Recapitalization

Immediately prior to and immediately following the consummation of the IPO, IBG, Inc., IBG Holdings LLC, IBG LLC and the members of IBG LLC consummated a series of transactions collectively referred to herein as the “Recapitalization.” In connection with the Recapitalization, IBG, Inc., IBG Holdings LLC and the historical members of IBG LLC entered into an exchange agreement, dated as of May 3, 2007 (the “Exchange Agreement”), pursuant to which the historical members of IBG LLC received membership interests in IBG Holdings LLC in exchange for their membership interests in IBG LLC. Additionally, IBG, Inc. became the sole managing member of IBG LLC.

In connection with the consummation of the IPO, IBG Holdings LLC used the net proceeds to redeem 10.0% of members’ interests in IBG Holdings LLC in proportion to their interests. Immediately following the Recapitalization and IPO, IBG Holdings LLC owned approximately 90% of IBG LLC and 100% of IBG, Inc.’s Class B common stock, which has voting power in IBG, Inc. proportionate to the extent of IBG Holdings LLC’s ownership of IBG LLC.

The Exchange Agreement also provides for future redemptions of member interests and for the purchase of member interests in IBG LLC by IBG, Inc. from IBG Holdings LLC, which is expected to result in IBG, Inc. acquiring the remaining member interests in IBG LLC that it does not own. On an annual basis, holders of IBG Holdings LLC member interests will be able to request redemption of such member interests over an eight (8) year period following the IPO; 12.5% annually for seven (7) years and 2.5% in the eighth year. The primary manner in which the redemption price is expected to be paid is from the proceeds from sales of additional shares of Common Stock. Three hundred sixty (360) million shares of authorized Common Stock have been reserved for such future sales (see Note 12).

As a result of a federal income tax election made by IBG LLC applicable to the acquisition of IBG LLC member interests by IBG, Inc. the income tax basis of the assets of IBG LLC acquired by IBG, Inc. have been adjusted based on the amount paid for such interests. A deferred tax asset of $380,785 was recorded as of the IPO date, which deferred tax asset is being amortized as additional deferred income tax expense over 15 years, as allowable under current tax law. As of March 31, 2008 and December 31, 2007, the unamortized balance of the deferred tax asset was $364,785 and $369,748, respectively. IBG, Inc. also entered into an agreement (the “Tax Receivable Agreement”) with IBG Holdings LLC to pay IBG Holdings LLC (for the benefit of the former members of IBG LLC) 85% of the tax savings that IBG, Inc. actually realizes as the result of the tax basis increase. As of the IPO date, a payable to IBG Holdings LLC of $323,668 was recorded by IBG, Inc. Amounts payable under the Tax Receivable Agreement are subject to repayment to IBG Holdings LLC annually upon the filing of IBG, Inc.’s federal income tax return. IBG, Inc. has not filed its federal income tax return as of March 31, 2008. The remaining 15%, $57,117, has been accounted for as a permanent increase to additional paid-in capital in the unaudited condensed consolidated statement of financial condition.

Post-IPO Capital Structure

Since consummation of the IPO and Recapitalization, IBG, Inc.’s equity capital structure has been comprised of Class A and Class B common stock. All shares of common stock have a par value of $0.01 per share and have identical rights to earnings and dividends and in liquidation. As described previously in Note 2 and in this Note 4, Class B common stock has voting power in IBG, Inc. proportionate to the extent of IBG Holdings LLC’s ownership of IBG LLC. At March 31, 2008, 1,000,000,000 shares of Class A common stock are authorized, of which 43,270,823 shares have been issued and 40,143,760 shares were outstanding as of March 31, 2008 and December 31, 2007. Class B common stock is comprised of 100 authorized shares, of which 100 shares were issued and outstanding as of March 31, 2008 and December 31, 2007. In addition, 10,000 shares of preferred stock have been authorized, of which no shares are issued or outstanding as of March 31, 2008 and December 31, 2007.

Earnings per Share

Historical earnings per share information is not applicable for reporting periods prior to the consummation of the IPO. Net income available for common stockholders of $27,191 is the net income earned by IBG, Inc. on its interest in the Group for the three month period ended March 31, 2008, net of the provision for income taxes for the period.

15

The calculation of basic and diluted earnings per share is described below:

Basic earnings per share are calculated utilizing net income available for common stockholders for the three month period ended March 31, 2008, divided by the weighted average number of shares of Class A and Class B common stock outstanding for that period:

Diluted earnings per share are calculated utilizing net income available for common stockholders divided by the weighted average percentage of IBG LLC interests owned by IBG, Inc. (approximately 10.3%) to arrive at an amount of net income that would be available for common stockholders on a fully-diluted basis if all member interests in IBG LLC currently held by IBG Holdings LLC had been sold to IBG, Inc. and an equivalent number of shares of Common Stock had been issued by IBG, Inc. This resulting net income is divided by the weighted average total number of shares of Class A and Class B common stock that would be outstanding if such a transaction had occurred, and includes shares of Common Stock issued and issuable pursuant to the 2007 ROI Unit Stock Plan and shares of Common Stock issued under the 2007 Stock Incentive Plan (Note 5).

16

5. Employee Incentive Plans

Return on Investment Dollar Units (“ROI Dollar Units”)

From 1998 through January 1, 2006, IBG LLC granted all non-member employees ROI Dollar Units, which are redeemable under the amended provisions of the plan, and in accordance with regulations issued by the Internal Revenue Service (Section 409A of the Internal Revenue Code). Upon redemption, the grantee is entitled to accumulated earnings on the face value of the certificate, but not the actual face value. For grants made in 1998 and 1999, grantees may redeem the ROI Dollar Units after vesting on the fifth anniversary of the date of their grant and prior to the tenth anniversary of the date of their grant. For grants made between January 1, 2000 and January 1, 2005, grantees must elect to redeem the ROI Dollar Units upon the fifth, seventh or tenth anniversary date. These ROI Dollar Units will vest upon the fifth anniversary of the date of their grant and will continue to accumulate earnings until the elected redemption date. For grants made on or after January 1, 2006, all ROI Dollar Units shall vest on the fifth anniversary date of their grant and will be automatically redeemed. Subsequent to the IPO, no additional ROI Dollar Units have been or will be granted, and non-cash compensation to employees will consist primarily of grants of shares of Common Stock as described below under “2007 Stock Incentive Plan.”

As of March 31, 2008 and December 31, 2007, payables to employees for ROI Dollar Units were $25,367 and $21,710, respectively. Of these payable amounts, $7,019 was vested as of March 31, 2008 and December 31, 2007. These amounts are included in accounts payable, accrued expenses and other liabilities in the unaudited condensed consolidated statements of financial condition. Compensation expense for the ROI Dollar Unit plan, included in the unaudited condensed consolidated statements of income for the three month period ended March 31, 2008 was $3,695.

2007 ROI Unit Stock Plan

In connection with the IPO, IBG, Inc. adopted the Interactive Brokers Group, Inc. 2007 ROI Unit Stock Plan (the “ROI Unit Stock Plan”). Under this plan, certain employees of the Group who held ROI Dollar Units, at the employee’s option, elected to invest their ROI Dollar Unit accumulated earnings as of December 31, 2006 in shares of Common Stock. An aggregate of 1,271,009 shares of Common Stock (consisting of 1,250,000 shares issued under the ROI Unit Stock Plan and 21,009 shares under the 2007 Stock Incentive Plan, as described below), with a fair value at the date of grant of $38,143, were issued to IBG LLC, to be held as Treasury stock, and were distributed or are distributable to employees in accordance with the following schedule, subject to the conditions below:

Of the fair value at the date of grant, $17,806 represented the accumulated ROI Dollar Unit value elected to be invested by employees in Common Stock and such amount was accrued for as of December 31, 2006. The remainder will be ratably accrued as compensation expense by the Group from the date of the IPO over the requisite service period represented by the aforementioned distribution schedule. Compensation expense for the 2007 ROI Unit Stock Plan and related grants under the 2007 Stock Incentive Plan, net of the effect of forfeitures, included in the unaudited condensed consolidated statement of income for the three month period ended March 31, 2008 was $1,200.

2007 Stock Incentive Plan

Under the Interactive Brokers Group, Inc. 2007 Stock Incentive Plan (the “Stock Incentive Plan”), up to 9.2 million shares of Common Stock may be granted and issued to directors, officers, employees, contractors and consultants of IBG, Inc. and its subsidiaries. The purpose of the Stock Incentive Plan is to promote IBG, Inc.’s long-term financial success by attracting, retaining and rewarding eligible participants.

The Stock Incentive Plan is administered by the Compensation Committee of IBG, Inc.’s Board of Directors. The Compensation Committee has discretionary authority to determine which employees are eligible to participate in the Stock Incentive Plan. The Compensation Committee establishes the terms and conditions of the awards under the Stock Incentive

17

Plan, including the number of awards offered to each employee and all other terms and conditions applicable to such awards in individual grant agreements. Awards are expected to be made primarily through grants of Common Stock. The Stock Incentive Plan will provide that awards will be subject to issuance over time and may be forfeited upon an employee’s termination of employment or violation of certain applicable covenants prior to issuance, unless determined otherwise by the Compensation Committee.

The Stock Incentive Plan provides that, upon a change in control, the Compensation Committee may, at its discretion, fully vest any granted but unissued shares of Common Stock awarded under the Stock Incentive Plan, or provide that any such granted but unissued shares of Common Stock will be honored or assumed, or new rights substituted therefore by the new employer on a substantially similar basis and on terms and conditions substantially comparable to those of the Stock Incentive Plan.

IBG, Inc. granted awards of 927,943 shares of Common Stock, with a fair value at the date of grant of $27,847, in connection with the IPO and is expected to continue to grant awards on or about January 1 of each year following the IPO, to eligible employees as part of an overall plan of equity compensation. The shares of Common Stock granted at the time of the IPO were issued to IBG LLC, to be held as Treasury Stock, and were distributed or will be distributable to employees in accordance with the following schedule:

Of the fair value at the date of grant, $14,674 represented compensation accrued as of December 31, 2006 to former members of IBG LLC, with the remainder to be ratably accrued as compensation expense by the Group from the date of the IPO over the requisite service period represented by the aforementioned distribution schedule.

On the date of the IPO, 187,953 shares, valued at $5,640, were distributed to employees. During the third quarter of 2007, 45,857 shares valued at $1,376 were purchased by IBG, Inc. from employees in connection with those employees’ elections to sell a portion of their shares in order to meet their personal income tax obligations incurred as a result of share distributions. Shares purchased have been recorded as Treasury Stock.

On July 31, 2007 the Company granted an additional 16,665 shares of Common Stock to certain employees, with a fair value at the date of grant of $404. 10% of these shares were distributed to the employees during the 4^th quarter of 2007 with the remaining shares to be distributed on the following six anniversaries of the IPO with other Stock Incentive Plan grants made during 2007 under the aforementioned distribution schedule.

For the year ended December 31, 2007, the Company granted awards with a fair value at the date of grant of $32,876. 1,055,206 shares of Common Stock were issued to IBG LLC as of December 31, 2007. These shares of Common Stock are being held as Treasury Stock, and will be distributed to employees in accordance with the following schedule:

Estimated future grants under the Stock Incentive Plan will be accrued for ratably during each year under the SFAS No. 123(R) “Graded Vesting” method. Compensation expense recognized in the unaudited condensed consolidated statement of income for the three month period ended March 31, 2008 was $5,636.

Shares granted under the 2007 ROI Unit Stock Plan and the Stock Incentive Plan are subject to forfeiture in the event an employee ceases employment with the Company. The plans provide that employees who discontinue employment with the Company without cause and continue to meet the terms of the plans’ post-employment provisions will forfeit 50% of unvested previously granted shares unless the employee is over the age of 59, in which case the employee would be eligible to receive 100% of unvested shares previously granted. Distributions of remaining shares to former employees will occur annually following the discontinuation of employment over a five (5) year vesting schedule, 12.5% in each of the first four years and 50% in the fifth year.

18

The following is a summary of Stock Plan activity for the period for the three month period ended March 31, 2008:

Financial instruments owned, including those pledged as collateral, and financial instruments sold, but not yet purchased consisted of securities, at fair value, as follows at March 31, 2008 and December 31, 2007:

The following tables set forth, by level within the fair value hierarchy (see Note 2) financial instruments owned and financial instruments sold, but not yet purchased consisted of securities, at fair value. As required by SFAS No. 157, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

19

Litigation

IBG, Inc. is subject to certain pending and threatened legal actions which arise out of the normal course of business. Litigation is inherently unpredictable, particularly in proceedings where claimants seek substantial or indeterminate damages, or which are in their early stages. IBG, Inc. cannot predict with certainty the actual loss or range of loss related to such legal proceedings, the manner in which they will be resolved, the timing of final resolution or the ultimate settlement. Consequently, IBG, Inc. cannot estimate losses or ranges of losses related to such legal matters, even in instances where it is reasonably possible that a future loss will be incurred.

On January 14, 2008, the Company was named as a defendant in a purported shareholder class action lawsuit alleging that the Company violated Sections 11 and 12(a)(2) of the Securities Act by issuing a Registration Statement and Prospectus in connection with its initial public offering that contained false and misleading statements or omitted material facts concerning losses suffered by the Company in connection with trading in options of Altana AG on the German stock market. A lead plaintiff was appointed on March 14, 2008, and an amended complaint was served on or about March 24, 2008. The amended complaint adds the Company’s founder and chief executive officer, Thomas Peterffy, as a defendant. The amended complaint asserts claims against the Company under Sections 11 and 12(a)(2) of the Securities Act, and against Mr. Peterffy under Sections 11 and 15 of the Securities Act, based on the allegations that the Registration Statement failed to disclose $25 million in trading losses in the first quarter of 2007 that resulted from unusually high volume in advance of certain corporate announcements as well as the alleged failure to disclose the losses in trading options of Altana AG. Defendants believe the action is without merit and intend to defend themselves vigorously. In the opinion of management, after consultation with counsel, the resolution of this matter and all other ongoing legal proceedings will not have a material adverse effect on the consolidated financial condition, results of operations or cash flows of IBG, Inc. IBG, Inc. accounts for potential losses related to litigation in accordance with SFAS No. 5 “Accounting for Contingencies.”

As of March 31, 2008 and December 31, 2007, reserves provided for potential losses related to litigation matters were not material.

Guarantees

Certain of the Operating Companies provide guarantees to securities clearing houses and exchanges which meet the accounting definition of a guarantee under FIN No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” Under the standard membership agreement, members are required to guarantee collectively the performance of other members. Under the agreements, if another member becomes unable to satisfy its obligations to the clearinghouse, other members would be required to meet shortfalls. In the opinion of management, the Operating Companies’ liability under these arrangements is not quantifiable and could exceed the cash and securities they have posted as collateral. However, the potential for these Operating Companies to be required to make payments under these arrangements is remote. Accordingly, no contingent liability is carried on the consolidated statements of financial condition for these arrangements.

In connection with its retail brokerage business, IB LLC performs securities and commodities execution, clearance

20

and settlement on behalf of its customers for whom it commits to settle trades submitted by such customers with the respective clearing houses. If a customer fails to fulfill its obligation, IB LLC must fulfill the customer’s obligation with the trade counterparty. No contingent liability is carried on the consolidated statements of financial condition for such customer obligations.

IB LLC is fully secured by assets in customers’ accounts and any proceeds received from securities and commodities transactions entered into by IB LLC on behalf of customers. No contingent liability is carried on the consolidated statements of financial condition for these fully collateralized transactions.

Other Commitments

Certain clearing houses and clearing banks and firms used by certain Operating Companies are given a security interest in certain assets of those Operating Companies held by those clearing organizations. These assets may be applied to satisfy the obligations of those Operating Companies to the respective clearing organizations.

IBG, Inc. operates in two business segments, market making and electronic brokerage. IBG, Inc. conducts its market making business through its Timber Hill subsidiaries on the world’s leading exchanges and market centers, primarily in exchange-traded equities, equity options and equity-index options and futures. IBG, Inc. conducts its electronic brokerage business through its Interactive Brokers subsidiaries, which provide electronic execution and clearing services to customers worldwide.

There are significant transactions and balances between the Operating Companies, primarily as a result of certain Operating Companies holding exchange or clearing organization memberships, which are utilized to provide execution and clearing services to affiliates. Intra-segment and intra-region income and expenses and related balances have been eliminated in this segment and geographic information in order to accurately reflect the external business conducted in each segment or geographical region. Rates on transactions between segments are designed to approximate full costs. Corporate items include non-allocated corporate income and expenses that are not attributed to segments for performance measurement, corporate assets and eliminations.

Management believes that the following information by business segment provides a reasonable representation of each segment’s contribution to total net revenues, income before income taxes and minority interest for the three month periods ended March 31, 2008 and 2007 and to total assets as of March 31, 2008 and December 31, 2007 were:

21

IBG, Inc. operates its automated global business in U.S. and international markets on more than 70 exchanges and market centers. A significant portion of IBG, Inc.’s net revenues are generated by consolidated subsidiaries operating outside the United States. International operations are comprised of market making and electronic brokerage activities in 25 countries in Europe, Asia and North America (outside the United States). The following table presents total net revenues and income before income taxes and minority interest by geographic area for the three month periods ended March 31, 2008 and 2007:

At March 31, 2008, aggregate excess net capital for all of the Operating Companies was $2,219,010.

TH LLC and IB LLC are subject to the Uniform Net Capital Rule (Rule 15c3-1) under the Exchange Act and the CFTC’s minimum financial requirements (Regulation 1.17). At March 31, 2008, TH LLC had net capital of $891,789, which was $868,698 in excess of required net capital of $23,091, and IB LLC had net capital of $445,667, which was $395,729 in excess of required net capital of $49,938.

THE is subject to the Swiss National Bank eligible equity requirement. At March 31, 2008, THE had eligible equity of $1,060,460, which was $734,863 in excess of the minimum requirement of $325,597.

THSHK is subject to the Hong Kong Securities Futures Commission liquid capital requirement, THA is subject to the Australian Stock Exchange liquid capital requirement, THC and IBC are subject to the Investment Dealers Association of Canada risk-adjusted capital requirement and IBUK is subject to the U.K. Financial Services Authority financial resources requirement.

At March 31, 2008, all of the Operating Companies were in compliance with their respective regulatory capital requirements.

Regulatory capital requirements could restrict the Operating Companies from expanding their business and declaring dividends if their net capital does not meet regulatory requirements. Also, certain entities within IBG, Inc. are subject to other regulatory restrictions and requirements.

Receivable from affiliate represents amounts advanced to IBG Holdings LLC. Included in payable to customers in the accompanying unaudited condensed consolidated statement of financial condition as of March 31, 2008 are director and officer account balances of $714,701. Included in senior notes payable at March 31, 2008 are senior notes purchased by directors and their affiliates of $11,620.

22

On April 16, 2008, IBG LLC paid a dividend to its members of $98,450, of which IBG, Inc.’s pro rata allocation was $10,147.

  On April 24, 2008, IBG, Inc. filed with the Securities and Exchange Commission a Registration Statement on Form S-1 relating to the offering of 50 million shares of its Class A common stock. The net proceeds of the offering were intended to be used to purchase additional IBG LLC member interests from IBG Holdings LLC, pursuant to the terms and conditions of the Exchange Agreement, dated as of May 3, 2007, by and among IBG, Inc., IBG Holdings LLC, IBG LLC and members of IBG LLC (the “Exchange Agreement”) . The offering was terminated without issuance of any shares. The shares offered in the offering will be deregistered and IBG, Inc. has agreed not to register another public offering of its shares of Class A common stock until at least April 15, 2009.

                 In lieu of the above-referenced offering, the Exchange Agreement provides that IBG LLC, using its available liquidity, may facilitate the redemption by IBG Holdings LLC of interests held by its members. With the consent of IBG Holdings LLC and IBG, Inc. (on its own behalf and acting as the sole managing member of IBG LLC), IBG LLC has agreed to redeem membership interests from IBG Holdings LLC at a price equal to the 30-day volume weighted average price (“VWAP”) of IBG, Inc.’s shares of Class A common stock as of the redemption date. The redemptions are expected to be completed during May 2008.
 

                The redemption cost to IBG LLC is estimated at $72.0 million, based upon a VWAP of $29.99 per share. As a consequence of this transaction, IBG, Inc.’s interest in IBG LLC will increase to approximately 10.4%, with IBG Holdings LLC owning the remaining 89.6%. The redemptions will also result in the IBG Holdings LLC interest held by Thomas Peterffy and his affiliates increasing from approximately 84.6% to approximately 85.2%.

On May 9, 2008, 458,654 shares of Class A common stock, with a total grant date fair value of $13.9 million were distributed to employees pursuant to the 2007 ROI Unit Stock Plan and the Stock Incentive Plan.  As provided for under the terms of the plans, certain employees elected to sell, and the Company will facilitate the sale of, 125,671 of the distributed shares to meet the employees’ personal income tax withholding obligations arising from this share distribution. 

*****

23

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

                The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes in Item 1, included elsewhere in this report. In addition to historical information, the following discussion also contains forward-looking statements that include risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under the heading “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 27, 2008 and elsewhere in this report.

Introduction

We are an automated global electronic market maker and broker specializing in routing orders and executing and processing trades in securities, futures and foreign exchange instruments on more than 70 electronic exchanges and trading venues around the world. Since our inception in 1977, we have focused on developing proprietary software to automate broker-dealer functions. The advent of electronic exchanges in the last 18 years has provided us with the opportunity to integrate our software with an increasing number of exchanges and trading venues into one automatically functioning, computerized platform that requires minimal human intervention.

The Company reports its results in two business segments, market making and electronic brokerage. These segments are analyzed separately as we derive our revenues from these two principal business activities as well as allocate resources and assess performance.

When we use the terms “we,” “us,” and “our,” we mean IBG LLC and its subsidiaries for periods prior to the IPO, and IBG, Inc. and its subsidiaries (including IBG LLC) for periods from and after the IPO. On May 3, 2007, IBG, Inc. priced its initial public offering of shares of Common Stock. In connection with the IPO, IBG, Inc. purchased 10.0% of the membership interests in IBG LLC, became the sole managing member of IBG LLC and began to consolidate IBG LLC’s financial results into its financial statements. Historical results of operations are reported as a limited liability company until the IPO and do not include, franchise tax, minority interest, and federal income taxes. Such items are included in subsequent periods. Therefore the historical results for periods prior to the IPO and subsequent thereto are not comparable. This MD&A includes certain pro forma financial data to present our results of operations on a more comparable basis. See “Results of Operations” below, for additional information regarding pro forma financial data.

Executive Overview

Diluted earnings per share were $0.66 for the three months ended March 31, 2008. The calculation of diluted earnings per share is detailed in Note 4, “Initial Public Offering and Recapitalization,” to the unaudited condensed consolidated financial statements, Part 1, Item 1 of this Quarterly Report on Form 10-Q. On a pro forma basis, IBG, Inc.’s diluted earnings per share were $0.31 for the three months ended March 31, 2007.

24

Consolidated: For the three months ended March 31, 2008, our net revenues were $528.4 million and income before income taxes and minority interest was $374.0 million, compared to net revenues of $330.8 million and income before income taxes of $190.3 million for the same period in 2007. Trading gains were 90% higher in the first quarter of 2008 compared to the same period last year and commissions and execution fees were up by 57% for the same time period. Our pre-tax margin, for the three months ended March 31, 2008, was 71%, compared to 58% for the same period in 2007.

Market Making: During the three months ended March 31, 2008, income before income taxes in our market making segment increased 108%, compared with the three months ended March 31, 2007, and increased 57% sequentially, primarily reflecting higher trading gains. Pre-tax margin increased to 80% for the quarter ended March 31, 2008. The first quarter was marked by a productive environment for market making, with high market volumes and high volatility. These conditions allowed us to leverage our automated trading and real-time risk management system. Market making trade volume, for the three months ended March 31, 2008, grew by 13% from the same period last year.

Brokerage: During the three months ended March 31, 2008, income before income taxes in our electronic brokerage segment increased 67%, compared with the first quarter of 2007, reflecting higher revenues from commissions and execution fees and growth in net interest income. Pre-tax margin increased to 45% for the quarter ended March 31, 2008, compared with 37% for the same period last year, reflecting leverage from automation and decreased payments for order flow. The increase in commissions and execution fees was related to robust growth in transaction volume and customer accounts. Total daily average revenue trades (“DARTs”) for cleared and execution-only customers increased 44% to 354,000 during the three months ended March 31, 2008, compared to 245,000 during the three months ended March 31, 2007. Cleared customer DARTs increased over the same period by 59% to 303,000. The increase in net interest was driven by the growth in customer balances and fully-secured margin loans. Customer accounts increased 21% over the year ago quarter and customer equity grew by 33% over the year ago quarter. Annualized DARTs per average account were 788 in the first quarter of 2008 and annualized net revenue per average account was $4,645.

Market making, by its nature, does not produce predictable earnings. Our results in any given period may be materially affected by volumes in the global financial markets, the level of competition and other factors. Electronic brokerage is more predictable, but it is dependent on customer activity, growth in customer accounts and assets, interest rates and other factors. For a further discussion of the factors that may affect our future operating results, please see the description of risk factors in our Annual Report on Form 10-K filed with the SEC on March 27, 2008.

The following tables present historical trading volumes for our business. However, volumes are not the only drivers in our business.

TRADE VOLUMES:

(in 000’s, except %)

25

CONTRACT AND SHARE VOLUMES:

(in 000’s, except %)

TOTAL

MARKET MAKING

BROKERAGE TOTAL

 * Includes options on futures

26

CONTRACT AND SHARE VOLUMES, continued:

(in 000's, except %)

BROKERAGE CLEARED

* Includes options on futures

BROKERAGE STATISTICS:

(in 000’s, except % and where noted)

* Excludes non-customers (i.e., officers, directors and affiliated parties)

Business Environment

In the first quarter we continued to observe high volume combined with high volatility in the equity and derivatives markets brought about by turmoil in the credit markets. Liquidity tightening amongst banks and other lenders presented a challenging environment for broker-dealers. Significant losses from investment in sub-prime mortgage securities continued to drive volatility in the U.S. markets. We do not conduct business in these markets or over the counter in general. With the exception of spot foreign exchange, which is arguably one of the most liquid markets, we trade and broker only exchange listed securities and futures contracts that are cleared by central clearing houses. As a result, there is no subjective judgment used in valuing our trading assets, there is a ready market for them on every business day and our positions are marked-to-market daily using external closing prices published by the exchanges and clearing houses.

According to data compiled by the Futures Industry Association (FIA) and based on data received from exchanges worldwide, volumes in exchange-listed equity-based options increased by approximately 30.1% globally and 44.6% in the U.S. during the three months ended March 31, 2008, compared to the same period in 2007. This is a continuation of a trend we have observed over the past six years, and we believe that as the “equity culture” spreads around the world this trend is likely to continue. Sequentially, from the fourth quarter of last year to the first quarter of 2008 the equity option volume growth was 4.9% in North America, 16.9% in Europe, and 3.0% in Asia Pacific. The strong growth in European volume relative to the other regions was fostered by the liquidation of Société Générale’s unauthorized positions on Martin Luther King Day. In addition, on several days the U.S. Federal Reserve Board’s actions to provide more liquidity to the credit markets had the effect of quieting the U.S. markets following active trading sessions in Europe and Asia.

27

Over the past few quarters, we have continued to observe a rise in certain types of options activity that are driven by non-trading strategies. One such strategy results in spikes in trading volume prior to ex-dividend dates that would appear to be overstating the exchange-reported volumes, especially in the United States. Such activity does not represent trades with which other market participants, including market makers and customers, can interact. We cannot estimate the impact this activity has on overall trading volumes.

In February 2007, the SEC introduced a penny pricing pilot program for 13 classes of options. Options in the pilot program trade in minimum price increments of one cent, rather than the five and ten cent increments quoted in other options classes. The penny pricing pilot has been considered a success by the SEC. On September 28, 2007, the pilot grew to cover classes representing 35% of industry trading volume with the addition of 22 option classes. On March 28, 2008, penny pricing was extended to 63 options classes that account for over 50% of U.S. options volume. Most of these classes are quoted in pennies for options priced under $3.00 and nickels for options priced above $3.00. Overall, the exchange volume through January 2008 in the penny classes rose two to three times more than non-penny classes as compared to the periods prior to their inclusion in the pilot, according to data published by the International Securities Exchange. Our results in the penny classes are difficult to measure, in part because certain penny options on ETFs have become the most liquid markets, whereas historically the related stock index futures were the most liquid. Because our hedging activities in market making naturally gravitate to the markets with the narrowest bid-offer spreads, we expect to earn less in these markets, while we seek to maximize our overall trading gains. We believe that our low-cost, automated platform allows us to compete effectively at the narrower bid/offer spreads that have been observed in the penny classes overall.

According to data compiled by the FIA and based on data received from exchanges worldwide, in the first three months of 2008 we accounted for approximately 14.8% of the exchange-listed equity options volume traded worldwide and approximately 17.8% of exchange-listed equity options volume traded in the U.S. This compares to approximately 14.8% of the exchange-listed equity options volume traded worldwide and approximately 19.9% of the exchange-listed equity options volume traded in the U.S. in the first three months of 2007.

28

Results of Operations

The tables in the period comparisons below provide summaries of our revenues and expenses. The period-to-period comparisons of financial results are not necessarily indicative of future results. Historical results of operations are reported as a limited liability company until the IPO, which occurred on May 4, 2007, and do not include franchise tax, minority interest, and federal and state income taxes. Such items are included in subsequent periods. Therefore, the historical results for the period prior to the IPO and subsequent thereto are not comparable. This MD&A includes certain pro forma financial data to present our results of operations on a more comparable basis.

The following table sets forth our consolidated results of operations for the indicated periods:

Certain actual and pro forma information with respect to the periods described above is presented below. Information for the three months ended March 31, 2008 is based on actual results and the three months ended March 31, 2007 are presented as if we had been a public company for the entire period.

29

Diluted weighted average common shares outstanding include 1.2 million shares of Common Stock to be issued pursuant to the 2007 ROI Unit Stock Plan. Shares of Common Stock to be issued in connection with the 2007 Stock Incentive Plan have been excluded from diluted weighted average common shares outstanding because such shares are non-dilutive.

30

Three Months Ended March 31, 2008 Compared to the Three Months Ended March 31, 2007

Net Revenues

Total net revenues for the three months ended March 31, 2008 increased $197.6 million, or 60%, to $528.4 million from $330.8 million, during the three months ended March 31, 2007. Trading volume is one of the most important drivers of revenues and costs for both our market making and electronic brokerage segments. Based on data published by the FIA and options exchanges worldwide, global equity options volume increased approximately 30.1%, compared to the first quarter of 2007. For the three months ended March 31, 2008, equity-based option contracts executed by our subsidiaries increased by 43.0 million, or 27%, to 202.1 million contracts from 159.1 million contracts for the three months ended March 31, 2007.

Trading Gains. Trading gains for the three months ended March 31, 2008 increased $179.8 million, or 90%, to $378.6 million from $198.8 for the three months ended March 31, 2007. As market makers, we provide liquidity by buying from sellers and selling to buyers. During the three months ended March 31, 2008, our market making operations executed 25.8 million trades, a 13% increase over the three months ended March 31, 2007. Market making options contract volume in the quarter ended March 31, 2008 increased by 38% from the same period in 2007. Increases in trading volume for market making were driven by an active trading environment with high market volumes and high volatility in the quarter.

Included in trading gains are net dividends and currency translation gains and losses from market making activities. Dividend income and expense arise from holding market making positions over dates on which dividends are paid to shareholders of record. When a stock pays a dividend, its market price is generally adjusted downward to reflect the value paid to the shareholders of record, which will not be received by those who purchase stock after the ex-dividend date. Hence, the apparent gains and losses due to these price changes must be taken together with the dividends paid and received, respectively, in order to accurately reflect the results of our market making operations. As part of managing our overall exposure to foreign currency fluctuations, we maintain a portion of our capital in foreign currencies. In the quarter ended March 31, 2008, we observed broad based losses in the values of foreign currencies vs. Swiss francs, the base currency for our largest European subsidiary. Translation losses of $47.7 million were recognized in the three months ended March 31, 2008, on foreign currency balances held primarily by our European subsidiaries, compared to translation gains of $7.7 million for the three months ended March 31, 2007. Similarly, in the latest quarter, we observed broad based gains in the value of foreign currencies vs. U.S. dollars, which resulted in increases to our equity, as reflected in other comprehensive income. A discussion of our approach to managing foreign currency exposure is contained in Part 1, Item 3 of this Quarterly Report on Form 10-Q entitled “Quantitative and Qualitative Disclosures about Market Risk.”

Commissions and Execution Fees. Commissions and execution fees for the three months ended March 31, 2008 increased $31.9 million, or 57%, to $88.2 million, as compared to the three months ended March 31, 2007. This increase was primarily due to higher customer trading volume on an expanded customer base. Total DARTs for cleared and execution-only customers for the three months ended March 31, 2008 increased 44% to 354,000, compared to 245,000 during the three months ended March 31, 2007. DARTs for cleared customers, i.e., customers for whom we execute trades as well as clear and carry positions, increased 59% to approximately 303,000, for the three months ended March 31, 2008, compared to approximately 190,000 for the three months ended March 31, 2007.The number of customer accounts grew by 21% to approximately 99,000 at March 31, 2008, compared to approximately 82,000 at March 31, 2007. Average commission per DART for cleared customers, for the three months ended March 31, 2008, decreased by $0.37 or 8%, to $4.32, as compared to $4.69 for the three months ended March 31, 2007, primarily due to more frequently trading customers who qualify for lower commissions on our sliding commissions scale.

Interest Income and Interest Expense. Net interest income (interest income less interest expense) for the three months ended March 31, 2008 decreased $20.2 million, or 40%, to $30.8 million, as compared to the three months ended March 31, 2007. Net interest income from market making, which accounted for 38% of total net interest income, contracted to $11.8 million, a decrease of 65% from the same period last year. As a result of the way we have integrated our market making and securities lending systems, our trading income and our net interest income are interchangeable and depend on the mix of market making positions in our portfolio. When implied interest rates in the equity and equity options and futures markets exceed the actual interest rates available to us, our market making systems tend to buy stock and sell it forward, which produces higher trading gains and lower net interest income. When these rates are inverted, our market making systems tend to sell stock and buy it forward, which produces lower trading gains and higher net interest income. The relative interest rates during the first quarter of 2008 resulted in a mix of positions that produced more trading income and less interest income. In addition, average

31

securities borrowed decreased by 33%, to $6.86 billion and securities loaned decreased by 33%, to $4.90 billion, for the quarter ended March 31, 2008, as market making positions contracted. Customer cash balances increased by 63%, to $7.49 billion, end-of-period, and customer fully secured margin borrowings increased 81%, to $1.95 billion, end-of-period, at March 31, 2008, as compared to $4.59 billion and $1.08 billion, end-of-period, respectively, at March 31, 2007. Customer cash balances at March 31, 2008 include approximately $0.71 billion from director and officer account balances. However, lower interest rates have had a negative effect on the net interest income we earned on small customer cash balances. Net interest earned in electronic brokerage increased $3.8 million, or 21%, to $22.0 million, as compared to the three months ended March 31, 2007.

Other Income. Other income, for the three months ended March 31, 2008, increased $6.1 million, or 25%, as compared to the three months ended March 31, 2007. This increase was primarily attributable to a $4.5 million increase in mark-to-market gains on non-trading securities, which are predominately investments in exchanges, and a $3.1 million increase in rebates from market centers for liquidity provided by our U.S. market making unit. This was offset by a $2.1 million decrease in payment for order flow income primarily due to the penny pricing pilot which was introduced in February of 2007.

Non-Interest Expenses

Non-interest expenses, for the three months ended March 31, 2008, increased by $13.9 million, or 10%, to $154.4 million from $140.5 million, during the three months ended March 31, 2007. Execution and clearing expenses made up 56% and employee compensation and benefits were 27% of non-interest expenses. As a percentage of total net revenues, non-interest expenses declined to 29% for the three month period ended March 31, 2008 from 42% during the same period in 2007.

Execution and Clearing.  Execution and clearing expenses, for the three months ended March 31, 2008, decreased $3.1 million, or 3%, to $87.1 million, as compared to the three months ended March 31, 2007. Execution and clearing expenses, outside of payment for order flow expenses, increased by $10.4 million or 14% to $82.5 million primarily due to increased trading volume across the markets in which the Group and its customers traded. Payments to order flow customers, a component of execution and clearing costs, for the three months ended March 31, 2008, decreased by $13.5 million, or 75%, to $4.6 million, as compared to the three months ended March 31, 2007. The decrease was attributable to discontinued servicing, which took place at the end of the second quarter in 2007, of certain non-cleared institutional customers who received payment for order flow, and had a positive impact on our operating margins in the three months ended March 31, 2008.  Payment for order flow expense was offset by payment for order flow revenue received from U.S. options exchanges, as described above under “Net Revenues—Other Income.”

Employee Compensation and Benefits. Employee compensation and benefits expenses, for the three months ended March 31, 2008, increased by $8.6 million, or 26%, to $41.4 million, as compared to the three months ended March 31, 2007. This increase reflected the continued phase-in of expenses related to our employee stock incentive plan and the 24% growth in the number of employees to 687 at March 31, 2008, as compared to 552 at March 31, 2007, in large part due to the addition of approximately 60 new staff members from our acquisition of FutureTrade Technologies, LLC, which closed in December of 2007. As we continue to grow, our focus on automation has allowed us to maintain a relatively small staff. As a percentage of total net revenues, employee compensation and benefits expenses were 8% and 10%, for the three month periods ended March 31, 2008 and 2007, respectively.

General and Administrative. General and administrative expenses, for the three months ended March 31, 2008, increased $5.3 million, or 65%, as compared to the three months ended March 31, 2007, primarily attributable to increases in reserves for customer debts and for legal contingencies, as well as increased advertising expenditures.

.

32

Business Segments

The following table sets forth the net revenues and non-interest expenses and income before income taxes of our business segments:

The following sections discuss results of our operations by business segment, excluding a discussion of corporate income and expense. In the following tables, revenues and expenses directly associated with each segment are included in determining income before income taxes. Due to the integrated nature of the business segments, estimates and judgments have been made in allocating certain revenue and expense items. Transactions between segments generally result from one subsidiary facilitating the business of another subsidiary through the use of its existing trading memberships and clearing arrangements. In such cases, certain revenue and expense items are eliminated in order to accurately reflect the external business conducted in each segment. Rates on transactions between segments are designed to approximate full costs. In addition to execution and clearing expenses, which are the main cost driver for both the market making segment and the electronic brokerage segment, each segment’s operating expenses include (i) employee compensation and benefits expenses that are incurred directly in support of the businesses, (ii) general and administrative expenses, which include directly incurred expenses for property leases, professional fees, travel and entertainment, communications and information services, equipment, and (iii) indirect support costs (including compensation and other related operating expenses) for administrative services provided by IBG LLC. Such administrative services include, but are not limited to, computer software development and support, accounting, tax, legal and facilities management.

33

Market Making

The following table sets forth the results of our market making operations for the indicated periods:

Three Months Ended March 31, 2008 Compared to the Three Months Ended March 31, 2007

Market making total net revenues for the three months ended March 31, 2008 increased $170.0 million, or 73%, to $403.3 million, from $233.3 million during the three months ended March 31, 2007. Trading gains for the three months ended March 31, 2008 increased $183.8 million, or 95%, primarily due to increased market volumes and high volatility in market prices relative to implied volatility in options prices. Market making options contract volume in the quarter ended March 31, 2008 increased by 38% from the same period in 2007 driven by favorable market conditions. Trading gains also include translation gains and losses. In the quarter ended March 31, 2008, we observed broad based losses in the values of foreign currencies vs. Swiss francs, the base currency for our largest European subsidiary. Translation losses, for the three months ended March 31, 2008, were $48.6 million, as compared to translation gains of $7.3 million, for the three months ended March 31, 2007. Similarly, in the same quarter, we observed broad based gains in the value of foreign currencies vs. U.S. dollars, which resulted in increases to our equity, as reflected in other comprehensive income. Net interest income, for the three months ended March 31, 2008, decreased $21.8 million, or 65%. As described above, our trading income and our net interest income are interchangeable and depend on the mix of market making positions in our portfolio. The mix of our positions for the first quarter of 2008 produced more trading income and less interest income.

Market making non-interest expenses for the three months ended March 31, 2008 increased $3.0 million, or 3.8%, as compared to the three months ended March 31, 2007. Of this increase, $2.2 million consisted of higher employee compensation and benefits expenses, an increase of 16% from the three months ended March 31, 2007, reflecting the continued phase in of expenses related to our employee stock incentive plan. Despite higher trading volume, execution and clearing expenses decreased $1.3 million or 2.4%, from the same period in 2007, reflecting the reduction in exchange mandated payment for order flow program costs as more options traded in pennies. In addition, greater options volume was executed on U.S. option exchanges that use the make-or-take (“MoT”) model, where as a market maker we are paid for providing liquidity instead of paying exchange fees. As a percentage of total net revenues, market making non-interest expenses decreased to 20% from 34% for the three months ended March 31, 2008 and 2007, respectively.

34

Electronic Brokerage

The following table sets forth the results of our electronic brokerage operations for the indicated periods: