TradeStation Group (TRAD)

Overview

TradeStation Group, Inc., a Florida corporation formed in 2000, is the successor company to a publicly-held trading software company that was formed in 1982. TradeStation Group is listed on The Nasdaq National Market under the symbol “TRAD.” TradeStation Securities, Inc. and TradeStation Technologies, Inc. are currently TradeStation Group’s two operating subsidiaries.

TradeStation Securities, a leading online brokerage firm serving the active trader and certain institutional trader markets, is the company’s principal operating subsidiary. TradeStation Securities is a registered broker-dealer and futures commission merchant, and a member of the NASD, NYSE, SIPC, NFA, DTCC, OCC, AMEX, ARCX, BOX, CBOE, Eurex US, ISE, PCX and PHLX. TradeStation Securities’ business is also subject to the rules and requirements of the SEC, CFTC and state regulatory authorities.

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Table of Contents

In September 2004, TradeStation Securities commenced self-clearing of equities trades for its active trader client base. Clearing operations include the confirmation, settlement, delivery and receipt of securities and funds and record-keeping functions involved in the processing of securities transactions. As the clearing broker for its equities active trader client base, TradeStation Securities maintains custody and control over the assets in those clients’ accounts and provides the following back office functions: maintaining customer accounts; extending credit in a margin account to the customer; settling security transactions with the DTCC; settling commissions and clearing fees; preparing customer trade confirmations and statements; performing designated cashier functions, including the delivery and receipt of funds and securities to or from the customer; possession or control of customer securities, safeguarding customer funds, transmitting tax accounting information to the customer and to the applicable tax authorities; and forwarding prospectuses, proxies and other shareholder information to customers. In the 2004 fourth quarter (the first full quarter of self-clearing active trader equities accounts), brokerage revenues included increased interest income, net of interest expense, and clearing costs were reduced, which, in the aggregate, represented approximately a $1.5 million improvement to income from operations from the 2004 third quarter.

By the end of 2004, TradeStation Securities had approximately 18,300 equities, futures and forex accounts, the vast majority of which were equities and futures accounts, as compared to approximately 12,300 accounts at the end of 2003. During the 2004 fourth quarter, TradeStation Securities’ brokerage customer account base averaged nearly 35,000 DARTs, as compared to 26,500 during the 2003 fourth quarter. As of December 31, 2004, the average account asset balance of an equities account was nearly $100,000 and the average asset balance of a futures account was over $20,000.

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