions and fees, interest derived from customer balances and margin lending to customers, and monthly platform fees. Given the growth of customer accounts, customer account balances and the rise in interest rates over the past several months, we now report interest income separately as a component of brokerage revenues. With respect to monthly platform fees (a $99.95 charge made to less active brokerage customers for being granted access to use the TradeStation trading platform), effective September 1, 2005 we launched a strategic marketing initiative which reduced materially the trading activity thresholds that need to be met to qualify for a waiver of the monthly platform fee. During September 2005, this threshold reduction decreased monthly revenues by approximately $250,000 and monthly net income by approximately $155,000. No assurances can be given that material offsetting benefits will be achieved.

We recently launched two other strategic marketing initiatives (each to be effective December 1, 2005) designed mainly to accelerate growth in our futures business. The first initiative, designed to attract high-volume futures traders, is the change from our current one-price-fits-all futures commission

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structure to a tiered commission structure that rewards more active traders with lower pricing. Under this new pricing structure, the commission that will be charged over the applicable exchange fee will range from $1.20 down to 25 cents per contract (per side). Also, we currently charge an all-in-one futures commission that includes both exchange and brokerage fees. Under the new plan, these charges will be unbundled, so that the customer will pay the applicable exchange fees for the contracts traded, plus the tiered TradeStation fees applicable to that customer. This will enable customers to see how much each exchange charges for trades, and to better understand and take advantage of reduced fees for exchange members. The second initiative is to further reduce the trading activity thresholds futures, forex and equity options customers need to meet to qualify for a waiver of the monthly platform fee. These two marketing initiatives, assuming no offsetting benefits, are estimated to reduce monthly revenues by approximately $310,000 and monthly net income by approximately $200,000, beginning in December 2005. No assurances can be given that material offsetting benefits will be achieved for either of these new initiatives.

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

Clearing operations include the confirmation, settlement, delivery and receipt of securities and funds and record-keeping functions involved in the processing of securities transactions. As the clearing broker for its equities active trader client base, TradeStation Securities maintains custody and control over the assets in those clients’ accounts and provides the following back office functions: maintaining customer accounts; extending credit in a margin account to the customer; settling security transactions with the DTCC (for stocks) and the OCC (for options); settling commissions and clearing fees; preparing customer trade confirmations and statements; performing designated cashier functions, including the delivery and receipt of funds and securities to or from the customer; possession or control of customer securities, safeguarding customer funds, transmitting tax accounting information to the customer and to the applicable tax authorities; and forwarding prospectuses, proxies and other shareholder information to customers.

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As of September 30, 2005, TradeStation Securities had 22,341 equities, futures and forex accounts (the vast majority of which were equities and futures accounts), an increase of 35%, as compared to 16,496 accounts as of September 30, 2004. The following table presents, for the periods indicated, certain brokerage metrics and account information:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2005		2004		% Change		2005		2004		% Change
Trading Days		64.0		64.0	N.M.			189.0		188.0	N.M.
Daily average revenue trades (DARTs)		41,206		31,035	33	%		40,712		32,778	24	%
Client Trading Activity – Per Account
Annualized trades		480		495	(3	)%		506		573	(12	)%
Annualized net brokerage revenue	$	3,929	$	3,644	8	%	$	4,028	$	4,138	(3	)%

	As of September 30,
	2005		2004		% Change
Client Account Information
Total brokerage accounts		22,341		16,496	35	%
Average assets per account – equities	$	84,588	$	98,006	(14	)%
Average assets per account – futures	$	19,046	$	20,231	(6	)%

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

We also provide via our technologies subsidiary, TradeStation Technologies, subscription services. The subscription version of TradeStation is an institutional-quality service that offers strategy trading software tools that generate real-time buy and sell alerts based upon the subscriber’s programmed strategies, but does not include order execution. Subscribers are charged a monthly subscription fee.

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Results of Operations

For the three months ended September 30, 2005 and 2004, 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 the software products and services segment represents the operations of TradeStation Technologies. The following table presents, for the periods indicated, certain items in our consolidated statements of income broken down by segment:

	Three Months Ended September 30, 2005									Three Months Ended September 30, 2004
	Brokerage Services		Software Products And Services		Eliminations			Total		Brokerage Services			Software Products And Services		Eliminations			Total
	(In thousands)									(In thousands)
Revenues:
Commissions and fees	$	16,183	$	—	$	—		$	16,183	$	13,419		$	—	$	—		$	13,419
Interest income		6,443		—		—			6,443		1,368			—					1,368
Interest expense		1,049		—		—			1,049		113			—		—			113
Net interest income		5,394		—		—			5,394		1,255			—		—			1,255
Net brokerage revenues		21,577		—		—			21,577		14,674			—		—			14,674
Subscriptions and other		53		7,805		(5,349	)		2,509		54			6,998		(4,530	)		2,522
Net revenues		21,630		7,805		(5,349	)		24,086		14,728			6,998		(4,530	)		17,196
Operating expenses:
Clearing and execution costs		5,453		—		—			5,453		5,528			—		—			5,528
Data center costs		5,681		1,000		(5,349	)		1,332		4,607			1,212		(4,530	)		1,289
Technology development		450		1,533		—			1,983		384			1,450		—			1,834
Sales and marketing		3,332		125		—			3,457		2,863			42		—			2,905
General and administrative		2,219		1,305		—			3,524		1,632			1,178		—			2,810
Total operating expenses		17,135		3,963		(5,349	)		15,749		15,014			3,882		(4,530	)		14,366
Income from operations	$	4,495	$	3,842	$	—		$	8,337	$	(286	)	$	3,116	$	—		$	2,830
	Nine Months Ended September 30, 2005									Nine Months Ended September 30, 2004
	Brokerage Services		Software Products And Services		Eliminations			Total		Brokerage Services			Software Products And Services		Eliminations			Total
	(In thousands)									(In thousands)
Revenues:
Commissions and fees	$	48,393	$	—	$	—		$	48,393	$	41,569		$	—	$	—		$	41,569
Interest income		15,408		—		—			15,408		3,061			—		—			3,061
Interest expense		2,548		—		—			2,548		113			—		—			113
Net interest income		12,860		—		—			12,860		2,948			—		—			2,948
Net brokerage revenues		61,253		—		—			61,253		44,517			—		—			44,517
Subscriptions and other		223		22,344		(15,150	)		7,417		215			19,506		(12,362	)		7,359
Net revenues		61,476		22,344		(15,150	)		68,670		44,732			19,506		(12,362	)		51,876
Operating expenses:
Clearing and execution costs		16,803		—		—			16,803		16,762			—		—			16,762
Data center costs		16,133		3,303		(15,150	)		4,286		13,036			3,787		(12,362	)		4,461
Technology development		1,346		4,551		—			5,897		1,153			4,439		—			5,592
Sales and marketing		9,865		236		—			10,101		7,870			355		—			8,225
General and administrative		5,839		4,551		—			10,390		4,072			3,880		—			7,952
Total operating expenses		49,986		12,641		(15,150	)		47,477		42,893			12,461		(12,362	)		42,992
Income from operations	$	11,490	$	9,703	$	—		$	21,193	$	1,839		$	7,045	$	—		$	8,884

Critical Accounting Policies and Estimates

Our significant accounting policies are described in Note 1 of Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K of TradeStation Group for the year ended December 31, 2004 – DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

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Net Brokerage Revenues. Net brokerage revenues is the key component of our results of operations and is comprised mainly of (i) commissions for securities, futures and forex transactions and monthly platform fees earned from brokerage customers using the TradeStation online trading platform, and (ii) net interest income derived from our customer account balances and margin lending to customers through either our custody of, and lending to, those accounts or interest revenue-sharing arrangements with our clearing agent firms. Brokerage commissions and related clearing costs are recorded on a trade date basis as transactions occur. Platform fees are recorded on an accrual basis as monthly services are provided. Interest income from customer margin debit balances and customer cash balances, and interest expense incurred on customer cash balances, are recorded on an accrual basis as interest is earned or incurred.

Income Taxes. As of September 30, 2005 and December 31, 2004, we had net deferred income tax assets of $1.2 million and $3.8 million, respectively, which included a valuation allowance of $926,500 as of both dates. In accordance with SFAS No. 109, Accounting for Income Taxes, deferred income tax assets should be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Management evaluates and determines on a periodic basis the amount of the valuation allowance required and adjusts the valuation allowance as needed. In June 2004, we reversed a significant portion of the valuation allowance that was provided on our deferred income tax assets. In the opinion of management, it was more likely than not that these benefits would be realized. This decision was triggered primarily by TradeStation Securities receiving final approval by the DTCC to begin self-clearing for equities, the rollout of TradeStation 8 (which included integrated options execution), as well as eight consecutive quarters of income from operations at the end of the 2004 second quarter. The result of this reversal, as recorded in the 2004 second quarter, was an income tax net benefit of $3.2 million recorded in the consolidated statement of income and a $3.3 million credit to additional paid-in capital (relating to the tax benefit of stock option exercises). The remaining valuation allowance of $926,500 relates to net operating loss carryforwards and income tax credits from a 1999 acquisition. We did not reverse the remaining $926,500 valuation allowance as the acquired net operating loss carryforwards (expiring in 2019) and income tax credits (expiring in 2010 through 2019) were subject to annual usage limitations. The portion which was not reversed represents approximately the last five years of the annual limitation amount, due to the inability to estimate taxable income that far into the future. Management will continue to make periodic evaluations of the valuation allowance and will determine periodic adjustments, as required. See “Income Taxes” below, and Note 11 of Notes to Consolidated Financial Statements – INCOME TAXES.

Allowance for Potential Credit Losses. We perform periodic credit evaluations and provide allowances based upon our assessment of specifically identified unsecured receivables and other factors, including the customer’s likelihood to pay and payment history. As of September 30, 2005 and December 31, 2004, we had an allowance for potential credit losses of $221,000 and $209,000, respectively. See Note 5 of Notes to Consolidated Financial Statements – RECEIVABLES FROM BROKERAGE CUSTOMERS, NET, and Note 10 – COMMITMENTS AND CONTINGENCIES – General Contingencies and Guarantees.

Uninsured Loss Reserves. Beginning June 1, 2002, we have not carried errors or omissions insurance that covers third-party claims made by brokerage customers or software subscribers as a result of alleged human or system errors, failures, acts or omissions. This decision was made based upon our assessment of the potential risks and benefits, including significant increases in premium rates, deductibles and coinsurance amounts, reductions in available per occurrence and aggregate coverage amounts, and the unavailability of policies that sufficiently cover the types of risks that relate to our business. Each quarter, we continue to evaluate our accruals for settlements related to claims and potential claims. Estimates of settlements for such potential claims, including related legal fees, are accrued in the consolidated financial statements. The ultimate outcome of such potential claims may be substantially different than our estimates. During the three and nine months ended September 30, 2005, we recorded $296,000 of expenses primarily as a result of the final resolution of two unreserved customer claims (one an arbitration award, one a settlement) initiated in prior periods. During the nine months ended September 30, 2004, we reversed $569,000 of our accruals related to a third-party claim which had been

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inactive for over one year (and has remained inactive since that time). See “Three and Nine months ended September 30, 2005 and 2004 — Brokerage Services Segment – Operating Expenses – General and Administrative.”

Sublease of Facilities. During the second quarter of 2002, we completed the consolidation of our Florida operations to one location. Based upon advice from our outside real estate advisors, using market factors available at the time, we estimated the potential losses relating to the sublease of facilities that we would no longer occupy. During the three and nine months ended September 30, 2005 and 2004, there were no increases in our estimated loss accrual based on current market factors and actual sublease arrangements. Net payments of $112,000 and $159,000 were applied against this accrual during the nine months ended September 30, 2005 and 2004, respectively, resulting in a balance of $208,000 as of September 30, 2005.

Three months ended September 30, 2005 and 2004

Overall

Net revenues were $24.1 million for the three months ended September 30, 2005, as compared to $17.2 million for the three months ended September 30, 2004, an increase of $6.9 million, or 40%, due to increases in net brokerage interest income of $4.1 million and brokerage commissions and fees of $2.8 million.

Income from operations was $8.3 million for the three months ended September 30, 2005, as compared to $2.8 million for the three months ended September 30, 2004, an improvement of approximately $5.5 million, or 195%. This improvement was due primarily to increased net brokerage revenues (net interest income and commissions and fees) and improved margins related to the self-clearing of equities and options, partially offset by increases in general and administrative expenses of $714,000, increases in sales and marketing expenses of $552,000 and increases in technology development expenses of $149,000.

Other income, net consists primarily of corporate interest income earned on our cash and cash equivalents, partially offset by bank charges and, to a lesser extent, interest expense (if any) related to capital lease obligations. Other income, net was $539,000 for the three months ended September 30, 2005, as compared to $78,000 for the three months ended September 30, 2004. The increase of $461,000 was primarily increased interest income of $351,000 (due to higher average cash balances and higher interest rates) and, to a lesser extent, income earned from an exchange membership transaction.

For the three months ended September 30, 2005, we recorded an income tax provision of $3.6 million, as compared to an income tax provision of $1.1 million for the three months ended September 30, 2004. During the 2005 third quarter, we recorded income taxes based upon our current estimated annual effective income tax rate of approximately 38%, certain deferred income tax net adjustments and final reconciliation of our 2004 federal and state income tax returns. During the 2004 third quarter, we recorded income taxes based upon an estimated income tax rate of 37%. See Note 11 of Notes to Consolidated Financial Statements – INCOME TAXES and “Income Taxes” below.

Brokerage Services Segment

Revenues

Commissions and Fees. Commissions and fees are comprised of commissions for securities, futures and forex transactions and monthly platform fees earned from brokerage customers using the TradeStation online trading platform. For the three months ended September 30, 2005, commissions and fees were $16.2 million, as compared to $13.4 million for the three months ended September 30, 2004. This $2.8 million, or 21%, increase was due primarily to brokerage customer account growth and the related increase in trading activity. The industry has been experiencing price pressure and some of our competitors continue to reduce their online brokerage commissions and fees. We continuously review

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and assess our pricing – both commissions and platform fees. With respect to monthly platform fees (a $99.95 charge made to less active brokerage customers for being granted access to use the TradeStation trading platform), effective September 1, 2005 we launched a strategic marketing initiative which reduced materially the trading activity thresholds that need to be met to qualify for a waiver of the monthly platform fee. During September 2005, this threshold reduction decreased monthly revenues by approximately $250,000 and monthly net income by approximately $155,000. Additionally, we recently launched two other strategic marketing initiatives (each to be effective December 1, 2005) designed mainly to accelerate growth in our futures business. The first initiative, designed to attract high-volume futures traders, is the change from our current one-price-fits-all futures commission structure to a tiered commission structure that rewards more active traders with lower pricing. The second initiative is to further reduce the trading activity thresholds futures, forex and equity options customers need to meet to qualify for a waiver of the monthly platform fee. These two new marketing initiatives, assuming no offsetting benefits, are estimated to reduce monthly revenues by approximately $310,000 and monthly net income by approximately $200,000, beginning in December 2005. No assurances can be given that material offsetting benefits will be achieved for either of these new initiatives.

Net Interest Income. Net interest income is comprised mainly of interest earned from our active trader equities client base for interest income earned from customer margin debit balances and customer cash balances less interest expense incurred on customer cash balances and, to a lesser extent, interest revenue sharing arrangements with the brokerage’s clearing agent firms. For the three months ended September 30, 2005, net interest income was $5.4 million as compared to $1.3 million for the three months ended September 30, 2004. This $4.1 million, or 330%, increase was due primarily to increased interest income related to the self-clearing of equities (which commenced in September 2004), account growth and increased interest rates. Net interest income may increase based upon the November 1, 2005 increase in the federal funds target rate, and our belief that we will continue to grow our brokerage customer base, subject to any decisions we may make to provide more favorable debit and credit interest rates to our customers and future federal funds target rate changes.

Subscription Fees and Other. Subscription fees and other revenues are comprised primarily of fees for our training workshops that help customers take more advantage of the state-of-the-art features of the TradeStation electronic trading platform. Subscription fees and other revenues were approximately $53,000 and $54,000, respectively, in the three months ended September 30, 2005 and 2004.

Operating Expenses

Clearing and Execution Costs. Clearing and execution costs are the costs associated with executing and clearing customer trades, including commissions paid to third-party broker-dealers, exchanges and other market centers. Beginning in 2004, clearing and execution costs included new expenses related to our self-clearing operations, primarily personnel and related expenses, back-office systems, statement and confirmation processing, postage costs and clearing expenses paid to the DTCC. Prior to the September 2004 commencement of self-clearing operations, we incurred incremental and start-up costs which were comprised primarily of personnel and related expenses, and consulting and travel expenses, for which we received no offsetting cost-savings.

Clearing and execution costs were approximately $5.5 million for both the three months ended September 30, 2005 and 2004, even though we had significantly-increased trade volume during 2005. Clearing and execution costs as a percentage of brokerage commissions and fees improved to 34% for the three months ended September 30, 2005, as compared to 41% for the three months ended September 30, 2004. During the three months ended September 30, 2005 the improvement in clearing and execution costs, as a percentage of net brokerage revenues, is due primarily to the benefits received from the self-clearing of both equities and standardized equity option trades during the 2005 third quarter and $464,000 of incremental expenses in the 2004 third quarter relating to self-clearing for which we received no offsetting cost-savings. This improvement was partially offset by a change in mix to a higher percentage of lower-margin revenue trades.

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Data Center Costs. Data center costs are primarily intercompany subscription fees, eliminated upon consolidation, and, to a lesser extent, data communications costs necessary to connect our server farms directly to electronic market places. The intercompany subscription fees are expenses accrued by TradeStation Securities (the brokerage services segment) and paid to TradeStation Technologies (the software products and services segment) pursuant to an intercompany expense allocation agreement on a per user basis. See “Technology Development” below. Data center costs were $5.7 million for the three months ended September 30, 2005, as compared to $4.6 million for the three months ended September 30, 2004, an increase of $1.1 million, or 23%, related primarily to an increase in intercompany subscription fees paid by TradeStation Securities (the brokerage services segment) to TradeStation Technologies (the software products and services segment), which resulted mainly from the higher number of TradeStation Securities brokerage accounts in 2005 as compared to 2004. See “Software Products and Services Segment – Revenues – Subscription Fees.”

Technology Development. Technology development expenses consist primarily of personnel costs associated with product management of the brokerage products and services TradeStation Securities offers to its customers and the creation of documentation and other training and educational materials. Technology development expenses for the three months ended September 30, 2005 were $450,000, as compared to $384,000 for the three months ended September 30, 2004, an increase of $66,000, or 17%, due primarily to increased personnel and related costs. Most of the technology costs required for our brokerage firm to offer and operate a highly sophisticated electronic trading platform are borne by its technology affiliate, which licenses that technology to the brokerage firm pursuant to an intercompany expense allocation agreement. See “Software Products and Services Segment – Operating Expenses—Technology Development.”

Sales and Marketing. Sales and marketing expenses consist primarily of: personnel costs for sales, customer support centers, marketing and order desk, as well as brokers’ commissions; marketing programs, including advertising, brochures, direct mail programs and account opening kits; data and information tools used by sales and brokerage personnel; and Web-site maintenance and administration costs. Sales and marketing expenses were $3.3 million for the three months ended September 30, 2005, as compared to $2.9 million for the three months ended September 30, 2004, an increase of $469,000, or 16%, due primarily to increased advertising and promotional expenses of $374,000 and increased personnel and related expenses of $86,000. The quality and success of, and potential continuous changes in, sales or marketing strategies (which continue to evolve), including the effects of our recent decisions to lower futures trade commissions and the trade activity thresholds that need to be met for a brokerage customer’s monthly platform fee to be waived and reduced brokerage commissions for futures trades, are factors that may impact sales and marketing in the future.

General and Administrative. General and administrative expenses consist primarily of costs for administrative personnel such as executive, human resources, finance, compliance and information technology employees; professional fees; telecommunications; rent; insurance; amortization (through March 2005) and other facility expenses. General and administrative expenses were $2.2 million for the three months ended September 30, 2005, as compared to $1.6 million for the three months ended September 30, 2004, an increase of $587,000, or 36%. This increase is due primarily to increases in expenses related to dispute resolutions of $280,000, increases in personnel and related costs of $188,000 and increases in consulting and professional fees of $113,000. The increase in dispute resolutions during the three months ended September 30, 2005 was due primarily to $296,000 of expenses recorded for the final resolution of two unreserved customer claims (one an arbitration award, one a settlement) initiated in prior periods, as compared to $16,000 relating to dispute resolutions during the 2004 third quarter.

Software Products and Services Segment

Revenues

Subscription Fees and Other. Subscription fees and other revenues are comprised primarily of monthly fees earned for providing streaming real-time, Internet-based trading analysis software tools and

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data services, and to a lesser extent royalties and commissions received from third parties whose customers use our legacy software products, sales of our legacy customer software products and revenues from our annual users conference. Subscription fees also include intercompany revenue for licensing to TradeStation Securities pursuant to an intercompany expense allocation agreement, on a per user basis, the right to provide these software tools and data services to the brokerage customers of TradeStation Securities (“Intercompany Subscription Fees”). Intercompany Subscription Fees have no effect on our consolidated results. Subscription fees and other revenues were $7.8 million for the three months ended September 30, 2005, as compared to $7.0 million for the three months ended September 30, 2004, an increase of $807,000, or 12%, due primarily to an increase in Intercompany Subscription Fees resulting from increased brokerage accounts at TradeStation Securities. Excluding Intercompany Subscription Fees, subscription fees and other revenues were approximately $2.5 million for both the three months ended September 30, 2005 and 2004. Included in the three months ended September 30, 2005, were $111,000 of revenues from our annual users conference for the portion of the conference held during the third quarter of 2005 (during 2004, the entire conference was held during the fourth quarter). This additional revenue was partially offset by a decrease in subscription fees of $98,000. Subscription services have not been actively marketed since December 2000 and, since September 2001, we no longer offer legacy client software products domestically.

Operating Expenses

Data Center Costs. Data center costs represent expenses related to the operation, maintenance and support of our data server farms. These expenses consist primarily of rent and data communications costs at our facilities where the data server farms are located, including costs necessary to connect our data server farms directly to data providers and electronic marketplaces, depreciation and maintenance of servers, and data distribution and exchange fees. Data center costs for the three months ended September 30, 2005 were $1.0 million, as compared to $1.2 million for the three months ended September 30, 2004, a decrease of $212,000, or 17%. The decrease is due primarily to lower circuit costs to connect our data farms to data providers and electronic marketplaces of $199,000.

Technology Development. Technology development expenses include: expenses associated with the development of new products, services and technology; enhancements to existing products, services and technology; and testing of products and services. Technology development expenses consist primarily of personnel costs, depreciation of computer and related equipment, facility expenses and telecommunications costs. TradeStation Technologies owns all intellectual property rights relating to our businesses, including all order execution technology. Technology development expenses were approximately $1.5 million for both the three months ended September 30, 2005 and 2004.

Sales and Marketing. We no longer actively market software products and services - the focus of our business being online brokerage services for active and institutional traders. Sales and marketing expenses consisted primarily of personnel costs and, to a lesser extent, facility costs. Sales and marketing expenses were $125,000 for the three months ended September 30, 2005, as compared to $42,000 for the three months ended September 30, 2004, an increase of $83,000, or 198%, due primarily to costs related to the portion of our annual users conference held during the third quarter of 2005 (during 2004, the entire conference was held during the fourth quarter).

General and Administrative. General and administrative expenses consist primarily of costs for administrative personnel, including: executive, human resources, finance and information technology employees; professional fees; telecommunications; rent; other facility expenses; and insurance. General and administrative expenses were $1.3 million for the three months ended September 30, 2005, as compared to $1.2 million for the three months ended September 30, 2004, an increase of $127,000, or 11%. This increase was due primarily to a 2004 third quarter reduction in expenses of $251,000 related to a favorable outcome of an audit of prior years’ state sales tax and increased personal and related costs of $150,000, partially offset by decreased professional fees (primarily legal fees) of $258,000.

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Nine Months Ended September 30, 2005 and 2004

Overall

Total revenues were $68.7 million for the nine months ended September 30, 2005, as compared to $51.9 million for the nine months ended September 30, 2004, an increase of $16.8 million, or 32%, due primarily to increases in net brokerage interest income of $9.9 million, brokerage commissions and fees of $6.8 million and, to a lesser extent, increases in subscription fees and other revenue.

Income from operations was $21.2 million for the nine months ended September 30, 2005, as compared to $8.9 million for the nine months ended September 30, 2004, an improvement of $12.3 million, or 139%. This improvement was due primarily to higher net brokerage revenues (net interest income and commissions and fees) and improved margins related to the self-clearing of equities and options trades, partially offset by increases in general and administrative expenses of $2.4 million, increases in sales and marketing expenses of $1.9 million and increases in technology development expenses of $305,000.

Other income, net was $1.1 million for the nine months ended September 30, 2005, as compared to other income, net of $203,000 for the nine months ended September 30, 2004. The increase of $865,000 was primarily increased interest income of $760,000 (due to higher average cash balances and higher interest rates) and, to a lesser extent, income earned from an exchange membership transaction.

For the nine months ended September 30, 2005, we recorded an income tax provision of $8.5 million, as compared to an income tax net benefit of $2.1 million for the nine months ended September 30, 2004. In 2005, we recorded income taxes based upon our current estimated annual effective income tax rate of approximately 38%, certain deferred income tax net adjustments and final reconciliation of our 2004 federal and state income tax returns. During the nine months ended September 30, 2004 we recorded income taxes based upon an estimated income tax rate of 37%, which was more than offset by the 2004 reversal of a significant portion of the valuation allowance that was previously provided on our deferred income tax assets. See Note 11 of Notes to Consolidated Financial Statements – INCOME TAXES and “Income Taxes” below.

Brokerage Services Segment

Revenues

Commissions and Fees. For the nine months ended September 30, 2005, commissions and fees were $48.4 million, as compared to $41.6 million for the nine months ended September 30, 2004. This $6.8 million, or 16%, increase was due primarily to brokerage customer account growth and the related increase in trading activity. The industry has been experiencing price pressure and some of our competitors continue to reduce their online brokerage commissions and fees. We continuously review and assess our pricing – both commissions and platform fees. With respect to monthly platform fees (a $99.95 charge made to less active brokerage customers for being granted access to use the TradeStation trading platform), effective September 1, 2005 we launched a strategic marketing initiative which reduced materially the trading activity thresholds that needed to be met to qualify for a waiver of the monthly platform fee. During September 2005, this threshold reduction decreased monthly revenues by approximately $250,000 and monthly net income by approximately $155,000. Additionally, we recently launched two other strategic marketing initiatives (each to be effective December 1, 2005) designed mainly to accelerate growth in our futures business. The first initiative, designed to attract high-volume futures traders, is the change from our current one-price-fits-all futures commission structure to a tiered commission structure that rewards more active traders with lower pricing. The second initiative is to further reduce the trading activity thresholds futures, forex and equity options customers need to meet to qualify for a waiver of the monthly platform fee. These two new marketing initiatives, assuming no offsetting benefits, are estimated to reduce monthly revenues by approximately $310,000 and monthly net income by approximately $200,000, beginning in December 2005. No assurances can be given that material offsetting benefits will be achieved for either of these new initiatives.

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Net Interest Income. For the nine months ended September 30, 2005, net interest income was $12.9 million, as compared to $2.9 million for the nine months ended September 30, 2004. This $9.9 million, or 336%, increase was due primarily to increased interest income related to the self-clearing of equities (which commenced in September 2004), account growth and higher interest rates. Net interest income may increase based upon the November 1, 2005 increase in the federal funds target rate, and our belief that we will continue to grow our brokerage customer base, subject to any decisions we may make to provide more favorable debit and credit interest rates to our customers and future federal funds target rate changes.

Subscription Fees and Other. Subscription fees and other revenues were $223,000 for the nine months ended September 30, 2005, as compared to $215,000 in the comparable period of the prior year, an increase of $8,000, or 4%.

Operating Expenses

Clearing and Execution Costs. Clearing and execution costs were approximately $16.8 million for both the nine months ended September 30, 2005 and the nine months ended September 30, 2004, even though we had significantly-increased trading activity. Clearing and execution costs as a percentage of brokerage commissions and fees improved to 35% for the nine months ended September 30, 2005, as compared to 40% for the nine months ended September 30, 2004. During the nine months ended September 30, 2005 the improvement in clearing and execution costs, as a percentage of net brokerage revenues, is due primarily to the benefits received from the self-clearing of both equities (which commenced in September 2004) and standardized equity option trades (which commenced at the end of March 2005) during 2005 and, in 2004, $1.4 million of incremental expenses in the first nine months relating to self-clearing for which we received no offsetting cost-savings. This improvement was partially offset by a change in mix to a higher percentage of lower-margin revenue trades.

Data Center Costs. Data center costs were $16.1 million for the nine months ended September 30, 2005, as compared to $13.0 million for the nine months ended September 30, 2004, an increase of $3.1 million, or 24%, related primarily to an increase in Intercompany Subscription Fees paid to the software products and services segment resulting from an increase in the number of brokerage accounts during 2005 as compared to 2004 and, to a lesser extent, increased costs to connect our data server farms directly to electronic marketplaces. See “Software Products and Services Segment – Revenues – Subscription Fees” and “- Operating Expenses - Data Center Costs.”

Technology Development. Technology development expenses for the nine months ended September 30, 2005 were $1.3 million, as compared to $1.2 million for the nine months ended September 30, 2004, an increase of $193,000, or 17%, due mainly to increased personnel and related costs.

Sales and Marketing. Sales and marketing expenses for the nine months ended September 30, 2005 were $9.9 million, as compared to $7.9 million for the nine months ended September 30, 2004, an increase of $2.0 million, or 25%, due primarily to increased advertising and promotional expenses of $1.6 million and increased personnel and related expenses of $327,000. The quality and success of, and potential continuous changes in, sales or marketing strategies (which continue to evolve), including the effects of our recent decisions to lower futures commissions and the trade activity thresholds that need to be met for a brokerage customer’s monthly platform fee to be waived and reduced brokerage commissions for futures trades, are factors that may impact sales and marketing in the future.

General and Administrative. General and administrative expenses were $5.8 million for the nine months ended September 30, 2005, as compared to $4.1 million for the nine months ended September 30, 2004, an increase of $1.7 million, or 43%. This increase is due primarily to an $835,000 increase in expenses related to dispute resolutions, increased personnel and related costs of $598,000, increased professional fees of $181,000 and, to a lesser extent, increased insurance and other expenses. The increase in expenses related to dispute resolutions is due to the 2005 third quarter charge of $296,000 recorded for the final resolution of two unreserved customer claims (one an arbitration award, one a settlement) initiated in prior periods and the 2004 reversal of an uninsured loss provision, including

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related legal fees, of $569,000 for a third party-claim which was inactive for over one year (and has remained inactive), partially offset by an additional $30,000 relating to dispute resolutions during the nine months ended September 30, 2004.

Software Products and Services Segment

Revenues

Subscription Fees and Other. Subscription fees and other revenues were $22.3 million for the nine months ended September 30, 2005, as compared to $19.5 million for the nine months ended September 30, 2004, an increase of $2.8 million, or 15%, due primarily to an increase in Intercompany Subscription Fees resulting from increased brokerage accounts at TradeStation Securities. Excluding Intercompany Subscription Fees, subscription fees and other revenues were approximately $7.2 million for the nine months ended September 30, 2005 and $7.1 million for the nine months ended September 30, 2004, an increase of approximately $50,000 or 1%, due primarily to $111,000 of revenue from our annual users conference for the portion of the conference held during the third quarter of 2005 (during 2004, the entire conference was held during the fourth quarter), partially offset by a decrease in subscription fees and other revenues. Subscription services have not been actively marketed since December 2000 and, since September 2001, we no longer offer legacy client software products domestically.

Operating Expenses

Data Center Costs. Data center costs for the nine months ended September 30, 2005 were $3.3 million, as compared to $3.8 million for the nine months ended September 30, 2004, a decrease of $484,000, or 13%. The decrease is due primarily to lower rent and bandwidth charges at our server farms of $233,000, lower server maintenance and depreciation expenses of $149,000 and lower data distribution and exchange fees of $246,000, partially offset by increased circuits to connect our data farms to data providers and electronic marketplaces of $144,000.

Technology Development. Technology development expenses were approximately $4.6 million for the nine months ended September 30, 2005 and $4.4 million for the nine months ended September 30, 2004, an increase of $112,000, or 3%, due mainly to increased personnel and related costs.

Sales and Marketing. We no longer actively market software products and services - the focus of our business being online brokerage services for active and institutional traders. Sales and marketing expenses were $236,000 for the nine months ended September 30, 2005, as compared to $355,000 for the nine months ended September 30, 2004, a decrease of $119,000, or 34%, due primarily to decreased personnel and related expenses resulting from the transfer of substantially all of the customer support team from the software products and services segment to the brokerage services segment during April 2004, partially offset by costs related to the portion of our annual users conference held during the third quarter of 2005 (during 2004, the entire conference was held during the fourth quarter).

General and Administrative. General and administrative expenses were $4.6 million for the nine months ended September 30, 2005, as compared to $3.9 million for the nine months ended September 30, 2004, an increase of $671,000, or 17%. This increase was due primarily to increased personnel and related costs of $373,000, a 2004 reduction in expenses of $251,000 related to a favorable outcome of an audit of prior years’ state sales tax, and increased professional fees of $180,000 (primarily increased legal fees), partially offset by decreases in amortization, facility and other expenses.

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 in the past, and are likely to vary in the future. Such fluctuations may result in volatility in the price of our common stock. See “Issues, Uncertainties and Risk Factors” below.

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Income Taxes

During the three and nine months ended September 30, 2005, we recorded an income tax provision of $3.6 million and $8.5 million, respectively, based upon our current estimated annual effective income tax rate of approximately 38%, certain deferred income tax adjustments and final reconciliation of our 2004 federal and state income tax returns. During the three and nine months ended September 30, 2004, we recorded an income tax provision of $1.1 million and an income tax net benefit of $2.1 million, respectively. In 2004, income taxes were based upon an estimated annual effective income tax rate of 37%. For the nine months ended September 30, 2004, the income tax provision was more than offset by the reversal of a significant portion of a valuation allowance on our deferred income tax assets (see below).

As of September 30, 2005 and December 31, 2004, we had net deferred income tax assets of $1.2 million and $3.8 million, respectively, which included a valuation allowance of $926,500 as of both dates. In accordance with SFAS No. 109, deferred income tax assets should be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred income tax assets will not be realized. In June 2004, we reversed a significant portion of the valuation allowance that was previously provided on its deferred income tax assets, because, in the opinion of management, it was more likely than not that those benefits would be realized. Management evaluates and determines, on a periodic basis, the amount of the valuation allowance required and adjusts the valuation allowance, as needed. The June 2004 decision to reverse a significant portion of the valuation allowance was based on several factors, including TradeStation Securities receiving final approval of the DTCC to begin self-clearing for equities, the rollout of TradeStation 8 (which included integrated options execution), and eight consecutive quarters of income from operations. In the 2004 second quarter, the result of this reversal was a net tax benefit of $3.2 million recorded in the consolidated statement of income and a $3.3 million credit to additional paid-in capital (relating to the tax benefit of stock option exercises).

As of September 30, 2005, we estimate, for federal income tax purposes, that we have net operating loss carryforwards of approximately $3.0 million (expiring in 2019) and income tax credits of approximately $124,000 (expiring in 2010 through 2019) related to a 1999 acquisition. Since the deferred income tax assets related to these net operating loss carryforwards and income tax credits are subject to annual usage limitations of $545,000, we continue to maintain a $926,500 valuation allowance pertaining to these assets. The valuation allowance represents approximately the last five years of the annual limitation amount, due to the inability to estimate taxable income that far into the future. Additionally, for Florida state income tax purposes, as of September 30, 2005, we estimate that we have net operating loss carryforwards of approximately $3.2 million (expiring in 2020 through 2023), of which the benefit has been recorded through additional-paid-in capital (relating to the tax benefit of stock option exercises).

In April 2005, a letter from the Internal Revenue Service was received notifying us that our federal income tax return for the year ended December 31, 2003 has been selected for examination. We believe this examination, which is currently in progress, to be a routine examination in the ordinary course. While no assurances can be given, we believe that this examination will not have a material impact on our financial position or results of operations.

Liquidity and Capital Resources

As of September 30, 2005, we had cash and cash equivalents of approximately $47.8 million, of which $1.6 million was restricted, supporting a facility lease. On October 4, 2005, as a result of TradeStation Securities’ September 30, 2005 month-end calculation under Rule 15c3-3 of the Securities Exchange Act of 1934 (see below), $6.2 million of cash segregated in compliance with federal regulations was transferred to cash and cash equivalents.

As of September 30, 2005, TradeStation Securities had: $409.8 million of cash segregated in compliance with federal regulations, in special reserve bank accounts for the exclusive benefit of customers under Rule 15c3-3 of the Securities Exchange Act of 1934 and other regulations; net

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receivables from brokerage customers of $60.7 million; and receivables from brokers, dealers, clearing organizations and clearing agents of $30.2 million. Client margin loans are demand loan obligations secured in part by cash and/or readily marketable securities. Receivables from and payables to brokers, dealers, clearing organizations and clearing agents primarily represent 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 $490.4 million at September 30, 2005. Management believes that brokerage cash balances and operating earnings will continue to be the primary source of liquidity for TradeStation Securities in the future. Additionally, TradeStation Securities has available to it a revolving credit facility which provides for borrowings up to $10 million for short-term working capital needs and which needs to be fully pre-paid at least five times per calendar month. To date, there have been no borrowings under this revolving credit facility. See Note 10 of Notes to Consolidated Financial Statements – COMMITMENTS AND CONTINGENCIES – Line of Credit and Guarantee.

TradeStation Securities is subject to the net capital requirements of the SEC’s Uniform Net Capital Rule (Rule 15c3-1) and the CFTC’s financial requirement (Regulation 1.17). In September 2004, upon commencement of self-clearing of equities trades, TradeStation Securities changed its calculation of net capital requirements to the “alternative method,” which requires the maintenance of minimum net capital, as defined by the rules, equal to the greater of (i) $250,000 and (ii) 2.0% of aggregate customer debit balances. Customer debit items are a function of customer margin receivables and may fluctuate significantly, resulting in a significant fluctuation in our net capital requirements. At September 30, 2005, TradeStation Securities had net capital of approximately $31.1 million (32.8% of aggregate debit items), which was approximately $29.2 million in excess of its required net capital of approximately $1.9 million.

In addition to net capital requirements, as a self-clearing broker-dealer TradeStation Securities is subject to DTCC, OCC, clearing agent and other cash deposit requirements which are and may continue to be large in relation to TradeStation Group’s total liquid assets, and which may fluctuate significantly from time to time based upon the nature and size of TradeStation Securities’ active trader clients’ securities trading activity. As of September 30, 2005, we had interest-bearing security deposits and short-term treasury bills totaling $11.3 million with clearing organizations and clearing agents for the self-clearing of stock trades and standardized equity option trades.

As of September 30, 2005, we have no long-term debt obligations or capital lease obligations. A summary of our operating lease obligations (net of subleases) and minimum purchase obligations (related to back-office systems, telecommunications services and advertising) is as follows:

	Payments Due By Period
Contractual Obligations	Total		2005		2006 - 2008		2009 - 2010		Thereafter
Operating lease obligations	$	13,849,610	$	618,086	$	6,067,042	$	3,846,189	$	3,318,293
Purchase obligations		2,105,773		482,256		1,623,517		—		—
Total	$	15,955,383	$	1,100,342	$	7,690,559	$	3,846,189	$	3,318,293

In addition to the purchase obligations set forth in the table above, we currently anticipate, in order to provide for additional growth of our brokerage business (there being no assurance additional growth will occur), capital expenditures of up to $500,000 for the remainder of 2005 (primarily for the purchase of computer hardware to support the growth of our data server farms and our back-office systems to support our business). These expenditures are expected to be funded through operating cash flows, capital leases, or a combination of the two.

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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.

Operating activities provided cash totaling approximately $13.3 million during the nine months ended September 30, 2005 and used $3.0 million during the nine months ended September 30, 2004. Net cash provided by operating activities of $13.3 million during the nine months ended September 30, 2005 was due primarily to net income, adjustments for non-cash items, reduced deposits with clearing organizations and, to a lesser extent, increases in accounts payable and accrued expenses, partially offset by increases in net brokerage customer assets (excluding deposits with clearing organizations) and, to a lesser extent, timing differences related to cash segregated in compliance with federal regulations (approximately $6.2 million transferred from cash segregated in compliance with federal regulations to cash and cash equivalents on October 4, 2005 as compared to $4.0 million transferred on January 4, 2005), pre-payments for current year income taxes and increases in other assets. Net cash used by operating activities of $3.0 million during the nine months ended September 30, 2004 was due primarily to deposits paid to clearing organizations and clearing agents and net cash outflows upon the commencement of self-clearing operations, partially offset by net income, as adjusted for non-cash items, including the reversal of a significant portion of the valuation allowance associated with deferred income tax assets.

Investing activities used cash of $1.1 million during the nine months ended September 30, 2005 primarily for capital expenditures (mostly computer hardware to support the growth of our data server farms) of $1.4 million, partially offset by $148,000 of proceeds from an exchange membership transaction and a $239,000 decrease in restricted cash. Investing activities provided cash of $812,000 during the nine months ended September 30, 2004 due to $2.0 million of proceeds from the maturity of marketable securities and a $239,000 decrease in restricted cash, partially offset by capital expenditures of $1.0 million (mostly computer hardware and software for our data server farms and our back-office systems to support the growth of our business) and $415,000 paid for the acquisition of exchange membership seats.

Financing activities provided cash of $3.7 million and $614,000 during the nine months ended September 30, 2005 and 2004, respectively. Proceeds from the issuance of common stock related to the exercise of stock options from our incentive stock plans and purchases under our employee stock purchase plan provided cash of $3.7 million and $796,000 during the nine months ended September 30, 2005 and 2004, respectively while repayments of capital lease obligations were $3,000 and $182,000 during the nine months ended September 30, 2005 and 2004, respectively.

During the nine months ended September 30, 2004, we issued 1,851 shares of common stock associated with the exercise of warrants in exchange for the delivery and cancellation of 4,108 warrants. All unexercised warrants expired in June 2004.

Recently Issued Accounting Standards

In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 154, Accounting Changes and Error Corrections, which is a replacement of Accounting Principles Board (“APB”) Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154 provides guidance on accounting for and reporting of accounting changes and error corrections. It requires a voluntary change in accounting principle to be applied retrospectively to all prior periods’ financial statements as if the principle had always been applied. Previously, voluntary changes in accounting principles were required to be recognized by including, in net income of the period of change, the cumulative effect of changing to the new accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We presently have no plans to adopt a voluntary change in accounting principle, and are not aware of any errors in our financial statements that would require correction; therefore, we believe that the adoption of SFAS No. 154 will not have an effect on our consolidated financial statements.

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In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”), which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. In April 2005, the SEC announced a deferral of the effective date of SFAS 123(R) for calendar year companies until the beginning of 2006. We expect to adopt SFAS 123(R) on January 1, 2006, but we have not yet determined if we will use the modified-prospective method or the modified-retrospective method. As permitted by SFAS No. 123, we currently account for share-based payments to employees using the intrinsic value method in accordance with the recognition and measurement principles of APB Opinion No. 25, and, as such, generally recognize no compensation cost for employee stock options, as options granted under the company’s plans have an exercise price equal to the fair value of the underlying common stock on the date of grant. Accordingly, the adoption of SFAS 123(R)’s fair value method may have a significant impact on our consolidated results of operations, although it will have no impact on our overall consolidated financial position. The impact of adoption of SFAS 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS 123(R) in prior periods, the impact of that standard would have been approximately as described in the disclosure of pro forma net income and earnings per share in Note 2 of Notes to Consolidated Financial Statements – STOCK BASED COMPENSATION – PRO FORMA NET INCOME. SFAS 123(R) also requires the benefits of tax deductions in excess of recognized compensation costs to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While we cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized as a result of tax deductions in excess of recognized compensation costs during the nine months ended September 30, 2005 and 2004 was approximately $3.7 million and $3.6 million, respectively.

Off-Balance Sheet Arrangements

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

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

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

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

Issues, Uncertainties and Risk Factors

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

This report also contains statements that are forward-looking within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this report, the words “anticipate(s),” “anticipated,” “anticipation,” “assume(s),” “assumption(s),” “become(s),” “belief(s),” “believe(s),” “believed,” “could,” “designed,” “estimate,” “estimates,” “estimated,” “expect(s),” “expected,” “expectation(s),” “going forward,” “future,” “hopeful,” “hope(s),” “intend(s),” “intended,” “look forward,” “may,” “might,” “opportunity,” “opportunities,” “outlook(s),” “pending,” “plan(s),” “planned,” “potential,” “scheduled,” “shall,” “should,” “think(s),” “to be,” “upcoming,” “well-positioned,” “will,” “wish,” “would,” and similar expressions, if and to the extent used, are intended to identify the forward-looking statements. All forward-looking statements are based on current expectations and beliefs concerning future events that are subject to risks and uncertainties, including the risks and uncertainties described below and elsewhere in this report. Actual results may differ materially from the results suggested in this report. Factors that may cause or contribute to such differences, and our business risks and uncertainties generally, include, but are not limited to, the items described below, as well as those described in other sections of this report, our other public filings and our press releases.

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

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

• general economic and market factors that affect active trading and brokerage revenues, including trade volume, market volatility, market direction or trends, the level of confidence and trust in the markets, and seasonality (summer months and holiday seasons typically being slower periods), and interest rates;

• market or competitive pressure to lower commissions and fees charged to customers (our competitors continue to reduce their online brokerage commissions and we have recently announced a reduction in our futures commission pricing) or to reduce or eliminate monthly platform fees paid by brokerage customers (we have recently materially reduced the trading activity thresholds our brokerage clients need to meet to qualify for a waiver of monthly platform fees);

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

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

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

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

• the negative effect on revenues that would result if our active trader clients who engage in short selling (a large component of our trade activity) become unsatisfied with the short sale borrowing inventory we provide;

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

• the timing and success of our planned 2006 launch of a seamless forex trading platform;

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

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

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

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

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

• the appeal of our products and services to markets outside of the United States (principally Europe, where we plan to begin sales and marketing efforts in 2006), given our lack of experience selling to markets outside of the United States, our success (or lack of success) in developing or enhancing products or services that may be more attractive to non-US traders, and the costs, including sales, marketing, compliance, administrative and development, that may be required to improve our chances of success in those markets.

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

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

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

The markets for online brokerage services, trading software tools, and real-time market data services are intensely competitive and rapidly evolving, and there has been substantial consolidation of those three products and services in the industry, as well as consolidation of the types of financial instruments (equities, equity options, futures, forex) offered by firms. There has also been consolidation of online brokerage firms generally, as well as intense price competition. We believe that competition from large online and other large brokerage firms and smaller brokerage firms focused on active traders, as well as consolidation, will substantially increase and intensify in the future. Competition may be further intensified by the size of the active trader market, which is generally thought to be comprised of less than 10% of all online brokerage accounts. We believe our ability to compete will depend upon many factors both within and outside our control. Factors outside of our control include: price pressure (both on transactional commissions and monthly platform fees); the timing and market acceptance of new products and services and enhancements developed by our competitors (including strategy back-testing and automation capabilities); market conditions, such as recession; the size of the active trader market today and in the future; the extent to which institutional traders are willing to use direct-access brokerage services from firms that have traditionally served mostly retail customers; data availability and cost; and third-party clearing costs. Factors over which we have more control, but which are subject to substantial risks and uncertainties with respect to our ability to effectively compete, include: timing and market acceptance of new products and services and enhancements we develop; our ability to design, improve and support materially error-free Internet-based systems; ease-of-use of our products and services; reliability of our products and services; pricing decisions; the ability and resources to provide sufficient short sale inventory; self-clearing costs; and sales and other marketing decisions and efforts (we have recently reduced futures commission pricing and our monthly platform fee waiver thresholds).

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

The online electronic trading platform we provide to our customers is based upon the integration of our sophisticated front-end software technology with our equally-sophisticated, Internet-based server farm technology. Our server farm technology is the foundation upon which online trading customers receive real-time market data and place buy and sell orders. However, in order for this technology to provide a live, real-time trading platform, it requires integration with real-time market data, which are currently provided directly by the exchanges or by systems of independent third-party market data vendors (who obtain the data directly from the exchanges), the electronic order book systems of electronic communication networks (“ECNs”) and electronic systems offered by the exchanges, the clearing and back-office systems we license from SunGard for self-clearing and of the clearing agents we use for trades that we do not self-clear, and the forex deal order placement, settlement and back-office systems of or licensed to the forex dealer firm which is responsible for all of our customer’s forex trades. Accordingly, our ability to offer a platform that enables the development, testing and automation of trading strategies and the placement, execution, clearing and settlement of buy and sell orders depends heavily on the effectiveness, integrity, reliability and consistent performance of all of these systems and technologies. In particular, the stress that is placed on these systems during peak trading times could cause one or more of these systems to operate too slowly or fail. Outages and other system failures may also be caused by natural disasters and other events and circumstances beyond our control. We have experienced several delays and outages since we launched our online trading platform, many of which related to data vendor, clearing agent, exchange and ECN outages or issues which are beyond our control. There have also been several market data and order execution outages recently, the causes of which we are working to correct, as well as failures to perform on the part of the brokerage firm’s back-office system vendor (to whom the company has served a notice concerning such failures). Any major system failure or outage (or series of frequent failures or outages), regardless of the cause, could result in a business or legal requirement to issue large credit amounts to customers, loss of accounts, reduced trading activity, loss of or diminished reputation and recognition in the industry, increased monetary costs and diversion of internal resources, regulatory inquiries, fines and sanctions, and other material adverse consequences. Also, we do not maintain a seamless, redundant back-up system to our order execution systems, which could materially intensify these negative consequences. Additionally, as a general matter not applicable only to our company, the integrity of these types of systems is increasingly being attacked by persons sometimes referred to as “hackers” who intentionally introduce viruses or other defects to cause damage, inaccuracies or complete failure. Also, “cyberterrorism,” should it occur, may significantly affect people’s willingness to use Internet-based services, particularly ones that involve their personal or company’s assets.

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

We Are Exposed to Credit Risk

We make margin loans to clients collateralized by client securities, and borrow securities to cover trades. In fact, nearly all of our clients’ accounts are margin, as opposed to cash, brokerage accounts. A portion of our net revenues is derived from interest on margin loans. To the extent that these margin loans exceed client cash balances maintained with us, we must obtain financing from third parties. We may not be able to obtain this financing on favorable terms or in sufficient amounts. By permitting clients to purchase securities on margin, we are subject to risks inherent in extending credit, especially during periods of rapidly declining markets in which the value of the collateral substantially decreases in proportion to the amount of a client’s indebtedness. As of September 30, 2005, we are carrying approximately $207,000 of an unsecured account debit (plus accrued interest thereon) that resulted from large losses in one client’s account that occurred in September 2004 as a result of a sudden, large adverse price movement to a concentrated securities position being maintained by that client. While we have

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implemented additional risk-management procedures designed to reduce this risk, there can be no assurance that we will not experience periodic or frequent unsecured account debits that materially and adversely affect our results of operations. In addition, in accordance with regulatory guidelines, we collateralize borrowings of securities by depositing cash or securities with lenders. Sharp changes in market values of substantial amounts of securities and the failure by parties to the borrowing transactions to honor their commitments could have a material, adverse effect on our revenues and profitability.

Self-Clearing Equity Trades For Active Trader Accounts Has Risks That May Offset Its Benefits

Self-clearing operations for our active trader equities accounts began in September 2004 and for options trades began in March 2005. Prior to the September conversion of clearing services, all of our customers’ equities trades were cleared through Bear Stearns, as our clearing agent, which also provided to our active trader clients its short sale borrowing inventory. When we commenced self-clearing, we did so with no prior experience. Our experience self-clearing remains limited and its cost savings and efficiencies may in future periods turn out to be less favorable than we expect as a result of unanticipated increased fixed, infrastructure or incremental costs, mistakes or other factors. Also, our savings may be more than offset by account losses or reduced trading activity if we experience difficulties in providing to our clients sufficient short sale borrowing inventory or if any self-clearing mistakes or failures occur which undermine our customers’ or prospects’ confidence in our ability to conduct reliable self-clearing operations. Also, our self-clearing back-office operations rely on the Phase3 self-clearing software licensed to us by SunGard Financial Systems, and our business would likely suffer substantial harm if that software fails, fails to be adequately supported by SunGard, or otherwise causes unintended results. We are not satisfied with many aspects of this service to date, and have formally notified SunGard that we believe it is failing to perform its obligations. SunGard has, thus far, assured us that it will promptly address our concerns regarding these failures to perform. Further, errors made by us related to the confirmation, receipt, settlement and delivery functions involved in securities transactions, the custody and control of client securities and other assets, or otherwise relating to the handling of our clients’ securities and funds, could lead to civil penalties and increased deposit and other requirements by governmental and self-regulatory organizations, as well as losses and liability in lawsuits relating to client accounts affected by such errors.

The Nature Of Our Business Results In Potential Liability To Customers

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

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

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

We May Need Cash In The Foreseeable Future

While we anticipate having sufficient cash to meet our needs over the next 12 months, our future liquidity and capital requirements will depend upon numerous factors, including: the rate of customer acceptance of our products and services, including the number of new brokerage accounts acquired and the number and volume of trades made by our brokerage customers; the effect of price reductions; price competition that may result in our continuing to charge lower commissions and fees to customers; significant, increased infrastructure and operating costs as our business grows, including unanticipated costs for self-clearing and/or omnibus clearing operations (such as large cash or security deposits, which are $11.3 million as of September 30, 2005, and which are expected to increase as our business grows); increased net capital or excess net capital requirements and unanticipated reserve and settlement requirements; unanticipated costs relating to our new forex and options execution services; costs of technology development and sales, marketing, compliance, technical and administrative operations relating to increased and intensified pursuit of institutional customers; substantial legal costs and/or unexpected unfavorable outcomes in lawsuits and arbitrations currently pending against us; and competing technological and market developments. Funds, if and when needed, may be raised through debt financing and/or the issuance of equity securities, there being no assurance that any such type of financing on terms satisfactory to us will be available or otherwise occur. Any equity financing or debt financing which requires issuance of equity securities or warrants to the lender would reduce the percentage ownership of the shareholders of the company. Shareholders also may, if issuance of equities occurs, experience additional dilution in net book value per share, or the issued equities may have rights, preferences or privileges senior to those of existing shareholders.

We Are Subject To Intellectual Property Litigation

There has been substantial litigation in the software industry involving intellectual property rights. Although we do not believe that we are or will be infringing upon the intellectual property rights of others, there was recently an infringement claim asserted against us and eight other online brokerage firms by a company named Datamize, Inc., which could have had a material adverse effect on our

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business, financial condition, results of operations and prospects if it was successful (we settled the suit in December 2004 for an amount immaterial to our financial statements). Such a case, as well as any other infringement case that may be brought against us, could result in our being unable to use intellectual property which is integral to one or more of our products or services.

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

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

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

The securities and commodity futures industries are subject to extensive regulation covering all aspects of those businesses. Regulation of forex dealer and brokerage services is increasing as well. The various governmental authorities and industry self-regulatory organizations that supervise and regulate (and may soon supervise and regulate) our brokerage firm have broad enforcement powers to censure, fine, suspend, enjoin, expel or issue cease-and-desist orders to our brokerage firm or any of its officers or employees who violate applicable laws or regulations. Additionally, rules relating specifically to active traders have been enacted and more may be enacted which severely limit the operations and potential success of our business. For example, in January 2005 new “short sale” rules promulgated by the SEC became effective that may materially, adversely affect our ability to provide quality short sale brokerage services to our equities brokerage customers. Our ability to comply with all applicable laws and rules is largely dependent on our brokerage’s maintenance of compliance and reporting systems, as well as its ability to attract and retain qualified compliance and other personnel and enter into suitable contractual relationships with appropriate vendors, lenders and counterparties. We currently have pending issues relating to NASD OATS reporting, NYSE OTS reporting, and short sale procedures. Our brokerage could be subject to disciplinary or other regulatory or legal actions in the future due to noncompliance.

The Loss Of Key Employees Could Decrease The Quality Of Our Management And Operations

Our success depends to a very significant extent on the continued availability and performance of a number of senior management and product development personnel. The loss of one or more of these key employees could have a material adverse effect on our company.

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

The SEC, the NASD, the CFTC, the NFA, the DTCC (i.e., NSCC and DTC), the OCC, certain exchanges and other regulatory and self-regulatory agencies or organizations have stringent rules with respect to the maintenance of specific levels of net capital by securities broker-dealers and futures commission merchants, large, fluctuating cash deposit requirements, and reserve, settlement and other financial requirements. Net capital is the net worth of the regulated company (assets minus liabilities), less deductions for certain types of assets as well as other charges. If a firm fails to maintain the required net capital it may be subject to suspension or revocation of registration by the SEC or CFTC and

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suspension or expulsion by the NASD or NFA, and it could ultimately lead to the firm’s liquidation. If such net capital rules are changed or expanded, or if there is an unusually large charge against net capital, operations that require the use of capital would be restricted. Also, our ability to withdraw capital from our TradeStation Securities brokerage subsidiary is subject to SEC rules, which in turn could materially impact our available working capital and materially impact or limit our ability to repay debt as and when due, redeem or purchase shares of our outstanding stock, if required or desirable, and pay dividends in the future. A large operating loss or charge against net capital could adversely affect our ability to expand or even maintain our then present levels of business, which could have a material adverse effect on our business, financial condition, results of operations and prospects. See “We May Need Cash In The Foreseeable Future” above.

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

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

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

As of September 30, 2005, affiliates of William R. Cruz and Ralph L. Cruz (the Co-Chairmen and Co-Chief Executive Officers of our company) own approximately 46% of the outstanding shares of our common stock. Therefore, as a practical matter, the Cruzes control TradeStation Group. Any and all decisions and votes of our shareholders (including the election of our Board of Directors and any merger, consolidation or sale of all or substantially all of TradeStation Group’s assets) will likely be determined by the Cruzes.

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 hold any market risk sensitive instruments for trading purposes.

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

TradeStation Securities earns interest from interest revenue-sharing arrangements with its clearing agents and, as a self-clearing broker-dealer, holds interest-earning assets, mainly customer funds required to be segregated in compliance with federal regulations. These funds totaled $409.8 million at September 30, 2005. Interest-earning assets are financed primarily by short-term interest-bearing liabilities, which totaled $490.4 million at September 30, 2005, in the form of customer cash balances. TradeStation Securities earns a net interest spread on the difference between amounts earned on customer margin loans

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and amounts paid on customer cash balances. Because TradeStation Securities establishes the rate paid on customer cash balances and the rate charged on customer margin loans, a substantial portion of our interest rate risk is under our direct management. We estimate that, based upon our brokerage customer balances as of the date of this report, for each basis point increase or decrease in interest rates retained by the company there is an annual impact of approximately $35,000 to our net income.

Changes in interest rates also affect the interest earned on our cash and cash equivalents and security deposits. To reduce this interest rate risk, we are currently invested in investments with short maturities. As of September 30, 2005, our cash and cash equivalents consisted primarily of interest-bearing cash deposits and money market funds and our security deposits consisted primarily of interest-bearing cash deposits and treasury bills. Any increase or decrease in interest rates will not have a material impact on our interest earned on our corporate cash balances or security deposits.

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 10 of Notes to Consolidated Financial Statements – COMMITMENTS AND CONTINGENCIES – General Contingencies and Guarantees.

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

ITEM 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 Co-Chief Executive Officers and the Chief Financial Officer. Based on that evaluation, the company’s management, including the Co-Chief Executive Officers 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 quarter of 2005 that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

TradeStation Securities is engaged in routine regulatory matters and civil litigation or other dispute resolution proceedings, including matters relating to NASD OATS reporting, NYSE OTS reporting, and short sales procedures, and NASD arbitrations, incidental to, and part of the ordinary course of, its business. The OATS reporting, OTS reporting and short sale procedures matters could ultimately result in censures and fines. As of the date of our last quarterly report, three NASD arbitrations were pending against the company seeking, in the aggregate, tens of millions of dollars of actual and punitive damages. In one of those cases, the arbitrators awarded the claimants $196,000 (inclusive of interest) and in another of those cases the claims were settled for $100,000. The remaining pending arbitration is set for hearing in January 2006, and we believe the claims made in that case are baseless.

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

(a) Sales of Unregistered Securities

During the three months ended September 30, 2005, we issued to four nonemployee directors options to purchase an aggregate of 46,000 shares of common stock. Such options vest ratably in annual increments over a three-year period and are exercisable at a price of $9.88 per share, which was the fair market value (as defined in our Nonemployee Director Stock Option Plan) of our common stock on the date on which the options were granted. All of the options were granted under our Nonemployee Director Stock Option Plan, and expire, if they remain unexercised, on the fifth anniversary of the date on which they were granted.

All the foregoing options were issued by us in reliance upon the exemption from registration available under Section 4(2) of the Securities Act of 1933, as amended. Other than as described above, we did not issue or sell any unregistered securities during the third quarter of 2005.

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

(a) Meeting

On July 20, 2005, TradeStation Group held its 2005 Annual Meeting of Shareholders (the “Annual Meeting”).

(b) Election of Board of Directors

At the Annual Meeting, an election was held for the Board of Directors of TradeStation Group. All seven nominees to the Board of Directors were elected (six of whom were re-elected), receiving the number and percentage of votes for election and abstentions as set forth next to their respective names below:

	For Election		Abstentions
Nominee for Director	Number	Percentage	Number	Percentage
Ralph L. Cruz	38,652,652	95.2%	1,948,100	4.8%
William R. Cruz	38,652,152	95.2%	1,948,600	4.8%
Michael W. Fipps	39,307,961	96.8%	1,292,791	3.2%
Stephen C. Richards	39,309,561	96.8%	1,291,191	3.2%
Salomon Sredni	38,653,047	95.2%	1,947,705	4.8%
Denise Dickens Veitch	39,303,359	96.8%	1,297,393	3.2%
Charles F. Wright	39,189,160	96.5%	1,411,592	3.5%

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(c) Other Voting Matters

The only other matter voted upon at the Annual Meeting was a proposal to ratify the selection of Ernst & Young LLP as independent registered public accounting firm for TradeStation Group for the fiscal year ending December 31, 2005. This proposal was approved, receiving the votes of the holders of the number of shares of common stock voted in person or by proxy at the Annual Meeting and the percentage of total votes cast as indicated below:

For	Against	Abstention
39,715,616	879,031	6,105
97.82%	2.17%	0.01%

ITEM 6. EXHIBITS

The following exhibits are filed as part of this report:

31.1	Certifications of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certifications of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3	Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Co-Chief Executive Officers Under 18 U.S.C. §1350.
32.2	Certification of Chief Financial Officer Under 18 U.S.C. §1350.

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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 8, 2005	/s/ David H. Fleischman
Date	David H. Fleischman
	Chief Financial Officer, Vice President of Finance and Treasurer (Signing both in his capacity as duly authorized officer and as Principal Financial and Accounting Officer of the Registrant)

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EXHIBIT INDEX

Exhibit No.	Exhibit
31.1	Certifications of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certifications of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3	Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Co-Chief Executive Officers Under 18 U.S.C. §1350.
32.2	Certification of Chief Financial Officer Under 18 U.S.C. §1350.