United States

Securities and Exchange Commission

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

(Amendment No.     )

Filed by the Registrant  x

Filed by a Party other than the Registrant  ¨

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¨	Preliminary Proxy Statement	¨	Confidential, for Use by the Commission Only (as permitted by Rule 14a-6(e)(2))
x	Definitive Proxy Statement
¨	Definitive Additional Materials
¨	Soliciting Material Pursuant to Section 240.14a-12

SWS Group, Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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x No fee required.

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SWS GROUP, INC.

Notice of Annual Meeting

and Proxy Statement

October 8, 2010

Dear Stockholder:

The 2010 annual stockholders’ meeting will be held at Renaissance Tower, 1201 Elm Street, Suite 4200, Dallas, Texas 75270, at 9:00 a.m., local time, on Thursday, November 18, 2010. The following pages include the notice of annual meeting and the proxy statement describing the business to be transacted at the meeting.

We are pleased to furnish our proxy materials to you primarily via the Internet. Instead of mailing printed copies of the proxy materials to each stockholder, we are mailing a Notice of Internet Availability, which contains instructions on (i) how to access your proxy materials, (ii) how each stockholder can receive a paper copy of the proxy materials, including this proxy statement, our annual report and a form of proxy card and (iii) how to access your proxy card to vote through the Internet or by telephone or mail if you receive a paper copy of the proxy materials. We believe this process will expedite your receipt of proxy materials, lower the cost of the annual meeting and help to conserve natural resources.

At the annual meeting, we will be reporting on the company’s activities, and you will have an opportunity to ask questions about our operations. We hope you are planning to attend the annual meeting personally, and, if so, we look forward to seeing you. Whether or not you expect to be present, please promptly vote and submit your proxy by following the instructions provided on the Notice of Internet Availability. If you do attend the annual meeting, you may, of course, withdraw your proxy if you want and vote in person.

On behalf of our Board of Directors and our management, we would like to thank you for your continued support and confidence.

Sincerely yours,

Don A. Buchholz Chairman of the Board	James H. Ross Chief Executive Officer

Enclosure

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD NOVEMBER 18, 2010

We will hold the 2010 annual stockholders’ meeting on Thursday, November 18, 2010, at 9:00 a.m., local time, at Renaissance Tower, 1201 Elm Street, Suite 4200, Dallas, Texas 75270.

At the meeting, we will ask you to consider and vote on the following proposals:

1. the election of nine directors to serve until the next annual meeting;

2. the ratification of the selection of Grant Thornton LLP as the company’s independent auditor for the fiscal year ending June 24, 2011; and

3. the transaction of such other business that may properly come before the meeting or any adjournment or postponement thereof.

If you were a stockholder at the close of business on September 20, 2010, you are entitled to receive notice of, and vote at, the annual meeting and any adjournments or postponements thereof. A complete list of stockholders entitled to vote at the annual meeting will be available for examination at the company’s principal executive offices for a period of 10 days prior to the annual meeting. This list of stockholders will also be available for inspection at the annual meeting and may be inspected by any stockholder for any purpose germane to the annual meeting.

It is important that your shares be represented at the annual meeting. For that reason, even if you plan to attend the meeting, we ask that you please promptly vote and submit your proxy by following the instructions on the Notice of Internet Availability. If you received a paper copy of the proxy materials by mail, you may follow the instructions provided on the Notice of Internet Availability to vote by telephone, mail or the Internet. If you attend the annual meeting, you may revoke your proxy and vote in person. To help us prepare properly for your attendance at the annual meeting, we ask that you indicate on your proxy card whether you plan to attend the meeting.

By Order of the Board of Directors,

Allen R. Tubb

Vice President, General Counsel and Secretary

Dallas, Texas

October 8, 2010

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON NOVEMBER 18, 2010: The proxy statement and annual report to stockholders are available at http://materials.proxyvote.com/78503N.

TABLE OF CONTENTS

	Page
INFORMATION CONCERNING SOLICITATION AND VOTING	1
OUR COMPANY	4
CORPORATE GOVERNANCE	4
PROPOSAL ONE ELECTION OF DIRECTORS	9
PROPOSAL TWO RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITOR	13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	13
STOCK OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT	15
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE	16
COMPENSATION DISCUSSION AND ANALYSIS	17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION	25
COMPENSATION COMMITTEE REPORT	26
EXECUTIVE COMPENSATION	26
COMPENSATION OF NON-EMPLOYEE DIRECTORS	32
AUDIT COMMITTEE REPORT	34
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	35
STOCKHOLDER PROPOSALS	36
OTHER MATTERS	37

SWS GROUP, INC.

1201 Elm Street, Suite 3500

Dallas, Texas 75270

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON NOVEMBER 18, 2010

We are providing this proxy statement and the accompanying notice of annual meeting to our stockholders in connection with the solicitation of proxies by our Board of Directors (the “Board”) for use at our 2010 annual meeting of stockholders to be held at Renaissance Tower, 1201 Elm Street, Suite 4200, Dallas, Texas 75270, on Thursday, November 18, 2010 at 9:00 a.m., local time and at any adjournments or postponements thereof.

On or about October 8, 2010, we began mailing the Notice of Internet Availability to everyone who was a stockholder of record on September 20, 2010, the record date for the annual meeting. If you received more than one Notice of Internet Availability, your shares are probably registered differently or are in more than one account.

At the annual meeting, our stockholders will be asked to consider and vote on the following proposals:

• the election of nine directors to serve until the next annual meeting;

• the ratification of the selection of Grant Thornton LLP as the company’s independent auditor for the fiscal year ending June 24, 2011; and

• the transaction of such other business that may properly come before the meeting or any adjournment or postponement thereof.

INFORMATION CONCERNING SOLICITATION AND VOTING

Record Date and Voting Securities

All stockholders of record at the close of business on September 20, 2010 are entitled to vote on the matters presented at the annual meeting or any adjournment or postponement thereof. At the close of business on September 20, 2010, there were 32,538,835 shares of our common stock issued and outstanding and entitled to vote. Each stockholder will have one vote for each share of our common stock owned of record at the close of business on September 20, 2010.

Election of Directors

Votes may be cast in favor of, or withheld from, a director nominee. Votes that are withheld from any director nominee will be counted in determining whether a quorum has been reached but will not affect the outcome of the vote.

Assuming a quorum is present (that is, the holders of a majority of the issued and outstanding shares of common stock are present in person or by proxy), director nominees must receive the affirmative vote of a plurality of the votes present in person or by proxy in order to be elected to the Board. A plurality means receiving more votes than any opposing candidate regardless of whether there is a majority of the votes present.

In the election of directors, stockholders are not entitled to cumulate their votes or vote for a greater number of persons than the number of director nominees named in this proxy statement.

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Other Matters

The approval of any other matters that may properly come before the annual meeting will be determined by the affirmative vote of a majority of the votes cast by the stockholders present in person or by proxy and entitled to vote, assuming a quorum is present.

Stockholder Voting

In addition to voting at the annual meeting, you may vote over the Internet at http://materials.proxyvote.com/78503N, or if you requested paper copies of the proxy materials, you may vote by telephone or by mail, as indicated on the Notice of Internet Availability. If you do attend the annual meeting, you may, of course, withdraw your proxy if you want and vote in person. If your shares are held in the name of a bank, broker or other holder of record, you will receive instructions from the holder of record. You must follow the instructions of the holder of record in order for your shares to be voted. If your shares are not registered in your own name and you plan to vote your shares in person at the annual meeting, you should contact your bank, broker or holder of record to obtain a legal proxy and bring it to the annual meeting in order to vote. If you receive more than one set of proxy materials, then your shares are likely held in more than one account. Please vote all of your shares.

If you vote by proxy, the individuals named in the proxy (your “proxies”) will vote your shares in the manner you indicate. You may specify whether your shares should be voted for or withheld from all, some or none of the nominees for director and whether your shares should be voted for, against or abstain from the ratification of the selection of Grant Thornton LLP as the company’s independent auditor for the fiscal year ending June 24, 2011. If you vote by proxy without indicating any instructions, your shares will be voted:

• FOR the election of the nine nominees for directors;

• FOR the ratification of the selection of Grant Thornton LLP as the company’s independent auditor for the fiscal year ending June 24, 2011.

We do not anticipate that any other matters will come before the annual meeting, but if any other matters properly come before the meeting, then the designated proxies will vote your shares in accordance with applicable law and their judgment.

Quorum Requirement

A quorum is necessary to hold a valid meeting. If stockholders entitled to cast a majority of all the votes entitled to be cast at the meeting are present in person or by proxy, a quorum will exist. If you have returned valid proxy instructions or attend the meeting in person, your common stock will be counted for the purpose of determining whether there is a quorum for the meeting, even if you abstain from voting on some or all matters introduced at the meeting. Broker non-votes are also counted as present for establishing a quorum for the meeting. A broker non-vote occurs when a broker does not vote on some matter on the proxy card because the broker does not have discretionary voting power for that particular item and has not received instructions from the beneficial owner.

Abstentions

Any stockholder who is present at the annual meeting, either in person or by proxy, who abstains from voting, will still be counted for purposes of determining whether a quorum exists for the meeting. An abstention will not be counted as an affirmative or negative vote in the election of directors or the proposal to approve the ratification of the selection of Grant Thornton LLP as the company’s independent auditor for the fiscal year ending June 24, 2011.

Voting Procedures: Broker “Non-Votes”

Each stockholder of record is entitled to one vote for each share registered in the stockholder’s name with respect to each matter to be voted on at the meeting. A “stockholder of record” is a person or entity who holds shares on the record date that are registered in that stockholder’s name on the records of the Company’s transfer agent. A person or entity who holds shares through a broker, bank or other nominee is considered a “beneficial owner” of the shares.

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If your shares are held in a brokerage account and you do not vote, your brokerage firm could:

• vote your shares, if permitted by applicable rules; or

• leave your shares unvoted.

Under applicable rules, brokers who hold shares on behalf of a beneficial owner have the authority to vote on routine matters. However, brokers do not have the authority to vote on non-routine matters unless they have received voting instructions from the beneficial owners. Please note that the rules regarding how brokers may vote your shares have changed. Brokers may no longer vote your shares on the election of directors in the absence of your specific instructions. Please provide instructions to your broker regarding the voting of your shares.

Broker non-votes are considered present for purposes of determining the existence of a quorum for the meeting, but with respect to a non-routine matter, broker non-votes will not be counted in determining the number of votes cast for that proposal. Therefore, broker non-votes will not impact the outcome of the election of directors.

Householding

U.S. Securities and Exchange Commission (“SEC”) rules and Delaware law permit us to mail the Notice of Internet Availability in one envelope to all stockholders residing at the same address if certain conditions are met. This is called householding and can result in savings of paper and mailing costs. SWS Group, Inc. households all Notices of Internet Availability mailed to stockholders.

If you choose not to household, you should send a written request (including your name and address) within 60 days after the mailing of the Notice of Internet Availability to our Corporate Secretary at the address below. In addition, if you choose to continue householding but would like to receive an additional copy of the Notice of Internet Availability, or a copy of our annual report or proxy statement for members of your household, you may contact SWS Group, Inc., Attn: Corporate Secretary, 1201 Elm Street, Suite 3500, Dallas, Texas 75270 or by calling (214) 859-6629. We will deliver promptly upon written or oral request a separate copy of the proxy statement or Notice of Internet Availability at a household to which a single copy of the Notice of Internet Availability was delivered. Stockholders residing at the same address who are receiving multiple copies of our Notice of Internet Availability or the proxy statement and annual report may request householding in the future by contacting our Corporate Secretary at the address or phone number set forth above.

Revocability of Proxies

You may revoke your proxy at any time before the annual meeting for any reason. To revoke your proxy before the meeting, deliver a later dated proxy or written instruction to our Corporate Secretary at SWS Group, Inc., 1201 Elm Street, Suite 3500, Dallas, Texas 75270. You may also come to the annual meeting and change your vote in writing. Merely attending the annual meeting does not revoke your proxy.

Expenses

This proxy solicitation is made by the Board of Directors on behalf of the company. We will bear all expenses in connection with this solicitation, including the cost of preparing, printing and mailing proxy materials. Proxies may be solicited by directors, officers and other employees, by Internet, telephone or otherwise, without additional compensation. We will also request brokerage firms, nominees, custodians and fiduciaries to forward proxy materials to the beneficial owners of our common stock and will reimburse those brokerage firms, nominees, custodians and fiduciaries and our transfer agent for their reasonable out-of-pocket expenses in forwarding such materials.

Internet Availability of Proxy Materials

Under the rules of the SEC, we are furnishing proxy materials to stockholders primarily through the Internet instead of mailing printed copies of those materials to each stockholder. On or about October 8, 2010, we mailed to stockholders (other than those who previously requested electronic or paper delivery) a Notice of Internet

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Availability containing instructions on how to access our proxy materials, including the proxy statement and our annual report. The Notice of Internet Availability also instructs you on how to access the proxy card to vote through the Internet.

This process is designed to expedite stockholders’ receipt of proxy materials, lower the cost of the annual meeting and help conserve natural resources. However, if you would prefer to receive printed proxy materials, please follow the instructions included in the Notice of Internet Availability. If you have previously elected to receive the company’s proxy materials electronically, you will continue to receive these materials via e-mail unless you elect otherwise.

OUR COMPANY

We are a full-service securities and banking firm delivering a broad range of investment, commercial banking and related financial services to our clients, which include individual, corporate and institutional investors, broker/dealers, governmental entities and financial intermediaries. We are a Delaware corporation and were incorporated in 1972. Our principal executive offices are located at 1201 Elm Street, Suite 3500, Dallas, Texas 75270. Our telephone number is (214) 859-1800 and our company website is www.swsgroupinc.com.

CORPORATE GOVERNANCE

General

We manage our business under the direction of the Board. The Board meets at least quarterly during the year to establish strategies and polices for the company, review significant developments and to act on matters requiring Board approval. The Board held seven meetings during fiscal 2010. Each director, during the period each director served, attended at least 75% of the Board and committee meetings in fiscal 2010. All directors were present at the 2009 annual meeting.

The Board has a practice of separating the offices of Chairman and Chief Executive Officer (“CEO”) to ensure the Chairman is fully independent of management. We have a Nominating/Corporate Governance Committee to consider and recommend candidates for Board vacancies, actively recruit qualified candidates, review and make recommendations regarding committee assignments and committee structure, and assist the Board in developing and implementing corporate governance practices and policies.

The Board has adopted a comprehensive set of Corporate Governance Guidelines that address a number of important governance issues, including director independence, as well as matters such as criteria for Board membership, expectations regarding attendance and participation at meetings, committee responsibilities, management succession planning, and annual Board self-evaluation. We have published these guidelines on the Corporate Governance page of our website, which can be accessed at www.swsgroupinc.com. In addition, a copy of our guidelines may be obtained free of charge, upon written request to our Corporate Secretary at SWS Group, Inc., 1201 Elm Street, Suite 3500, Dallas, Texas 75270.

The Board has adopted a formal set of disclosure controls and procedures and established a disclosure committee of executive management and other key employees. The disclosure controls and procedures create a framework by which we can be assured that all information required to be disclosed in our public filings with the SEC is disclosed in a timely and accurate manner.

Director Independence and Related Matters

The Board is comprised of a majority of directors who qualify as “independent” as defined in the listing standards of the New York Stock Exchange (the “NYSE”). In determining independence, the Board affirmatively determines on an annual basis whether any director has a “material relationship” with the company that would impair the director’s independence from management. When assessing the “materiality” of a director’s relationship with the company, the Board considers all relevant facts and circumstances, not merely from the director’s standpoint, but from that of the persons or organizations with which the director has an affiliation.

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The Board has affirmatively determined that the following members of the Board are “independent,” as defined in the NYSE’s listing standards and the rules of the SEC, and that no material relationship exists between the company and each listed director outside their service as a member of the Board of Directors: Brodie L. Cobb, I.D. Flores III, Larry A. Jobe, Frederick R. Meyer and Joel T. Williams III. In addition, Dr. R. Jan LeCroy and Jon L. Mosle Jr. were independent until their retirement on November 17, 2009.

The non-management directors of the Board meet in executive session during each of the Board’s regularly scheduled meetings without any management directors and any other members of management who may otherwise be present at the Board meeting. The Board annually selects an independent director to serve as the lead director to preside at our regularly scheduled executive sessions of our non-management directors. The Board has selected Mr. Meyer, an independent director, to serve as lead director.

Committees of the Board of Directors

The Board has implemented formal charters setting forth the powers and responsibilities of each of the Audit, Compensation and Nominating/Corporate Governance Committees. The current copies of all three charters may be accessed on the Corporate Governance page of our website at www.swsgroupinc.com. In addition, a copy of each charter may be obtained free of charge, upon written request to our Corporate Secretary at SWS Group, Inc., 1201 Elm Street, Suite 3500, Dallas, Texas 75270.

Compensation Committee: The Compensation Committee is comprised of three non-employee directors, each of whom is “independent,” as independence is defined in the NYSE’s listing standards. The Compensation Committee determines the salaries of our executive officers, assists in determining the salaries of other personnel, oversees the grant of awards under our Restricted Stock Plan and performs other similar functions. The Compensation Committee held four meetings during fiscal 2010 and is comprised of Messrs. Meyer (chairman), Cobb and Jobe. Each committee member attended all four committee meetings during fiscal 2010.

Audit Committee: The Board has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The Audit Committee is comprised of three non-employee directors, each of whom is “independent,” as independence is defined in the NYSE’s listing standards and applicable SEC standards. The Audit Committee assists the Board in monitoring the integrity of our financial statements, our independent accountant’s qualifications and independence, the performance of our internal audit function and our compliance with legal and regulatory requirements. The Audit Committee held eight meetings during fiscal 2010 and is comprised of Messrs. Jobe (chairman), Flores and Williams. In fiscal 2010, each committee member attended all meetings that occurred during their term. Messrs. LeCroy and Mosle were members of the Audit Committee until their retirement on November 17, 2009. The Board has determined that Larry Jobe is an “audit committee financial expert” as defined by the SEC.

The responsibilities of the Audit Committee include appointing an independent registered public accounting firm to be engaged as our independent accountants. Additionally, and as appropriate, consulting with our management, our internal audit personnel and the independent accountants, the Audit Committee reviews, evaluates and discusses the following:

• the plan for, and the independent accountants’ report on, each audit of our financial statements;

• regulatory matters that may have a material impact on our financial statements and our compliance policies; and

• the appropriateness of our accounting policies, changes in accounting principles and their impact on our financial statements.

In fiscal 2010, the Audit Committee reviewed the formal charter setting forth the powers and responsibilities of the Audit Committee.

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Nominating/Corporate Governance Committee: The Nominating/Corporate Governance Committee is comprised of three non-employee directors, each of whom is “independent,” as independence is defined in the NYSE’s listing standards. The Nominating/Corporate Governance Committee is responsible for identifying individuals qualified to become members of the Board, recommending to the Board qualified director nominees to be proposed for election at the annual meeting of stockholders, recommending to the Board directors to be appointed to the various committees of the Board and developing and recommending to the Board effective corporate governance practices and policies. The Nominating/Corporate Governance Committee held four meetings during fiscal 2010 and is comprised of Messrs. Meyer (chairman), Flores and Williams. Messrs. LeCroy and Mosle were members of the Nominating/Corporate Governance Committee until their retirement on November 17, 2009. With the exception of Mr. Mosle, each committee member, for the meetings that occurred during their term, attended all meetings during fiscal 2010. Mr. Mosle missed one of the three meetings that occurred between the beginning of the fiscal year and the time he retired from the Board on November 17, 2009.

The Nominating/Corporate Governance Committee reviews the composition of the Board and whether the addition of directors with particular experiences, skills, or characteristics would make the Board more effective. When a need arises to fill a vacancy or it is determined that a director possessing particular experiences, skills, or characteristics would make the Board more effective, the Nominating/Corporate Governance Committee initiates a search. As a part of the search process, the committee may consult with other directors and members of management, and may hire a search firm to assist in identifying and evaluating potential candidates. The Nominating/Corporate Governance Committee seeks members from diverse professional backgrounds who combine a broad spectrum of experience and expertise with a reputation for integrity. When considering a candidate, the Nominating/Corporate Governance Committee reviews the candidate’s experiences, skills, and characteristics. Specifically, candidates should have experience in positions with a high degree of responsibility and be leaders in the companies or institutions with which they are affiliated.

Our Nominating/Corporate Governance Committee is responsible for recommending to the Board the criteria for Board membership, as set forth from time to time in the company’s Corporate Governance Guidelines. The Corporate Governance Guidelines require that the Board seek members (i) from diverse professional backgrounds who combine a broad spectrum of experience and expertise with a reputation for integrity and (ii) that have experience in positions with a high degree of responsibility and are leaders in the companies or institutions with which they are affiliated. Our Nominating/Corporate Governance Committee evaluates each individual in the context of the Board as a whole, with the objective of recommending to stockholders a group that collectively can best serve the long-term interest of our employees, customers, and stockholders.

While there is no formal policy with regard to diversity, the Board considers diversity in terms of experience, gender, ethnicity, color and age, with the goal of obtaining diverse perspectives. The Board’s primary consideration is to identify candidates with the background, experience, and skills that will best fulfill the Board’s and our needs each year and at any time a search is being conducted. Therefore, the Board does not believe it is appropriate to either nominate or exclude from nomination an individual based solely on gender, ethnicity, color, age, or similar factors.

The Nominating/Corporate Governance Committee considers nominees recommended by our stockholders within a reasonable time prior to the annual meeting. Stockholders wishing to submit such a recommendation should send the nominee’s name, business and management experience, and all other relevant information regarding the nominee to the Nominating/Corporate Governance Committee, c/o SWS Group, Inc., Attn: General Counsel, 1201 Elm Street, Suite 3500, Dallas, Texas 75270.

We currently have a Chairman separate from the role of CEO. The Board believes it is important to maintain flexibility in the Board leadership structure and has had in place different leadership structures in the past depending on the company’s needs at the time, but firmly supports having the Chairman role separate from the role of CEO.

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Board Oversight of Business Risk

Our management is primarily responsible for managing our business risks. Management manages business risk primarily through several risk management committees assigned to oversee specific areas of risk. The Board’s oversight of major risks occurs at both the full Board level and the Board committee level. The Board and its committees use the following procedures to monitor and assess risks:

The Board: The CEO, members of senior management, and other personnel and advisors, as requested by the Board, report on our financial and operating strategies, as well as related risks, at regular meetings of the Board. Based on these reports, the Board requests follow-up data and presentations to address its specific concerns and recommendations. As necessary, information from the risk committees are provided to the Board. In an effort to assist the company in managing enterprise risk, in 2010, the company engaged a firm at the Board’s request to perform an analysis of the company’s enterprise risk management process. Based on the firm’s recommendations, management is implementing some additional reports and processes to streamline reporting on risk management to the Board.

The Audit Committee: In accordance with the requirements of the NYSE, the Audit Committee assists the Board with our oversight responsibilities by discussing our major financial risk exposures, its policies with respect to risk assessment and risk management, and the steps management has taken to monitor and control or mitigate financial risk exposures. The Audit Committee discusses with our management, as well as our Internal Audit Department (including in executive sessions), our policies with respect to risk assessment and risk management and advises management on its risk assessment approach and its prioritization of risks. The Audit Committee also receives regular reports on, and assessments of, our internal controls from our Internal Audit Department and members of management responsible for disclosure controls. In addition, the Audit Committee receives the independent auditor’s assessment of our internal controls and financial risks, which includes the independent auditor’s report on its procedures for identifying fraud, including procedures for the submission of anonymous reports. At each of its regular meetings, the Audit Committee also receives management reports regarding specific areas of financial risk and discusses strategies to mitigate risk.

The Nominating/Corporate Governance Committee: The Nominating/Corporate Governance Committee receives updates and advice from management and outside advisors regarding our procedures for complying with corporate governance regulations, as well as with respect to our governance structure. This committee also reviews the company’s Corporate Governance Guidelines at least annually to further the company’s goal of providing effective governance.

The Compensation Committee: The Compensation Committee receives management updates and advice on the ongoing advisability of our compensation practices. The Compensation Committee is aware of the need to routinely assess our compensation policies and practices as they relate to our risk management and how our compensation policies and practices affect risk taking by our employees. The Compensation Committee has determined that the compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on our financial position and results of operations. The Compensation Committee also assists the Board with its annual review of succession planning.

Board Attendance at Annual Meetings

Although we do not have a formal policy that requires Board members to attend the annual meeting of stockholders, attendance is encouraged and all of our directors attended the 2009 annual meeting.

Communications with the Board

Stockholders and interested parties may communicate directly with the Board, including non-management members of the Board. All communications to the Board should be directed to our Corporate Secretary and should prominently indicate on the outside of the envelope that the communication is intended for a specific member of the Board or the non-management members of the Board as a group. Each communication intended

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for the Board and received by the Corporate Secretary will be promptly forwarded to the specified party following its clearance through normal security procedures. The communications will be opened for the purpose of ensuring that matters are handled timely and expeditiously. The address for communications with the Board is as follows: Corporate Secretary, SWS Group, Inc., 1201 Elm Street, Suite 3500, Dallas, Texas 75270.

Code of Business Conduct and Ethics

We have adopted a corporate Code of Business Conduct and Ethics (the “Code of Ethics”) that applies to all of our directors and employees. The Code of Ethics is intended to promote:

• honest and ethical conduct;

• avoidance of conflicts of interest;

• full, fair, accurate, timely, and understandable disclosure in the reports and documents that we file with, or submit to, the SEC, and in all other public communications made by us;

• compliance with all governmental laws, rules, and regulations;

• prompt internal reporting of violations of the Code of Ethics; and

• accountability for adherence to the Code of Ethics.

The Code of Ethics is a product of our commitment to honesty. You may access the Code of Ethics on the Corporate Governance page of our website at www.swsgroupinc.com. In addition, a copy of the Code of Ethics may be obtained free of charge, upon written request to our Corporate Secretary at SWS Group, Inc., 1201 Elm Street, Suite 3500, Dallas, Texas 75270. Any amendments to the Code of Ethics and any waivers that are required to be disclosed by the rules of the SEC and the NYSE will be posted on our corporate website.

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PROPOSAL ONE

ELECTION OF DIRECTORS

Nominees For Director

Our Board of Directors has nominated the persons listed below for election to the Board. There are no arrangements or understandings between any nominee and any other person pursuant to which any nominee was selected.

Don A. Buchholz (age 81)^{( 1)}

Mr. Buchholz is one of our founders. He has served as a director and as Chairman of the Board since August 1991; CEO from December 2001 until August 2002 and from 1984 until July 1994; President from 1984 until August 1991; and Chairman of the Board of Southwest Securities, Inc., our principal broker/dealer subsidiary (“Southwest Securities”), from August 1993 to May 1996. Mr. Buchholz has been associated with Southwest Securities in various executive capacities since its inception in 1972. Mr. Buchholz currently serves on the Board of Directors of U.S. Home Systems, Inc., a home remodeling and specialty home improvement company. He is a past director of the Securities Industry Association (“SIA”), a past Chairman of the Executive Committee of the South Central District of the SIA, a past member of the Boards of Governors of the NYSE and the National Association of Securities Dealers, and a past President and director of the Texas Stock and Bond Dealers Association. The Board concluded that Mr. Buchholz should serve as director of the company for the following reasons: (i) Mr. Buchholz, being a founder and former CEO of the company, is uniquely qualified to provide insight into our core businesses including the bank and broker/dealer segments; (ii) his former roles with the company also improved his skills as a senior level manager and equipped him to oversee our senior management and development of policy and (iii) Mr. Buchholz’s founding of the company, previous management experience and membership on other public company boards make him an exceptional director for our Board.

James H. Ross (age 60)

Mr. Ross was appointed to serve as a member of the Board and as CEO of the company on August 18, 2010. He has served as Executive Vice President since November 2004 and, in September 2007, was elected President and Chief Executive Officer of Southwest Securities. Mr. Ross served as the director of the private client group at Southwest Securities from March 2004 to March 2008. He has served as CEO of SWS Financial Services, Inc. since March 2004. Mr. Ross came to Southwest Securities in 2004, to head the private client group’s brokerage office in downtown Dallas, Texas. Prior to coming to Southwest Securities, Mr. Ross was with UBS Paine Webber, where, from April 1991 to December 2003, Mr. Ross held various positions from financial advisor to branch manager. He began his securities industry career in 1975. The Board concluded that Mr. Ross should serve as a director of the company for the following reasons: (i) Mr. Ross has broad and extensive experience in the securities industry and its regulatory environment; (ii) Mr. Ross has successfully managed our principal broker/dealer subsidiary including the management of senior level staff and profit centers for the past three years and (iii) Mr. Ross also has significant experience with sales and marketing, strategic planning and mergers and acquisitions.

Robert A. Buchholz (age 50)

Mr. Buchholz has served as a director since May 2008. Mr. Buchholz is Chairman of the Board and founder of Town Center Holdings, Inc. in Coppell, Texas. Town Center Holdings, Inc. is the former parent company of Town Center Bank. Town Center Bank merged with Independent Bank of McKinney, Texas on July 30, 2010. Since 2006, he has also been a managing partner of DoubleDave’s Pizzaworks of North Texas, Ltd., a franchisee. Before organizing Town Center Bank in 2003, Mr. Buchholz was a practicing attorney in North Carolina. Prior to entering the legal field, Mr. Buchholz served as an officer of Southwest Securities Group, Inc. (now SWS Group, Inc.) in Dallas from 1985 to 1995, advancing to President and serving as a member of the Board of Directors. He is also a former certified public accountant. Mr. Buchholz is a director of Blue Sky Technologies, Inc., Variview Technology LLC and the Episcopal School of Dallas. He is a member of the Business Honors

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Program Advisory Council of the University of Texas at Austin. Mr. Buchholz is the son of Mr. Don A. Buchholz, Chairman of the Board. The Board concluded that Mr. Buchholz should serve as a director of the company for the following reasons: (i) Mr. Buchholz’s role as the Chairman and founder of Town Center Bank allows him to assist the Board with the oversight of our bank and its interaction with various regulators; (ii) as a former director and executive officer of the company, Mr. Buchholz is well versed in the business of our broker/dealer and its oversight by multiple regulators; (iii) Mr. Buchholz brings both legal and accounting expertise to the Board from his prior roles as an attorney and a certified public accountant and (iv) Mr. Buchholz, as a past executive of the company and a recent executive of Town Center Bank, is capable of assisting the Board with oversight of senior level management, as well as oversight of the company’s business policies.

Brodie L. Cobb (age 49)^{( 3)}

Mr. Cobb has served as a director since 1999. He is the founder and Managing Director of San Francisco-based Presidio Financial Partners, LLC, a specialty investment bank focusing on mergers and acquisitions, private financings, strategic services and wealth management, where he has served from 1997 to the present. Mr. Cobb’s previous experience includes serving as a Vice President at Montgomery Securities from 1995 to 1997 and as an Associate at Credit Suisse First Boston LLC from 1992 to 1995. The Board concluded that Mr. Cobb should serve as a director of the company for the following reasons: (i) Mr. Cobb, as a founder and managing director of Presidio Financial Partners, provides expertise in overseeing senior management and (ii) Mr. Cobb is frequently called upon to share his expertise with the full Board on strategic planning.

I.D. Flores III (age 66)^(2),(4)

Mr. Flores has served as a director since November 2007. He is co-founder and Partner of Ceres Capital Partners, a private equity firm established in 1995 specializing in corporate acquisitions and investment banking activities. Prior to co-founding Ceres Capital, Mr. Flores was President of KR Companies, an independent energy company; the principal financial officer for international treasury and corporate financing of Dresser Industries, Inc., a manufacturer of equipment for the oil and gas industry; investment banking officer of Eppler, Guerin & Turner, Inc.; and a member of the faculty of Harvard Business School. He currently serves on the Board of Directors of Ceres Capital Partners and FGR Food Corporation, the Board of Trustees and the Investment Committee of the Southwestern Medical Foundation, the Advisory Board of Booker T. Washington High School for the Performing and Visual Arts, and he is the former Texas Director of the Harvard Alumni Association. The Board concluded that Mr. Flores should serve as a director of the company for the following reasons: (i) Mr. Flores’ experiences as a co-founder and partner of Ceres Capital Partners enable him to contribute significantly to the oversight of our investment banking activities, strategic planning, business policy making and capital markets activities; (ii) Mr. Flores’ past experience as a President of KR Companies enables him to provide oversight of senior level management and management development and (iii) his previous experience as a financial officer for treasury and corporate finance of a major multi-national corporation enables him to provide oversight of our financial position and risk management.

Larry A. Jobe (age 70)^{( 2) ,( 3)}

Mr. Jobe has served as a director since July 2005. Mr. Jobe, a certified public accountant, is founder and Chairman of the Board of Legal Network, Ltd. and founder and President of P 1 Resources, L.L.C., both Dallas, Texas based companies. Mr. Jobe founded Legal Network, Ltd., a company that provides litigation support, temporary support staff and contract attorneys to law firms and corporate legal departments, in 1993. In 1994, he founded P 1 Resources, L.L.C., which provides engineering and light industrial staffing services to the construction industry. Mr. Jobe was affiliated with Grant Thornton LLP from 1973 to 1991, serving as Managing Partner of the Dallas office from 1973 to 1986 and as Regional Managing Partner of the Southwest Region from 1983 to 1991. From 1969 to 1972, Mr. Jobe served as the United States Assistant Secretary of Commerce for Administration. Mr. Jobe currently serves as Chairman of the Board of Directors of Independent Bank of Texas and as a member of the Board of Directors and Audit Committee Chairman of U.S. Home Systems, Inc., a home remodeling and specialty home improvement company, and Mannatech Incorporated, a global wellness solutions company. The Board concluded that Mr. Jobe should serve as a director of the company for the following reasons: (i) Mr. Jobe, the chairman of our Audit Committee brings extensive accounting and audit skills to the Board from his 18 years of experience at Grant

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Thornton, LLP; (ii) as a founder and head of Legal Network, Ltd. and P 1 Resources, L.L.C., Mr. Jobe has gained extensive experience in managing senior executives and overall profitability and (iii) Mr. Jobe’s experience on other public and non-public boards brings important executive management experience to the Board.

Frederick R. Meyer (age 82)^(3),(4)

Mr. Meyer has served as a director since 1991 and as lead director of executive sessions of our non-management directors since 2006. Mr. Meyer was Chairman of the Board of Directors of Aladdin Industries LLC, a diversified company from 1985 to 2004. He also formerly held the position of President and Chief Executive Officer of Aladdin Industries LLC from 1987 to 1994 and again from 1995 to 2004. Mr. Meyer was also President and Chief Operating Officer of Tyler Corporation, a diversified manufacturing corporation, from 1983 to 1986. He currently serves on the Board of Directors as lead director and Chairman of the Governance Committee of Palm Harbor Homes, Inc., a manufactured home builder. From 2001 to 2010, he served on the Board of Directors and as chairman of the Compensation Committee of Westwood Holdings Group, Inc., an asset management company. The Board concluded that Mr. Meyer should serve as a director of the company for the following reasons: (i) Mr. Meyer gained finance, business policy making and senior level management skills during his executive and board roles at Aladdin Industries LLC and (ii) Mr. Meyer’s public company board experience in corporate governance and compensation also makes him a good choice for the Chairman of our Nominating/Corporate Governance and Compensation Committees.

Dr. Mike Moses (age 58)

Dr. Moses has served as a director since March 2006. Dr. Moses serves as Senior Education Advisor for Raise Your Hand Texas, a non-profit educational advocacy organization. From November 2001 to July 2006, he served as Vice Chairman of the Board of Directors for Higher Ed Holdings, LLC, which develops education programs for teachers and administrators and is focused on improving teacher training and redesigning high schools throughout the nation. Prior to joining Higher Ed Holdings, LLC, Dr. Moses was affiliated with the Dallas Independent School District, serving as its General Superintendent from January 2001 to August 2004. From 1995 to 1999, Dr. Moses served as Texas Commissioner of Education, appointed twice by then Texas Governor George W. Bush. In 1999, he joined the Texas Tech University System as Deputy Chancellor where he served until December 2000. Dr. Moses is the Chairman of the Board of Directors for the American College of Education in Chicago, Illinois and serves on the board of Scientific Learning Corporation, a producer of reading and language intervention programs for Pre-K through 12^th grade schools. Dr. Moses served on the Board of Directors and as a member of the Audit Committee of Trammell Crow Company, a real estate property management company until its sale in 2007 to CB Richard Ellis. The Board concluded that Dr. Moses should serve as a director of the company because Dr. Moses’s positions as General Superintendent of Dallas Independent School District and Texas Commissioner of Education, bring strong administrative, finance and executive management oversight expertise to the Board.

Joel T. Williams III (age 62)^(2),(4)

Mr. Williams has served as a director since November 2009. Mr. Williams, an attorney, has been the President of Bristol Investment Company, Inc., a private investment firm, since 1985. He formerly served as President and CEO of Texas Federal Financial Corporation, a savings and loan holding company, prior to its sale in 1984. A long time advocate and volunteer for Children’s Medical Center, Mr. Williams served as its Chairman from 1993 to 2000, and Chairman of its holding company, Children’s Health Services of Texas, from 2000 to 2003. He currently serves as Chairman Emeritus of Children’s Health Services of Texas and on the Executive Committee of Children’s Medical Center Foundation. He is the founder and has been the President of Passion for Children’s Inc., a not-for-profit corporation that raises money exclusively for Children’s Medical Center. The Board concluded that Mr. Williams should serve as a director of the company for the following reasons: (i) Mr. Williams’s experience as President and CEO of Bristol Investment Company and formerly with Texas Federal Financial Corporation, assists the Board with the oversight of senior level management and management of our business lines and (ii) Mr. Williams also brings legal knowledge and perspectives to the Board as an attorney.

^{(1 )} Member of the Executive Committee

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^{(2 )} Member of the Audit Committee

^{(3 )} Member of the Compensation Committee

^{(4 )} Member of the Nominating/Corporate Governance Committee

Unless otherwise instructed, the proxy holders will vote their proxies for the nine nominees named above. Each person will serve as a director until the next annual meeting. To our knowledge, each of the nominees intends to serve the entire term for which election is sought. At this time, we do not anticipate that any nominee will be unable or unwilling to serve as a director.

Recommendation of the Board

The Board recommends that you vote “FOR” the election of each of the nominees listed above.

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PROPOSAL TWO

RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITOR

Stockholder ratification of the selection of Grant Thornton LLP as the company’s independent auditor is not required by our by-laws or otherwise. However, the Board is submitting the selection of Grant Thornton LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Audit Committee and the Board will reconsider whether or not to retain Grant Thornton LLP. If the selection is ratified, the Board and the Audit Committee, in their discretion, may direct the selection of a different independent accounting firm at any time during the year if the Board believes this change would be in the best interest of the company and its stockholders.

Recommendation of the Board

The Board recommends that you vote “FOR” the ratification of Grant Thornton LLP as the company’s independent auditor.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions with Related Persons

To the extent permitted by the Sarbanes-Oxley Act of 2002, directors and executive officers of the company and their associates, including family members, from time to time may be or may have been indebted to the company or its subsidiaries under lending arrangements offered by those companies to the public. For example, such persons may be or may have been indebted to Southwest Securities or Southwest Securities, FSB, our wholly owned banking subsidiary (the “Bank”), as customers, in connection with margin account loans, revolving lines of credit and other extensions of credit. Such indebtedness is extended in the ordinary course of business, is on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unaffiliated third parties who are not employees of the company and does not involve a more than normal risk of collectibility or present other unfavorable features. Please refer to the section of this proxy statement titled “Corporate Governance—Director Independence and Related Matters” for additional information regarding certain relationships between our directors and the company.

From time to time and in the ordinary course of its business, the Bank sells participations in loans it generates to other lending institutions or purchases loan participations from such other institutions. At June 30, 2010, Don A. Buchholz, a director and Chairman of our Board, and Robert A. Buchholz, a director, together with other direct family members, owned an aggregate of 64% of Town Center Holdings, Inc., a bank holding company which owned 100% of Town Center Bank, located in Coppell, Texas. Robert Buchholz served as Town Center Bank’s Chairman. John Holt, President and Chief Executive Officer of the Bank, owns less than 0.5% of Town Center Holdings.

During fiscal year 2010, our Bank did not buy or sell any loan participations to Town Center Bank. In fiscal year 2010, Town Center Bank held participations, sold by the Bank in previous years, with an outstanding aggregate balance of $3,400,000 at June 30, 2010 on which borrowers paid $157,000 in interest and fees.

The company’s Audit Committee has examined the loan participations bought and sold by the Bank from and to Town Center Bank, together with similar transactions entered into at about the same time with independent third parties. Based upon this examination, the Audit Committee has determined that each such transaction was made in the ordinary course of business, was on substantially the same terms, including interest rate and fees, as those prevailing at the time for comparable transactions with persons not related to the Bank and did not present other unfavorable features to the Bank.

Policies and Procedures with Respect to Related Person Transactions

The Board recognizes that related person transactions can present a heightened risk of conflicts of interest. Our written Related Party Transaction Policy and Procedures may be accessed on the corporate governance page of

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our website at www.swsgroupinc.com. For purposes of SEC rules as well as our related party transactions policy, a “related person transaction” is any transaction in which the company was, is or will be a participant and the amount involved exceeds $120,000 and in which any related person had, has or will have a direct or indirect material interest. The term “related person” means:

• any person who is, or at any time since the beginning of the company’s last fiscal year was, a director or executive officer of the company or a nominee to become a director of the company;

• any person who is known to be the beneficial owner of more than 5% of any class of the company’s voting securities; and

• any immediate family member of any of the foregoing persons.

The Audit Committee reviews relationships and transactions in which the company and a related person are participants to determine whether such persons have a direct or indirect material interest. The Audit Committee has determined that, barring additional facts or circumstances, a related person does not have a direct or indirect material interest in the following categories of transaction:

• any transaction with another company for which a related person’s only relationship is as an employee (other than an executive officer), director, or beneficial owner of less than 10% of that company’s shares;

• any charitable contribution, grant, or endowment by the company to a charitable organization, foundation, or university for which a related person’s only relationship is as an employee (other than an executive officer) or a director, if the aggregate amount involved does not exceed the lesser of $1 million, or 2% of the charitable organization’s total annual receipts;

• compensation to executive officers determined by the Compensation Committee; or

• compensation to directors determined by the Board.

To identify potential related person transactions, under our policy, we request information from our directors and executive officers about related party transactions as defined above and in our related party transaction policies and procedures. Where appropriate, we also ask that our directors seek pre-approval for related party transactions. We then review the information provided for any related person transactions. The Audit Committee reviews and approves or ratifies any related person transaction. As required under SEC rules, transactions that are determined to be directly or indirectly material to the company or a related person will be disclosed in the company’s proxy statement. Any member of the Audit Committee who is a related person with respect to a transaction under review may not participate in the deliberations or vote respecting approval or ratification of the transaction.

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STOCK OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

The following table sets forth information concerning the beneficial ownership of our common stock as of September 20, 2010, by each person who is known to us to beneficially own more than 5% of our common stock, each of our directors and named executive officers (“NEOs”), and all of our directors and executive officers as a group. Our NEOs consist of our Chief Executive Officer, Chief Financial Officer and our three most highly compensated executive officers (other than our Chief Executive Officer and our Chief Financial Officer) who were serving as executive officers as of June 25, 2010. Unless otherwise indicated, the address of each officer and director is 1201 Elm Street, Suite 3500, Dallas, Texas 75270.

	Shares Beneficially Owned(1)( 2)
Name	Number	Percent
Beneficial Owners of More Than 5%:
BlackRock, Inc.( 3)
55 East 52nd Street; New York, NY 10055	3,750,972	11.53	%
Executive Officers and Directors:
Robert A. Buchholz( 4)	1,261,284	3.88	%
Brodie L. Cobb( 5)	987,962	3.04	%
Frederick R. Meyer	223,926	*
Don A. Buchholz( 6)	175,051	*
Donald W. Hultgren( 7)	169,133	*
Kenneth R. Hanks( 8)	95,282	*
Richard H. Litton( 9)	56,818	*
James H. Ross	54,903	*
Daniel R. Leland	46,659	*
Larry A. Jobe	25,000	*
Dr. Mike Moses	13,160	*
I.D. Flores III	13,000	*
Joel T. Williams III	2,000	*
All directors and executive officers as a group (19 persons)( 10)	3,418,133	10.45	%

^(*) Denotes less than 1% ownership.

^{(1 )} The rules of the SEC provide that, for purposes of this proxy statement, a person is considered the “beneficial owner” of shares with respect to which the person, directly or indirectly, has or shares voting or dispositive power, irrespective of the person’s economic interest in the shares. Unless otherwise noted, each person identified possesses sole voting and dispositive power over the shares listed, subject to the effects of community property laws.

^{(2 )} Based on 32,538,835 shares outstanding on September 20, 2010. Includes shares issued pursuant to the SWS Group, Inc. 2003 Restricted Stock Plan (the “Restricted Stock Plan”). Shares of common stock subject to stock options that are exercisable within 60 days of September 20, 2010 are deemed beneficially owned by the person holding such options and deemed outstanding for purposes of calculating the percentage of ownership of such person, but are not treated as outstanding for purposes of computing the percentage ownership of any other person.

⁽³⁾ Based on a Schedule 13G filed on January 29, 2010 and amended on February 8, 2010, BlackRock, Inc. beneficially owned 3,750,972 shares of our common stock (reporting sole voting power with respect to 3,750,972 shares and sole dispositive power with respect to 3,750,972 shares). BlackRock, Inc. acquired Barclays Global Investors from Barclays Bank PLC on December 1, 2009. The Schedule 13G filed January 29, 2010 effectively amended the Schedule 13G filed February 5, 2009 by Barclays Global Fund Advisors.

^{(4 )} Includes 825,000 shares beneficially owned by Union Hill Holdings, Ltd., a limited partnership of which Robert A. Buchholz is a controlling partner.

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^{(5 )} Includes 972,083 shares beneficially owned by Cobb Partners, Ltd., a limited partnership of which Mr. Cobb is the managing partner. Cobb Partners is a limited partnership, the partners of which are Brodie L. Cobb and certain members of his family. Brodie L. Cobb is the managing partner of the partnership and has sole voting and investment power with regard to the shares beneficially owned by the partnership.

^{(6 )} Excludes 32,042 shares held by Union Hill Investments, a general partnership, the partners of which are Don A. Buchholz, his wife, his adult daughter and Robert A. Buchholz. Pursuant to the terms of the partnership agreement, neither Don A. Buchholz nor his wife has any voting or investment power with regard to the shares beneficially owned by the partnership. Includes 57,556 shares held by Union Hill Holdings, Ltd., a limited partnership, the partners of which are Don A. Buchholz and his wife, his adult daughter, Robert A. Buchholz and various Buchholz family trusts. A Buchholz family limited liability company is the general partner of Union Hill Holdings, Ltd. Neither Don A. Buchholz nor his wife has any voting or investment power with regard to the shares beneficially owned by the partnership. Don A. Buchholz and his wife own 6.9765% and Robert A. Buchholz owns 2% of Union Hill Holdings, Ltd. The partnership agreement provides that any partner may withdraw from the partnership only upon unanimous agreement of all the partners. The 57,556 shares held by Union Hill Holdings, Ltd. and included in the table for Don A. Buchholz represented 6.9765% of the total 825,000 shares owned in the name of Union Hill Holdings, Ltd.

^{(7 )} Includes 37,500 shares of common stock issuable upon exercise of stock options within 60 days of September 20, 2010.

^{(8 )} Includes 35,062 shares of common stock issuable upon exercise of stock options within 60 days of September 20, 2010.

⁽⁹⁾ Includes 19,375 shares of common stock issuable upon exercise of stock options within 60 days of September 20, 2010.

^{(1 0)} Includes the information in notes 4-9 above. In addition, includes 133,498 shares of common stock beneficially owned by other executive officers not listed in the above table because such executive officers are not NEOs and 70,859 shares of common stock issuable upon exercise of stock options held by such executive officers within 60 days of September 20, 2010.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act and regulations of the SEC require our executive officers and directors and persons who own more than 10% of our common stock to file initial reports of beneficial ownership and reports covering any changes in beneficial ownership with the SEC and the NYSE. Executive officers, directors and persons owning more than 10% of our common stock are required by SEC regulations to furnish us with all such reports they file.

Based solely on our review of the copies of such reports that we have received and written representations that no other reports were required for such persons, we believe that all filing requirements applicable to our executive officers, directors and persons owning more than 10% of our common stock were complied with, except as follows:

Frederick Myer, a director of the company, reported 2,000 shares of restricted stock acquired on August 24, 2009 on his Form 4 filing with the SEC on August 27, 2009.

Jon L. Mosle, Jr., a director of the company, reported 2,000 shares of restricted stock acquired on August 24, 2009 on his Form 4 filing with the SEC on August 27, 2009.

Don A. Buchholz, a director of the company, reported 15,345 shares given as a gift that occurred on January 4, 2010 on his Form 4 filing with the SEC on February 16, 2010.

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Robert A. Buchholz, a director of the company, reported 9,207 shares given as a gift that occurred on January 4, 2010 on his Form 4 filing with the SEC on February 16, 2010.

I.D. Flores III, a director of the company, reported 2,000 shares acquired in the open market on May 6, 2010 on his Form 4 filing with the SEC on May  28, 2010.

COMPENSATION DISCUSSION AND ANALYSIS

The following Compensation Discussion and Analysis should be read in conjunction with the “Summary Compensation Table” and related tables that are presented elsewhere in this proxy statement.

Compensation Philosophy and Objectives

As a securities and banking firm, one of our greatest assets is the skill, experience and efforts of our employees. Our long-term success depends on our ability to provide solutions that enable our clients to achieve their financial and business goals. In our industry, employee talents are easily transferred from one employer to another, and there is continual competitive activity to recruit talented individuals with valuable experience.

Our executive officer compensation program is designed to reward and retain talented executive officers while holding them accountable for the performance of the company and, where applicable, the business units they manage by basing elements of their compensation on a combination of company and business unit results. By offering a combination of compensation elements including salary, cash incentive awards and long-term equity based incentive compensation, we seek to achieve the following objectives:

• to attract, motivate and retain highly qualified executive officers through a competitive total compensation program;

• to ensure that a substantial portion of executive officer compensation is tied to the achievement of financial and strategic objectives and to the financial results of individual business units; and

• to maintain an appropriate balance between base salary, cash incentive awards and long-term equity based incentive compensation, with more variable compensation risk at higher salary grades.

Because our industry depends, in large measure, on the successful efforts of commission-earning sales professionals, which commissions have historically been paid in cash, compensation within broker/dealers of comparable size is more heavily weighted to cash than is found in many other industries. The Compensation Committee (the “Committee”) takes these realities into account, and also seeks to align the cash compensation of NEOs with the success of both the individual business unit over which they have managerial authority and the success of the overall company. Our NEOs consist of our Chief Executive Officer, Chief Financial Officer and our three most highly compensated executive officers (other than our Chief Executive Officer and our Chief Financial Officer) who were serving as executive officers as of June 25, 2010. During fiscal 2010, these individuals were Donald W. Hultgren, Kenneth R. Hanks, Daniel R. Leland, Richard H. Litton and James H. Ross.

The Committee evaluates both compensation (particularly salary, cash incentive awards and long-term equity based incentive compensation) and performance of our executive officers, measured by return on stockholder’s equity (“ROE”), relative to other companies in a comparator group to ensure that we maintain the ability to attract and retain superior employees in key positions while not getting ahead of the market. The Committee seeks to compensate NEOs at a level that is competitive with similar firms in the brokerage and banking industries and to align NEOs’ incentives with the interests of our stockholders. While the Committee has primary responsibility for compensation across the company, all grants of stock are subject to the final approval of the Board.

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Setting Executive Compensation

Based on the foregoing objectives, the Committee has structured salary, cash incentive awards and long-term equity-based incentive compensation in a manner designed to motivate NEOs to achieve the company’s business goals and to reward the NEOs for achieving those goals. In establishing total annual compensation for the Chief Executive Officer, Chief Financial Officer and the other NEOs, the Committee performs the following reviews:

• Assessment of Company Performance. The Committee’s primary measure of total company performance is ROE, measured as net income for the fiscal year divided by retained earnings at the beginning of the fiscal year. The Committee reviews the company’s historical performance, the market cycle, and competitor returns to determine a target ROE for the fiscal year. This target is linked to an assigned multiplier factor which has a direct impact on the amount of cash and equity-based incentive compensation available to the NEOs for the fiscal year.

• Assessment of Business Unit Performance. Business unit performance has a strong impact on the compensation of NEOs responsible for managing revenue-producing business units. We believe that this portion of annual compensation provides a strong incentive to increase financial performance and enhance returns to stockholders. The company’s primary measure of business unit performance is pre-tax income for the business unit. The Committee also reviews the performance of each revenue-producing business unit as well as each NEO’s role and responsibilities in achieving that performance to determine a preset percentage of pre-tax income for an applicable business unit that can be earned by an NEO as cash incentive compensation. This approach enables us to control costs in individual business units when revenues decline in down markets and to reward executives when revenues are growing in expanding markets.

• Comparative Analysis. The Committee also compares each component of the NEO’s total compensation against the similar components of compensation reported for a group of financial institutions that either directly compete with us for business and/or talent or are organizations with similar scope, size or other characteristics to SWS Group, Inc. The group is periodically reviewed and updated by the Committee. The companies currently comprising the group are:

•    Raymond James Financial, Inc.   •    Sanders, Morris Harris Group, Inc.   •    Piper Jaffray Companies   •    Jefferies Group, Inc.   •    KBW, Inc. •    Stifel Financial Corp.   •    Penson Worldwide, Inc.   •    Cowen Group, Inc.   •    Landenburg Thalmann Financial Services, Inc.

The companies that comprise the group in some instances are much larger companies than we are in terms of revenues and have greater resources than we do. The Committee realizes this size disparity and takes the difference into account. The Committee also considers the relative profitability of the group, the market challenges faced and overcome and the general trend lines of their businesses. The Committee does not target a specific percentile within the group, but uses the levels of compensation as a guide in evaluating and setting compensation for our NEOs.

There is no pre-established policy or target for the allocation between either cash incentives or long-term equity based incentive compensation. Rather, the Committee considers information provided by the group analysis as well as its own judgment to determine the appropriate level and mix of each component of the compensation program. Also, the Committee reviews our short- and long-term goals and objectives when considering the right mix of cash and equity compensation.

With respect to our Chief Executive Officer and Chief Financial Officer, total compensation has been set to reward productivity and profitability on a firm-wide basis. While providing a competitive base salary, the cash incentive awards and long-term equity incentive awards for our Chief Executive Officer and Chief Financial Officer are based solely on performance of the company as a whole in order to focus their efforts on creating long-term stockholder value.

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Many of our other executive officers, including the NEOs, have roles that blend both management and production responsibilities. In setting their total compensation, the Committee considers not only the general compensation comparative group information but also the opportunities our NEOs would have if they chose to focus entirely on their production abilities. Consequently, one-half of their cash incentive award is based exclusively on the internally measured profitability of the business unit for which the NEO has primary profit and loss responsibility, and the NEO (other than the Chief Executive Officer and Chief Financial Officer) is paid a percentage of that internally measured profitability. The other half of their cash incentive compensation is based on the performance of the company as a whole. These executives are also provided with a competitive base salary.

Role of Executive Officers in Compensation Decisions

The Committee makes all compensation decisions affecting the Chief Executive Officer’s compensation. Compensation for all other executive officers, including the NEOs, is determined by the Committee after considering the individual’s role and responsibilities, external market data and recommendations made by the Chief Executive Officer. The Committee also reviews and approves the recommendations from the Chief Executive Officer on equity compensation for all other employees.

The Chief Executive Officer annually reviews the performance of each of the NEOs (excluding himself). The conclusions reached and recommendations based on these reviews are presented to the Committee. The Committee can exercise its discretion in modifying any recommended adjustments or awards with respect to the NEO, or any other employee.

Elements of Compensation

Base Salaries. The first component of NEO compensation is cash compensation in the form of base salaries. Base salaries are set to be competitive within our industry and our comparator group, with due consideration given to our size and geographic location. The base salary amounts are reviewed annually and may be adjusted based on the individual NEO’s level of responsibility and performance.

The Committee views base salary as a way to provide a non-performance based element of compensation that is certain and predictable. Decisions on NEO compensation are made focusing on all components of total direct compensation while being sensitive to the needs of our NEOs for a certain level of compensation stability. The Committee believes the established base salary levels strike the proper balance between aligning the interest of the NEO as closely as possible with those of the stockholders while avoiding exposing them to undue compensation risk. The Committee’s determination of the appropriate level of base salary paid to NEOs is subjective and not formulaic. Factors that influence the base salary include, but are not limited to:

• The nature and responsibility of the position;

• The impact, contribution, expertise and experience of the individual NEO;

• Competitive market information regarding salaries to the extent they are available and relevant;

• The importance of retaining the individual along with the competitiveness of the market for the individual NEO’s talent and services; and

• The recommendations of the Chief Executive Officer (except in the case of his own compensation).

Cash Incentive Awards. The second component of our NEO compensation consists of cash incentive awards based on our fiscal year operating results, measured by ROE, and the individual NEO’s contribution for the year. This methodology creates incentive by linking the overall financial achievements of the company to the achievement of an individual NEO’s goals and objectives.

NEOs controlling individual business lines earn incentive awards based on a combination of the company’s overall ROE and income of the controlled business line(s). Each NEO receives one-half of a pre-determined percentage of internally reported pre-tax income generated by their respective business line. The balance of the cash incentive award is earned based on the assigned multiplier factor for the company’s ROE targets.

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This methodology is weighted to provide incentive focused primarily on the success of each individual’s business line and secondarily on the health of the company as a whole. Subject to Committee review and potential adjustment, any cash incentive award is subject to a standard deferral schedule.

Cash incentive plan award calculations for Messrs. Hultgren and Hanks, who were not in charge of any individual business unit in fiscal 2010, were based on a combination of the company’s overall ROE and consolidated pre-tax income of the company. Generally, the executive receives one-half of a pre-determined percentage of consolidated pre-tax income. The balance of the incentive award is based on the assigned multiplier factor for the company’s ROE targets. If the company’s ROE is below 8%, the multiplier is -0- and no cash incentive is paid. At 8%, the ROE Multiplier is 10% and increases arithmetically until reaching an ROE of 12.5% at which point the ROE Multiplier is 100%. Between 12.5% and 15% ROE, the ROE Multiplier remains at 100% and above 15%, the ROE Multiplier again increases arithmetically. The complete ROE Multiplier table appears below:

Cash Incentive Plan ROE Multiplier Table

ROE	Award %	ROE	Award %
8.00%	10%	12.50%	100%
8.50%	20%	15.00%	125%
9.00%	30%	17.50%	150%
9.50%	40%	20.00%	175%
10.00%	75%	25.00%	200%
10.50%	80%	30.00%	225%
11.00%	85%	35.00%	250%
11.50%	90%	40.00%	275%
12.00%	95%	45.00%	300%
		50.00%	325%

In fiscal 2010, the company’s ROE was less than 1% and, therefore, the ROE Multiplier was zero.

The preliminary cash incentive award produced by the formula above is then subject to the review and discretion of the Committee, which may adjust the incentive award to compensate for unusual events which might otherwise skew the calculation and produce results contrary to the Committee’s compensation policies. The company generally pays cash incentive awards to NEOs using the following payment schedule: the first $150,000 is paid in cash, shortly after the end of the fiscal year, 50% of the next $150,000 is paid concurrently, 30% is deferred for 12 months and 20% is deferred for 24 months; and for any amount over $300,000, 34% percent is paid concurrently, 33% is deferred for 12 months, and the remaining 33% is deferred for 24 months. The deferred portion of the cash incentive award does not earn interest and is payable only if the NEO remains employed by the company at the one- and two-year anniversaries of the Committee review and approval (usually in August of each year).

Mr. Hultgren’s incentive award pool was established using a preset percentage of consolidated pre-tax income. The preset percentage was 1.5%. Thereafter, the pool was divided in half with one-half being subject to the ROE Multiplier, the entire award being subject to the discretion of the Committee, and the approved incentive award subject to the standardized deferral process. Because the ROE Multiplier was zero and the company had a consolidated net loss in fiscal 2010, the Committee did not award Mr. Hultgren an incentive cash award.

Mr. Hanks’ incentive award pool was established using a preset percentage of consolidated pre-tax income. The preset percentage was 1.0%. Thereafter, the pool was divided in half with one-half subject to the ROE Multiplier, the entire award being subject to the discretion of the Committee, and the approved incentive award subject to the standardized deferral process. Because the ROE Multiplier was zero and the company had a consolidated net loss in fiscal 2010, the Committee did not award Mr. Hanks an incentive cash award.

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Mr. Leland’s cash incentive award pool was established using a preset percentage of internally reported pre-tax profits for our Taxable Fixed Income business line. The preset percentage for 2010 was 20%. Thereafter, the available pool was divided in half, with one-half being subject to the ROE Multiplier, the entire award being subject to the discretion of the Committee, and the approved incentive award subject to the standardized deferral process. Because the ROE multiplier was zero, the Committee awarded Mr. Leland approximately 50% of his available pool, or $2,075,252, bringing his total cash compensation to $2,300,252. Of Mr. Leland’s cash incentive award for 2010, $828,586 was paid in August 2010, $630,833 will be payable in August 2011 (subject to forfeiture), and $615,833 will be payable in August 2012 (subject to forfeiture).

Mr. Litton’s available pool was established using a preset percentage of internally reported pre-tax profits for both our Public Finance and Municipal Distribution business lines. The preset percentage for 2010 was 15%. Thereafter, the available pool was divided in half, with one-half being subject to the ROE Multiplier, the entire award being subject to the discretion of the Committee, and the approved incentive award subject to the standardized deferral process. Because the ROE multiplier was zero, the Committee awarded Mr. Litton approximately 50% of his available pool, or $1,477,554, bringing his total cash compensation to $1,702,554. Of Mr. Litton’s cash incentive award for 2010, $625,368 was paid in August 2010, $433,593 will be payable in August 2011 (subject to forfeiture), and $418,593 will be payable in August 2012 (subject to forfeiture).

Mr. Ross’ available pool was established using a preset percentage of internally reported pre-tax profits for our brokerage business lines. The preset percentage for 2010 was 2%. Thereafter, the available pool was divided in half, with one-half being subject to the ROE Multiplier, the entire award being subject to the discretion of the Committee, and the approved incentive award subject to the standardized deferral process. Because the ROE multiplier was zero, the Committee awarded Mr. Ross approximately 50% of his available pool, or $200,586, bringing his total cash compensation to $550,586. Of Mr. Ross’ cash incentive award for 2010, $175,293 was paid in August 2010, $15,176 will be payable in August 2011 (subject to forfeiture), and $10,117 will be payable in August 2012 (subject to forfeiture).

Deferred Compensation Plan. We also maintain a Deferred Compensation Plan that works in tandem with our cash incentive program. The plan was created in order to increase retention of executive officers and senior management, as well as to increase stock ownership among participants in the plan. The plan allows participants to defer up to 50% of each cash incentive award and to invest such amounts in various investment alternatives, including our common stock. We match 15% of the deferrals made by participants up to $15,000 through matching contributions that vest ratably over four years. The Committee believes programs such as the Deferred Compensation Plan further align the NEOs’ long-term financial and strategic interests with those of our stockholders.

Long-Term Incentive Compensation. The fourth component of our NEO compensation program is long-term incentive compensation. Long-term incentive compensation is comprised of the following components:

• Profit Sharing/401(k) Plan. We have a defined contribution Profit Sharing/401(k) Plan to provide certain retirement benefits. This plan covers substantially all of our employees, including NEOs. Amounts contributed by employees are based on gross compensation, subject to limitations imposed by the Internal Revenue Code of 1986, as amended, and regulations adopted by the Internal Revenue Service. The company makes profit sharing contributions in cash to employee accounts dependent on our profits. These contributions vest over a period of six years. We also provide 401(k) matching contributions of up to 4% of eligible compensation, which vest immediately.

• Restricted Stock Plan. Shortly after the beginning of the fiscal year, the Committee establishes ROE performance goals for the upcoming fiscal year, which must be satisfied before any awards may be granted to NEOs under the Restricted Stock Plan, which was established in 2003. The ROE goal is linked to a multiplier factor that is applied to the NEO’s base salary to compute the dollar amount of a restricted stock award, which is then divided by the company’s closing price on the date of the award. Notwithstanding the non-satisfaction of such performance goals, the Board may, in its discretion, make awards of restricted stock under the Restricted Stock Plan.

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The following table reflects the ROE Multiplier used to determine restricted stock awards in fiscal 2010:

NEO Restricted Stock ROE Multiplier Table

ROE	% of Salary	ROE	% of Salary
3.00%	5%	12.00%	20%
5.00%	10%	12.50%	25%
8.00%	15%	15.00%	30%
8.50%	15%	17.50%	35%
9.00%	15%	20.00%	40%
9.50%	15%	25.00%	45%
8.00%	15%	30.00%	50%
8.50%	15%	35.00%	55%
10.00%	20%	40.00%	60%
10.50%	20%	45.00%	65%
11.00%	20%	50.00%	70%
11.50%	20%

Annual awards granted generally vest ratably over a three year period, with the exception of Board members, whose restricted stock grants vest one year after the grant date. This component of annual compensation helps us retain our NEOs because at the Board’s discretion it is subject to forfeiture if an NEO leaves the company prior to vesting for any other reason than retirement. Consequently, because a sizeable portion of each NEOs restricted stock grant is not vested in the year it is earned, the cost of leaving the company can be significant to the NEO. This also has the benefit of creating NEO wealth concentrated in our stock, which intensifies their focus on the long-term performance of the company and ensures alignment with our stockholders. Finally, these awards contain restrictive covenants against post-termination competition, use of confidential information and solicitation of employees.

The Restricted Stock Plan allows for the payment of dividends on unvested shares. During fiscal 2010, the following amounts were paid to our NEOs and directors for dividends on unvested shares of restricted stock:

Name	Dividends Paid on Unvested Restricted Shares
Donald W. Hultgren	$	10,332
Kenneth R. Hanks		2,865
Daniel R. Leland		1,791
Richard Litton		1,791
James H. Ross		9,986
Robert A. Buchholz		720
Brodie Cobb		720
I.D. Flores III		720
Larry Jobe		720
Fred Meyer		720
Dr. Mike Moses		720
Joel T. Williams III		540

• Stock Option Plans. Since the adoption of the Restricted Stock Plan in 2003, the company has not granted any stock options. Previously, stock options were granted under the SWS Group, Inc. Stock

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Option Plan, which terminated February 1, 2006 (the “1996 Stock Option Plan”) and the SWS Group, Inc. 1997 Stock Option Plan, which terminated August 19, 2007 (the “1997 Stock Option Plan”). Outstanding options, which usually have terms of ten years, may be exercised in accordance with their terms until they expire. All of the NEOs (except Mr. Leland and Mr. Ross) hold options that were granted in 2002 and earlier. See the “Outstanding Equity Awards at June 25, 2010” table below.

The Committee believes that the components of our long-term incentive compensation provide an incentive to achieve our long-term strategic goals by aligning the financial interests of the NEO with those of our stockholders.

Explanation of Fluctuations in NEO Compensation from Fiscal 2009 to Fiscal 2010

Mr. Hultgren’s total compensation as shown in the Summary Compensation Table decreased $382,000 from fiscal 2009 to fiscal 2010. The decrease from fiscal 2009 to fiscal 2010 was due primarily to a decrease in Mr. Hultgren’s cash incentive award from 2009 to 2010; as no cash incentive award was earned in fiscal 2010. Mr. Hultgren’s cash incentive award decreased due to the reduction in the company’s earnings and ROE from fiscal 2009 to fiscal 2010. Additionally, there was a $22,500 decrease in the amount of restricted shares granted in fiscal 2010 versus fiscal 2009. The restricted stock grant in fiscal 2010 was based on the ROE of fiscal 2009 of 8.3%, after adjusting for a $5 million temporary impairment charge. The ROE in fiscal 2008 was 10.4% resulting in smaller restricted stock awards in fiscal 2010 versus 2009. There was no profit sharing in fiscal 2010 resulting in a decrease from fiscal 2009 of $1,150.

Mr. Hanks’ total compensation as shown in the Summary Compensation Table decreased $266,000 from fiscal 2009 to fiscal 2010. The decrease was due to a decrease of $239,000 in Mr. Hanks’ cash incentive award, as no incentive award was earned for fiscal 2010. Additionally, there was an $18,000 decrease in the amount of restricted shares granted in fiscal 2010 versus fiscal 2009. The restricted stock grant in fiscal 2010 was based on the ROE of fiscal 2009 of 8.3%, after adjusting for a $5 million temporary impairment charge. The ROE in fiscal 2008 was 10.4% resulting in smaller restricted stock awards in fiscal 2010 versus 2009. Other compensation decreased due to a decrease of $1,150 paid to Mr. Hanks for profit sharing in fiscal 2009 that was not paid in fiscal 2010, and a decrease in his deferred compensation match of $7,725 as no contributions were made in fiscal 2010.

Mr. Leland’s total compensation as shown in the Summary Compensation Table decreased $1,573,000 from fiscal 2009 to fiscal 2010. The decrease was due primarily to a decrease of $1,561,000 in Mr. Leland’s cash incentive award for fiscal 2010. Mr. Leland’s cash incentive award was primarily based on the pre-tax profits reported for our Taxable Fixed Income business line. The pre-tax profit in the Taxable Fixed Income business line decreased 32% from fiscal 2009 to fiscal 2010. Additionally, there was an $11,000 decrease in the amount of restricted shares granted in fiscal 2010 versus fiscal 2009. The restricted stock grant in fiscal 2010 was based on the ROE of fiscal 2009 of 8.3%, after adjusting for a $5 million temporary impairment charge. The ROE in fiscal 2008 was 10.4% resulting in smaller restricted stock awards in fiscal 2010 versus 2009. There was a decrease of $1,150 received from profit sharing in fiscal 2009 that was not received in the fiscal 2010.

Mr. Litton’s total compensation as shown in the Summary Compensation Table increased $566,000 from fiscal 2009 to fiscal 2010. The increase was due primarily to an increase of $579,000 in Mr. Litton’s cash incentive award for fiscal 2010 offset by a decrease in stock awards of $11,000 and other compensation of $1,150. Mr. Litton’s cash incentive award was based on the pre-tax profits reported for both our Public Finance and Municipal Distribution business lines. Together, our Public Finance and Municipal Distribution business lines had an increase in pre-tax profit of 3% from fiscal 2009 to fiscal 2010. The $11,000 decrease in the amount of restricted shares granted in fiscal 2010 versus fiscal 2009 was due to the decrease in ROE for fiscal 2008 versus fiscal 2009. The restricted stock grant in fiscal 2010 was based on the ROE of fiscal 2009 of 8.3%, after adjusting for a $5 million temporary impairment charge. The ROE in fiscal 2008 was 10.4% resulting in smaller restricted stock awards in fiscal 2010 versus 2009. The decrease in other compensation was due to a decrease of $1,150 received for profit sharing in fiscal 2009 that was not received in fiscal 2010.

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Mr. Ross’s total compensation as shown in the Summary Compensation Table decreased $13,000 from fiscal 2009 to fiscal 2010. The decrease was due primarily to a decrease of $290,000 in Mr. Ross’s cash incentive award for fiscal 2010 offset by an increase in stock awards of $278,000. In fiscal 2009, Mr. Ross’s incentive cash award was based on the pre-tax profits reported for our brokerage business lines. The pre-tax income from this segment was down 55%; consequently, Mr. Ross’s cash incentive compensation was down by a similar ratio. The increase in the stock award was due to a special grant awarded by the Board to Mr. Ross of 20,000 shares in fiscal 2010. This special grant was given by the Board to recognize the value of the service provided to the executive management team since his election as President of Southwest Securities in 2007. It was the Board’s intention to insure that Mr. Ross’s stock ownership level reflected an alignment with stockholder interests as well as incentive for a long tenure with the firm. The decrease in other compensation was due to a decrease of $1,150 received for profit sharing in fiscal 2009 that was not received in fiscal 2010.

Chief Executive Officer’s Compensation

In keeping with our general compensation philosophy, our Chief Executive Officer’s base salary was established to place emphasis on incentive compensation while remaining competitive with others in our industry. The Committee reviewed measures of individual performance to determine the cash incentive award portion of his annual compensation. Our Chief Executive Officer participates in the same profit sharing plan as the other executive officers and employees. In determining Mr. Hultgren’s fiscal 2010 compensation, the Committee considered Mr. Hultgren’s performance, his compensation history and other subjective factors in light of our financial results over the last completed fiscal year. The Committee believes that Mr. Hultgren’s fiscal 2010 total compensation package was commensurate with the compensation paid to the chief executive officers of corporations in similar lines of business after adjustment to compensate for differences in the size, business mix and geographic area of the companies reviewed.

Employment Agreements

Historically, we have not entered into employment agreements with our executive officers. However, the Committee will enter into an employment agreement where the Committee determines that an employment agreement is necessary and appropriate to attract an executive based on company needs and/or it determines that an employment agreement is desirable for the company to obtain a measure of assurance as to the executive’s continued employment.

We do not have employment agreements or any agreements to provide severance protection to any NEO. All of the long-term compensation plans provide for payment or vesting due to scenarios such as a change of control of the company. Accordingly, if the Chief Executive Officer or any NEO terminates his or her employment for any reason and there has not been a change of control of the company, any severance payments or other benefits would be at the discretion of the Committee.

Tax Considerations

Section 162(m) of the Internal Revenue Code of 1986, as amended, limits our ability to deduct the cost of certain annual compensation in excess of $1,000,000 paid to individuals required to be named in the summary compensation table in the proxy statements of public companies. This limitation resulted in a lost deduction of approximately $993,000 in our 2009 return filed in September 2010. However, the Committee believes it is important to balance the effectiveness of executive compensation plans with the materiality of potentially reduced tax deductions. Accordingly, the Committee may continue to authorize payments that may not be fully deductible if the Committee believes it is in the company’s best interest to do so.

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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During fiscal 2010, the members of the Committee were Messrs. Meyer, Cobb and Jobe. None of the members was at any time during fiscal 2010, or at any other time, an officer or employee of the company. During fiscal 2010, none of our executive officers served as a member of the compensation or similar committee or as a member of the board of directors of any other entity of which an executive officer served on our Committee or our Board of Directors. Please refer to the section of the proxy statement titled “Corporate Governance – Director Independence and Related Matters” for information regarding certain relationships between members of our Committee and the company.

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COMPENSATION COMMITTEE REPORT

The Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on this review and discussion, the Committee has recommended to the full Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

THE COMPENSATION COMMITTEE

OF THE BOARD OF DIRECTORS

Frederick R. Meyer, Chairman

Brodie L. Cobb

Larry A. Jobe

EXECUTIVE COMPENSATION

Annual and Long-Term Compensation

The following table sets forth information concerning compensation earned by our NEOs during the fiscal years ended June 25, 2010, June 26, 2009 and June 27, 2008:

Fiscal Year 2010, 2009 and 2008 Summary Compensation Table

Name and Principal Position	Fiscal Year Ended the Last Friday of June	Salary ($)		Stock Awards  ($)(1)		Non-Equity Incentive Plan Compensation(2)		All Other Compensation ($)(3)		Total Compensation ($)
Donald W. Hultgren	2010	$	450,000	$	67,500	$	—	$	9,800	$	527,300
Chief Executive Officer (*)	2009		450,000		90,000		358,052		10,950		909,002
	2008		450,000		112,500		444,375		9,200		1,016,075
Kenneth R. Hanks	2010	$	360,000	$	54,000	$	—	$	9,800	$	423,800
Executive Vice President, Chief Financial Officer and Treasurer	2009		360,000		72,000		238,701		18,675		689,376
	2008		360,000		90,000		284,400		14,822		749,222
Daniel R. Leland	2010	$	225,000	$	33,750	$	2,075,252	$	9,800	$	2,343,802
Executive Vice President	2009		225,000		45,000		3,636,264		10,950		3,917,214
	2008		225,000		56,250		869,919		9,200		1,160,369
Richard H. Litton	2010	$	225,000	$	33,750	$	1,477,554	$	9,800	$	1,746,104
Executive Vice President	2009		225,000		45,000		898,841		10,950		1,179,791
	2008		225,000		56,250		1,291,759		9,200		1,582,209
James H. Ross	2010	$	350,000	$	348,100	$	200,586	$	9,800	$	908,486
Executive Vice President(*)	2009		350,000		70,000		490,132		10,950		921,082
	2008		350,000		87,500		599,808		9,200		1,046,508

^(*) Mr. Hultgren resigned from his positions with the company on August 18, 2010, at which time, Mr. Ross was appointed CEO and as a member of the company’s Board.

^{(1 )} Amounts shown consist of awards of restricted stock granted pursuant to the Restricted Stock Plan. All awards, except a 20,000 share grant to James H. Ross, which was made August 24, 2009 at a price of $14.78, vest pro rata over a three year period. Mr. Ross’s grant of 20,000 shares vests pro rata over a five

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year period. The amounts shown were not actually paid to the NEO. Rather, as required by the rules of the SEC, the amounts represent the aggregate grant date fair value of the shares of restricted stock awarded to each of them in fiscal 2008, 2009 and 2010. These values were determined in accordance with the Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”). See Footnote 1(r), Stock-Based Compensation and Footnote 18, Employee Benefits-Restricted Stock Plan of our audited financial statements, which are included in our 2010 annual report accompanying this proxy statement. The amounts reported do not include any reduction in the value of the awards for the possibility of forfeiture.

^{(2 )} In accordance with the deferral policy discussed in “Compensation Discussion and Analysis—Elements of Compensation,” payouts of incentive cash awards for each NEO earned in fiscal years 2008, 2009 and 2010 were as follows:

Name	Payout in Fiscal Year	Cash Incentive Award in Fiscal Year						Total
		2008		2009		2010
Donald W. Hultgren	2010	$	77,643	$	64,157	$	—	$	141,800
	2011			$	—	$	—	$	—
	2012					$	—	$	—
						$	—
Kenneth R. Hanks	2010	$	26,880	$	26,610	$	—	$	53,490
	2011			$	17,740	$	—	$	17,740
	2012					$	—	$	—
						$	—
Daniel R. Leland	2010	$	218,074	$	1,145,967	$	828,586	$	2,192,627
	2011			$	1,130,967	$	630,833	$	1,761,800
	2012					$	615,833	$	615,833
						$	2,075,252
Richard H. Litton	2010	$	357,280	$	242,618	$	625,368	$	1,225,266
	2011			$	227,617	$	433,593	$	661,210
	2012					$	418,593	$	418,593
						$	1,477,554
James H. Ross	2010	$	128,937	$	107,744	$	175,293	$	411,974
	2011			$	92,743	$	15,176	$	107,919
	2012					$	10,117	$	10,117
						$	200,586

The 2010 payout was paid in August 2010. The 2011 and 2012 payouts of the cash incentive awards do not earn interest and are payable only if the executive remains employed by the company at the one- and two- year anniversaries of the Committee review and approval of such awards.

^{(3 )} This amount represents employer matching contributions under our 401(k) Plan. The amount of perquisites and personal benefits did not exceed $10,000 for any NEO during fiscal 2010.

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Grants of Plan-Based Awards in Fiscal Year 2010

The following table summarizes all grants of plan-based awards made to our NEOs in fiscal 2010.

Fiscal Year 2010 Grants of Plan Based Awards

Name	Grant Date	Estimated Future Payouts Under Non- Equity Incentive Plan Awards ($)			All Other Stock Awards: Number of Shares of Stock or  Units (#)(1)	Grant Date Fair Value  of Stock Awards ($)(1) , (2)
Donald W. Hultgren	8/24/2009		—		4,567	$	67,500
	—	$	—		—		—
Kenneth R. Hanks	8/24/2009		—		3,654	$	54,000
	—	$	—		—		—
Daniel R. Leland	8/24/2009		—		2,283	$	33,750
	—	$	2,075,252	(3 )	—		—
Richard H. Litton	8/24/2009		—		2,283	$	33,750
	—	$	1,477,554	(4 )	—		—
James H. Ross	8/24/2009		—		23,552	$	348,100
	—	$	200,586	(5 )	—		—

^{(1 )} The amounts shown reflect restricted shares granted under the Restricted Stock Plan. The shares vest ratably over a three year period, except 20,000 shares of Mr. Ross’s August 24, 2009 grant, which vests ratably over a five year period. The grant date fair value is based on the closing market price of our common stock on the NYSE on August 24, 2009, or $14.78 per share.

^{(2 )} The amounts shown do not reflect compensation actually received by the NEOs. Rather, as required by the rules of the SEC, the amounts represent the aggregate grant date fair value of the restricted stock awarded. These values were determined in accordance with FASB ASC Topic 718. See discussion in Footnote 1(r) Stock-Based Compensation and Footnote 18 Employee Benefits-Restricted Stock Plan of our audited financial statements, which are included in our 2010 annual report accompanying this proxy statement.

^{(3 )} The amount shown represents the amount earned by Mr. Leland as cash incentive compensation during fiscal 2010. $828,586 was paid in August 2010 with the remaining $1,246,666 subject to the standard deferral.

^{(4 )} The amount shown represents the amount earned by Mr. Litton as cash incentive compensation during fiscal 2010. $625,368 was paid in August 2010 with the remaining $852,186 subject to the standard deferral.

^{(5 )} The amount shown represents the amount earned by Mr. Ross as cash incentive compensation during fiscal 2010. $150,000 was paid in 24 equal installments of $6,250 in fiscal 2010 and $25,293 was paid in August 2010 with the remaining $25,293 subject to the standard deferral.

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Outstanding Equity Awards at Fiscal Year-End

The following table summarizes all outstanding equity awards held by our NEOs as of June 25, 2010:

Outstanding Equity Awards At June 25, 2010

	Option Awards					Stock Awards
Name	Number of Securities Underlying Unexercised Options  (#) Exercisable(1)		Option Exercise Price		Option Expiration Date	Number of Shares of Stock that Have not Vested (#)(2 )		Market Value of Shares of Stock that Have not Vested ($)(3 )
Donald W. Hultgren	2,028	(4 )	$	15.59	8/24/10	—			—
	37,500	(4 )(5)	$	8.95	11/16/10	—			—
	—			—	—	15,000	(6 )	$	152,550
	—			—	—	1,984	(6 )	$	20,177
	—			—	—	3,399	(6 )	$	34,568
	—			—	—	4,567	(6 )	$	46,446
Kenneth R. Hanks	10,141	(4 )	$	15.59	8/24/10	—			—
	11,062	(4 )	$	10.30	9/10/11	—			—
	24,000	(4 )	$	8.95	8/22/12	—			—
	—			—	—	1,587	(7 )	$	16,140
	—			—	—	2,719	(8 )	$	27,652
	—			—	—	3,654	(9 )	$	37,161
Daniel R. Leland	—			—	—	992	(7 )	$	10,089
	—			—	—	1,700	(8 )	$	17,289
	—			—	—	2,283	(9 )	$	23,218
Richard H. Litton	8,113	(4 )	$	15.59	8/24/10	—			—
	7,375	(4 )	$	10.30	9/10/11	—			—
	12,000	(4 )	$	8.95	8/22/12	—			—
	—			—	—	992	(7 )	$	10,089
	—			—	—	1,700	(8 )	$	17,289
	—			—	—	2,283	(9 )	$	23,218
James H. Ross	—			—	—	1,543	(7 )	$	15,692
	—			—	—	2,644	(8 )	$	26,889
	—			—	—	3,552	(9 )	$	36,124
	—			—	—	20,000	(10 )	$	203,400

⁽¹⁾ All amounts are 100% vested at June 25, 2010.

^{( 2)} Issued pursuant to the Restricted Stock Plan.

^{( 3)} Amount is based on the closing market price of our common stock on the NYSE on June 25, 2010, which was $10.17.

^{(4 )} Issued pursuant to the 1996 Stock Option Plan.

^{( 5)} Mr. Hultgren resigned from his positions with the company on August 18, 2010. Pursuant to the 1996 Stock Option Plan, these options expire 90 days after his resignation.

⁽⁶⁾ Upon Mr. Hultgren’s resignation on August 18, 2010, these unvested shares were forfeited pursuant to the Restricted Stock Plan.

^{( 7)} Shares vested on August 24, 2010.

^{( 8)} One-half of the shares vest on each of August 25, 2010 and 2011.

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⁽⁹⁾ One-third of the shares vest on each of August 24, 2010, 2011 and 2012.

⁽¹⁰⁾ One-fifth of the shares vest on each of August 24, 2010, 2011, 2012, 2013 and 2014.

Option Exercises and Stock Vested

The following table summarizes all options exercised by and shares vested for our NEOs for the fiscal year ended June 25, 2010.

Option Exercises and Stock Vested in Fiscal Year 2010

	Stock Awards
Name	Number of Shares Acquired  on Vesting (#)	Value Realized Upon  Vesting ($)(1)
Donald W. Hultgren	20,499	$	264,844
Kenneth R. Hanks	4,399	$	65,532
Daniel R. Leland	1,971	$	29,383
Richard H. Litton	2,749	$	40,952
James H. Ross	3,772	$	56,205

^{(1 )} The amount shown is based on the average of the high and low market price of the company’s common stock on the NYSE on the vesting dates.

Change of Control, Severance Agreements

We do not currently have separate change of control or severance agreements with any NEO. However, certain of our compensation plans have provisions that are triggered by a change of control or termination of a NEO.

Under the Deferred Compensation Plan, upon termination of a NEO’s employment, the vested account balance of the deferred compensation will be paid as a termination benefit. Upon a defined change of control, the NEO may receive a change of control benefit equal to the NEO’s vested account balance or have the account balance remain subject to the terms and conditions of the plan, depending on the election of the NEO at the time the NEO began participating in the plan. The payment of this benefit will not result in additional compensation expense to the company.

Under the Deferred Compensation Plan, a change of control is generally defined as: (1) any consolidation, merger or share exchange of the company in which the company is not the continuing or surviving corporation; (2) any sale, lease, exchange or other transfer of all or substantially all of the assets of the company; (3) the stockholders of the company approve any plan or proposal for the liquidation or dissolution of the company; (4) the cessation of control (by virtue of their not constituting a majority of directors) of the Board by the individuals who (A) at the date of the plan were directors or (B) become directors after the date of the plan and whose election or nomination for election by the company’s stockholders, was approved by a vote of at least two-thirds of the directors then in office who were directors at the date of the plan or whose election or nomination for election was previously so approved; or (5) the acquisition of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of an aggregate of 20% of the voting power of the company’s outstanding voting securities.

Under the Restricted Stock Plan, termination of an employee’s service under the plan (including, but not limited to, voluntary resignation or termination with or without cause) before the restricted shares become vested will result in those non-vested shares being forfeited. However, in the event of a change of control, as defined by the plan, or the death of an NEO (if set forth in the applicable award agreement), all outstanding awards will automatically vest.

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Under the Restricted Stock Plan, a change of control is generally defined as: (1) any consolidation, merger or share exchange of the company in which the company is not the continuing or surviving corporation; (2) any sale, lease, exchange or other transfer of all or substantially all of the assets of the company; (3) the stockholders of the company approve any plan or proposal for the liquidation or dissolution of the company; (4) the cessation of control (by virtue of their not constituting a majority of directors) of the Board by the individuals who (A) were directors on November 12, 2003 or (B) become directors after such date and whose election or nomination for election by the company’s stockholders, was approved by a vote of at least two-thirds of the directors then in office who were directors at such date or whose election or nomination for election was previously so approved; (5) the acquisition of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of an aggregate of 20% of the voting power of the company’s outstanding voting securities; or (6) in a Title 11 bankruptcy proceeding, the appointment of a trustee or the conversion of a case involving the company to a case under Chapter 7.

The table below represents the number of shares and the market value of those shares that would have vested had a change in control occurred as of June 25, 2010 using the closing market price of our common stock on the NYSE on June 25, 2010, or $10.17 per share:

Name	Number of Shares of Stock that Vest upon Change in Control (#)	Market Value of Shares of Stock that Vest upon Change in Control ($)
Donald W. Hultgren	24,950	$	253,741
Kenneth R. Hanks	7,960	$	80,953
Daniel R. Leland	4,975	$	50,596
Richard H. Litton	4,975	$	50,596
James R. Ross	27,739	$	282,105

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COMPENSATION OF NON-EMPLOYEE DIRECTORS

Members of the Board who are non-employee directors, other than the Chairman of the Board, receive an annual retainer of $20,000 paid on a quarterly basis, $1,000 for attendance at each regular quarterly Board meeting and $500 for attendance at each special Board meeting and committee meeting. The Audit Committee Chairman receives $1,000 per committee meeting and other committee chairmen receive $750 per committee meeting. The Chairman of the Board receives a salary of $141,000 annually paid on a bimonthly basis. We also reimburse directors for expenses relating to attendance at meetings.

Phantom Stock Plan. The Phantom Stock Plan was adopted by the Board of Directors and approved by the company’s stockholders in 1996. The purpose of the plan is to provide non-employee directors with a “phantom stock interest” in the company through the granting of stock equivalent units. The plan, which is no longer open to additional participation, permitted each non-employee director to receive director’s fees in the form of stock equivalent units. The number of units was determined by dividing the dollar amount of the fees that would otherwise be paid by the company’s common stock price on the date that such fees would have been paid. The Phantom Stock Plan was terminated effective December 31, 2009.

The stock equivalent units may be “cashed” out by the non-employee directors upon termination of service on the Board based on the closing price of the company’s common stock on such date or upon a change in control of the company, defined as the sale by the company of all or substantially all of its assets or the consolidation or merger of the company with an entity as a result of which transaction the company is not the surviving entity, based on the highest price received by holders of the common stock in connection with the change in control.

Director Compensation Table

The following table shows the overall compensation earned for fiscal 2010 with respect to each of our non-employee directors.

Director Compensation in Fiscal Year 2010

Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)(1 )			All Other Compensation ($)			Total Compensation ($)
Don Buchholz–Chairman of the Board	$	141,000	$	—		$	—		$	141,000
Robert A. Buchholz	$	25,500	$	29,560		$	—		$	55,060
Brodie Cobb	$	27,000	$	29,560		$	—		$	56,560
I.D. Flores III	$	31,500	$	29,560		$	—		$	61,060
Larry Jobe	$	35,000	$	29,560		$	—		$	64,560
Dr. R. Jan LeCroy	$	15,000	$	29,560	(2)	$	—		$	44,560
Frederick R. Meyer	$	32,250	$	29,560		$	—		$	61,810
Dr. Mike Moses	$	25,500	$	29,560		$	290,998	(3)	$	346,058
Jon L. Mosle, Jr.	$	15,000	$	29,560	(2)	$	43,068	(4)	$	87,628
Joel T. Williams III	$	21,500	$	27,180		$	—		$	48,680

^{(1 )} Amounts shown do not reflect compensation actually received by the director. Rather, as required by the rules of the SEC, the amounts represent the aggregate grant date fair value of the restricted stock awarded. These values were determined in accordance with FASB ASC Topic 718. See discussion in Footnote 1(r) Stock-Based Compensation and Footnote 18 Employee Benefits-Restricted Stock Plan of our audited financial statements, which are included in our 2010 annual report accompanying this proxy statement.

^{(2 )} The shares granted August 24, 2009 at $14.78 were 100% vested upon retirement of Mr. LeCroy and Mr. Mosle on November 17, 2009.

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^{(3 )} This amount represents $228,842 for finder’s fees pursuant to the company’s referral fee program and $62,156 for office space and administrative services provided to Dr. Moses within the company’s home office location. Dr. Moses is paid a finders’ fee of 15% of the income the company earns for initiating contact between municipal officials and municipal securities representatives of Southwest Securities which result in municipal securities engagements. He does not communicate, directly or indirectly, with public investors, structure offerings or negotiate terms.

^{(4 )} Amount represents Mr. Mosle’s payout of the 3,024.44 equivalent units in the Company’s Phantom Stock Plan, based on an average closing price of our common stock on the NYSE over a 90 day period prior to payout, which was $14.24 per share.

Outstanding Equity Awards at Fiscal Year-End

As of June 25, 2010, the directors have the following unvested restricted shares outstanding:

	Stock Awards
Name	Number of Shares of Stock That Have Not Vested (#)		Market Value of Shares of Stock That Have Not Vested ($)(3)
Robert A. Buchholz	2,000	(1)	$	20,340
Brodie Cobb	2,000	(1)	$	20,340
I.D. Flores III	2,000	(1)	$	20,340
Larry Jobe	2,000	(1)	$	20,340
Fred Meyer	2,000	(1)	$	20,340
Dr. Mike Moses	2,000	(1)	$	20,340
Joel T. Williams III	2,000	(2)	$	20,340

^{(1 )} The shares vested on August 24, 2010.

⁽²⁾ The shares vest on November 17, 2010.

^{(3 )} Amount is based on the closing price of our common stock on the NYSE on June 25, 2010, or $10.17 per share.

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AUDIT COMMITTEE REPORT

Audit Committee Report

Our Audit Committee is responsible for providing independent, objective oversight of the company’s accounting functions and internal controls.

Management is responsible for the company’s internal controls and financial reporting process. The independent accountants are responsible for performing an independent audit of our consolidated financial statements in accordance with the auditing standards of the Public Company Accounting Oversight Board (“PCAOB”) (United States) and issuing a report thereon.

Review of 2010 Financial Statements

The Audit Committee met with management and the independent accountants to review and discuss the June 25, 2010 consolidated financial statements.

The Audit Committee reviewed and discussed with management, the internal auditors and the independent accountants, Grant Thornton, LLP, the reports required by Section 404 of the Sarbanes-Oxley Act of 2002, namely management’s annual report on the company’s internal control over financial reporting and the independent accountant’s attestation report. Management concluded, and the independent accountants agreed, that no material weakness existed in the company’s internal control over financial reporting at June 25, 2010.

The Audit Committee also discussed with the independent accountants the matters required by the PCAOB’s Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as amended by Statement of Auditing Standards No. 89, “Audit Adjustments,” and No. 90, “Audit Committee Communications.” The Audit Committee also received written disclosures from the independent accountants required by Independence Standards Board No. 1, “Independence Discussions with Audit Committees,” and discussed with the independent accountants their firm’s independence.

Based on the Audit Committee’s review and discussions described above, the Audit Committee recommended, and the Board approved, the inclusion of the audited consolidated financial statements in our annual report on Form 10-K for the year ended June 25, 2010, filed with the SEC.

SUBMITTED BY THE AUDIT COMMITTEE

OF THE BOARD OF DIRECTORS

Larry A. Jobe, Chairman

I.D. Flores III

Joel T. Williams III

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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Representatives of Grant Thornton LLP, our independent registered public accounting firm, are expected to be present at the annual meeting. They will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.

Fees Paid to Independent Registered Public Accounting Firm

The following table presents fees for professional audit services performed by Grant Thornton LLP for the audit of our annual consolidated financial statements for the fiscal year ended June 25, 2010 and June 26, 2009 and fees billed for other services rendered by Grant Thornton LLP during those periods.

	Fiscal Year Ended
	June 25, 2010		June 26, 2009
Audit Fees( 1)	$	1,049,317	$	1,082,184
Audit-Related Fees( 2)	$	88,985	$	114,098
Tax Fees( 3)	$	46,251	$	68,389
All Other Fees( 4)	$	25,000	$	15,500

^{(1 )} Includes annual audit of consolidated financial statements, review of consolidated financial statements included in our quarterly reports on Form 10-Q, annual regulatory audits for our broker/dealer and banking subsidiaries, and Sarbanes-Oxley Section 404 internal control testing.

^{(2 )} Includes fees for the audit of our 401(k) Plan and Statement of Auditing Standards No. 70 procedures.

^{(3 )} Includes fees for tax compliance, tax planning and tax advice.

^{(4 )} Includes fees for computational expertise for the refunding transactions originated by our Public Finance department in fiscal years 2010 and 2009.

Pre-Approval of Independent Accountants Services

Pursuant to the Audit Committee’s charter, the Audit Committee pre-approves all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for the company by its independent accountants, subject to a de minimis exception for non-audit services, which are approved by the Audit Committee prior to the completion of the audit.

The Audit Committee may delegate authority to grant pre-approvals of audit and permitted non-audit services to a subcommittee, provided that decisions of such subcommittee to grant pre-approvals are presented to the full Audit Committee at its next scheduled meeting.

All services provided by and all fees paid to Grant Thornton LLP in fiscal 2010 and 2009 were approved by the Audit Committee in accordance with the Audit Committee’s pre-approval policy. None of the services provided in fiscal 2010 or 2009 were approved pursuant to the de minimis exception.

Consideration of Non-Audit Services Provided by the Independent Accountants

The Audit Committee has considered whether the non-audit services provided by Grant Thornton LLP are compatible with maintaining the accountants’ independence.

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STOCKHOLDER PROPOSALS

If you would like to submit a proposal for inclusion in the proxy materials to be distributed in connection with our 2011 annual meeting, such proposal must be received by the company no later than June 9, 2011. To be eligible for inclusion in our 2011 proxy materials, proposals must conform to the requirements set forth in Regulation 14A under the Exchange Act. If you intend to submit a proposal from the floor during the 2011 annual meeting, which is not eligible for inclusion in the proxy statement and form of proxy relating to that meeting, you must provide us with written notice no later than August 23, 2011. If you fail to comply with the foregoing notice provision, the proxy holders will be allowed to use their discretionary voting authority when the proposal is raised at the 2011 annual meeting.

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OTHER MATTERS

At the date of this proxy statement, we know of no other matters, other than those described above, that will be presented for consideration at the annual meeting. If any other business should come before the meeting, it is intended that the proxy holders will vote all proxies using their best judgment in the interest of SWS Group, Inc. and our stockholders.

You may obtain a copy of our 2010 annual report on Form 10-K, including financial statements and schedules required to be filed with the SEC, without charge, by submitting a written request to:

James R. Bowman, Corporate Communications

SWS Group, Inc.

1201 Elm Street, Suite 3500

Dallas, Texas 75270

214-859-1800

If you would like to receive a copy of the Form 10-K prior to the annual meeting, we should receive your request no later than five business days prior to the annual meeting. Our annual report on Form 10-K is also available, free of charge, on the SEC’s website at www.sec.gov.

You are urged to promptly vote your proxy by Internet or by telephone or mail if you receive a paper copy of the proxy materials to make certain your shares will be represented at the annual meeting.

By Order of the Board of Directors,

Allen R. Tubb

Vice President, General Counsel and Secretary

October 8, 2010

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SWS GROUP INC. ATTN: ALLEN R. TUBB, SECRETARY 1201 ELM STREET, STE 3500 DALLAS, TX 75270	VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
	Electronic Delivery of Future PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
	VOTE BY PHONE -1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
	VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:

KEEP THIS PORTION FOR YOUR RECORDS - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.	DETACH AND RETURN THIS PORTION ONLY

		For All	Withhold All	For All Except	To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. ________________________________________
The Board of Directors recommends a vote FOR the following:		¨	¨	¨
1.	Election of Directors	¨	¨	¨
	Nominees
01   Don A. Buchholz             02   Robert A. Buchholz             03   Brodie L. Cobb            04    I.D. Flores III                     05   Larry A. Jobe
06   Frederick R. Meyer          07   Dr. Hike Hoses                    08  James H. Ross              09   Joel T. Williams III
The Board of Directors recommends a vote FOR the following proposal:							For	Against	Abstain
2.	The ratification of the selection of Grant Thornton LLP as the company’s independent auditor for the fiscal year ending June 24, 2011.						¨	¨	¨
NOTE:   Such other business as may properly come before the meeting or any adjournment or postponement thereof.
For address change/comments, mark here. (see reverse for instructions)		Yes	No	¨
Please indicate if you plan to attend this meeting.		¨	¨
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.
Signature [PLEASE SIGN WITHIN BOX]		Date			Signature (Joint Owners)	Date

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice & Proxy Statement, Annual Report is/are available at www.proxyvote.com.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

SWS GROUP, INC. Annual Meeting of Stockholders November 18, 2010 9:00 AM This proxy is solicited by the Board of Directors The stockholder(s) hereby appoint(s) Don A. Buchholz and James H. Ross, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common stock of SWS GROUP, INC. that the stockholder(s) is/are entitled to vote at the Annual Meeting of stockholders to be held at 09:00 AM, CST on November 18, 2010, at the Renaissance Tower, 1201 Elm Street, Suite 4200, Dallas, TX 75270, and any adjournment or postponement thereof. This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors’ recommendations.     Address change/comments:
	__________________________________________________________________________________________________ __________________________________________________________________________________________________ __________________________________________________________________________________________________
(If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) Continued and to be signed on reverse side