Unless the context otherwise requires, the "Company" or "we" shall mean LaBranche & Co Inc. and its wholly-owned subsidiaries.

This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (the "2008 10-K") and our Condensed Consolidated Financial Statements and the Notes thereto contained in this report.

Executive Overview

For the second quarter of 2009, our after-tax net income was $13.3 million, or $0.24 per diluted share, compared to a net loss of $21.3 million, or $0.34 per share for the same period in 2008. These GAAP earnings were affected by a pre-tax unrealized gain of $29.3 million on the Company's shares of NYSE Euronext, Inc. common stock (the "NYX shares") and income on early extinguishment of debt of $1.0 million in the second quarter of 2009 and an unrealized loss on our NYX shares of $33.2 million and expense on early extinguishment of debt of $5.1 million in the second quarter of 2008. Excluding these items in each quarter, our pro-forma net loss for the second quarter of 2009 was $4.9 million, or $0.09 per share, compared to pro-forma net income for the second quarter of 2008 of $1.7 million, or $0.03 per share.

Excluding the unrealized gain associated with our NYX shares, our Market-Making segment, in the aggregate, generated a small profit of approximately $300,000. In the Market-Making segment we showed improvement in our traditional cash equity business, having made a transition to the NYSE's new market model, which focuses on getting revenues from quoting at the national best bid and best offer, or "NBBO", by adding liquidity to the market electronically. This business is now less reliant on principal trading revenues, and our participation rates have increased in the second quarter to 20.6% from 14.4% in the first quarter of 2009. Naturally, revenue growth in the cash equity business will depend largely on volumes increasing. Our ETF market-making results also increased with interest in international ETF's continuing to grow.

Our options market-making business continues to be the only market-making business to post negative results in the second quarter of 2009. Although the options market-making results were not as negative as in the first quarter, these results continue to be disappointing. Unlike in the first quarter, when unwinding previous positions resulted in losses, the options market-making business is now once again active and putting on new positions. We are focusing on putting our capital to use, keeping in mind current market conditions. Without the options trading results our market making business would have had a more profitable quarter. Therefore, improving results at our options business is our most important priority.

Cash equities and options contract market trading volumes were disappointing in the second quarter of 2009, which we believe contributed to the pro-forma operating losses we reported. We hope that volumes will once again start to grow as interest in equities markets returns.

Our Institutional Brokerage Segment, which includes our institutional equities and fixed income divisions, generated an operating loss of approximately $3.1 million in the second quarter of 2009. Most of this loss resulted from expenses in expanding our current business as well as starting the fixed income group to trade in the secondary bank loan market.

Overall, our operating companies showed a combined pro forma pre-tax loss of $2.0 million in the second quarter of 2009. These losses, when combined with the expenses at our holding company (the biggest of which is the $5.4 million interest on our public debt for the quarter), resulted in the pro-forma operating loss for the second quarter of 2009.

We repurchased $10.0 million of our public debt in the second quarter of 2009, which further reduced our annual interest payments related to this debt to $20.8 million from approximately $21.9 million as of December 31, 2008. Historically, the operating expense related to our outstanding debt has been the negative carry on our debt, which is the interest we pay on our outstanding indebtedness, less the interest income we receive as a result of having that cash on-hand. Our negative carry following our repurchase of debt in the second quarter of 2009 was reduced to approximately $5.4 million per quarter, based on current short-term interest rates.

As we have explained in the past, our ownership of 3.1 million shares of NYSE Euronext Inc. common stock (the "NYX shares") resulted from the exchange of our exchange memberships, or "seats" in connection with the NYSE's mergers. Although the price of the NYX shares has been volatile over the past few years, we believe that owning the shares has enabled us to be more flexible with our cash, since we use those shares as regulatory capital. However, our management will continue to remain flexible regarding our continued ownership of the NYX shares. We are also mindful that our ownership of exchange seats and exchange-related securities, such as our NYX shares, have been beneficial to our Company over time.

Our balance sheet is still strong and very liquid despite the decline in market conditions and our performance to date in 2009. We believe we have ample capital to maintain and grow our business. We are continuing to concentrate on building our businesses abroad, as we continue to see trading opportunities there in ETFs and other products.

Due to the value we continue to see in our common stock, in July 2009 our board of directors increased the $40.0 million share repurchase program we previously announced by $25.0 million, making the total authorization under the share repurchase program $65.0 million. Following this increase and repurchases made to date under the repurchase plan, there are approximately $29.5 million in shares of common stock remaining that may be repurchased under the repurchase plan. The repurchase program may be implemented from time to time in the open market, in privately negotiated transactions or otherwise, in compliance with applicable state and federal securities laws. The timing and amounts of any purchases will be based on market conditions and other factors, including price, regulatory requirements, debt covenant compliance and capital availability. We may suspend, modify or discontinue the share repurchase program at any time.

Regulation G Reconciliation of Non-GAAP Financial Measures

In evaluating the Company's financial performance, management reviews results from operations, which excludes non-operating charges. Pro-forma loss per share is a non-GAAP (generally accepted accounting principles) performance measure, but the Company believes that it is useful to assist investors in gaining an understanding of the trends and operating results for the Company's core business. Pro-forma loss per share should be viewed in addition to, and not in lieu of, the Company's reported results under U.S. GAAP.

The following is a reconciliation of U.S. GAAP results to pro-forma results for the periods presented:

                                                                          Three Months Ended June 30,
                                                          2009                                                  2008
                                      Amounts as          (1) (2)         Pro forma          Amounts            (1) (2)          Pro forma
                                       reported         Adjustments        amounts         as reported        Adjustments         amounts
Revenues, net of interest expense    $     53,831      $     (29,313 )    $   24,518      $       7,790      $      33,206      $    40,996
Total expenses                             33,402              1,038          34,440             42,702             (5,119 )         37,583

(Loss) income before (benefit)
provision for income taxes                 20,429            (30,351 )        (9,922 )          (34,912 )           38,325            3,413
(Benefit) provision for income
taxes                                       7,116            (12,140 )        (5,024 )          (13,571 )           15,330            1,759

Net (loss) income applicable to
common stockholders                  $     13,313      $     (18,211 )    $   (4,898 )    $     (21,341 )    $      22,995      $     1,654

Basic per share                      $       0.24      $       (0.33 )    $    (0.09 )    $       (0.34 )    $        0.37      $      0.03
Diluted per share                    $       0.24      $       (0.33 )    $    (0.09 )    $       (0.34 )    $        0.37      $      0.03

                                                                           Six Months Ended June 30,
                                                          2009                                                  2008
                                      Amounts as          (1) (2)         Pro forma          Amounts            (1) (2)          Pro forma
                                       reported         Adjustments        amounts         as reported        Adjustments         amounts
Revenues, net of interest expense    $     26,880      $         408      $   27,288      $     (14,903 )    $     112,452      $    97,549
Total expenses                             56,057              1,038          57,095             91,441             (6,005 )         85,436

(Loss) income before (benefit)
provision for income taxes                (29,177 )             (630 )       (29,807 )         (106,344 )          118,457           12,113
(Benefit) provision for income
taxes (3)                                 (12,750 )             (252 )       (13,002 )          (44,766 )           47,383            2,617

Net (loss) income applicable to
common stockholders                  $    (16,427 )    $        (378 )    $  (16,805 )    $     (61,578 )    $      71,074      $     9,496

Basic per share                      $      (0.29 )    $       (0.01 )    $    (0.30 )    $       (0.99 )    $        1.14      $      0.15
Diluted per share                    $      (0.29 )    $       (0.01 )    $    (0.30 )    $       (0.99 )    $        1.14      $      0.15

(1) Revenue adjustment reflects (gain) loss in each accounting period, based on the change in fair market value of the Company's restricted and unrestricted NYX shares at the end of each such period versus the beginning of such period.

(3) In the first quarter of 2008, the Company recognized a tax benefit due to the release of a tax reserve for an expired tax year, which resulted in a reduced provision for income taxes.

New Accounting Developments

See Note 2 to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding New Accounting Developments.

Critical Accounting Estimates

Goodwill and Other Intangible Assets

We determine the fair value of each of our reporting units and the fair value of each reporting unit's goodwill under the provisions of SFAS No. 142 (ASC 350), "Goodwill and Other Intangible Assets." In determining fair value, we use standard analytical approaches to business enterprise valuation ("BEV"), such as the market comparable approach and the income approach. The market comparable approach is based on comparisons of the subject company to similar companies engaged in an actual merger or acquisition or to public companies whose stocks are actively traded. As part of this process, multiples of value relative to financial variables, such as earnings or stockholders' equity, are developed and applied to the appropriate financial variables of the subject company to indicate its value. The income approach involves estimating the present value of the subject company's future cash flows by using projections of the cash flows that the business is expected to generate, and discounting these cash flows at a given rate of return. Each of these BEV methodologies requires the use of management estimates and assumptions. For example, under the market comparable approach, we assigned a certain control premium to the public market price of our common stock as of the valuation date in estimating the fair value of our specialist reporting unit. Similarly, under the income approach, we assumed certain growth rates for our revenues, expenses, earnings before interest, income taxes, depreciation and amortization, returns on working capital, returns on other assets and capital expenditures, among others. We also assumed certain discount rates and certain terminal growth rates in our calculations. Given the subjectivity involved in selecting which BEV approach to use and in determining the input variables for use in our analyses, it is possible that a different valuation model and the selection of different input variables could produce a materially different estimate of the fair value of our goodwill.

We review the reasonableness of the carrying value of our goodwill annually as of December 31, unless an event or change in circumstances requires an interim reassessment of impairment. During the six months ended June 30, 2009, there were no changes in circumstances that necessitated goodwill impairment testing prior to our required year-end test date. We cannot provide assurance that a change in circumstances requiring an interim assessment or future goodwill impairment testing will not result in impairment charges in subsequent periods. During the first and second quarters of 2009 a significant revenue decrease occurred which we do not believe will be a permanent trend. However, if revenues in future quarters do not reflect the estimates used to determine the BEV then a potential trigger necessitating a goodwill impairment test before December 31, 2009 could occur.

Another of our intangible assets, as defined under SFAS No. 142 (ASC 350), is our trade name. We determine the fair value of our trade name by applying the income approach using the royalty savings methodology. This method assumes that the trade name has value to the extent we are relieved of the obligation to pay royalties for the benefits received from it. Application of this methodology requires estimating an appropriate royalty rate, which is typically expressed as a percentage of revenue. Estimating an appropriate royalty rate includes reviewing evidence from comparable licensing agreements and considering qualitative factors affecting the trade name. Given the subjectivity involved in selecting which BEV approach to use and in determining the input variables for use in our analyses, it is possible that a different valuation model and the selection of different input variables could produce a materially different estimate of fair value of our trade name.

We review the reasonableness of the carrying amount of our trade name on an annual basis in conjunction with our goodwill impairment assessment. During the six months ended June 30, 2009, there were no changes in circumstances that necessitated trade name impairment testing prior to our required year-end test date. We cannot provide assurance that a change in circumstances requiring an interim assessment or future trade name and stock listing rights impairment testing will not result in impairment charges in subsequent periods. During the first and second quarters of 2009 a significant revenue decrease occurred which we do not believe will be a permanent trend. However, if revenues in future quarters do not reflect the estimates used to determine the BEV then a potential trigger necessitating a trade name impairment test before December 31, 2009 could occur.

Financial Instruments

"Financial instruments owned, at fair value" and "Financial instruments sold, but not yet purchased, at fair value" are reported in our consolidated financial statements, at fair value, on a recurring basis. Pursuant to SFAS No. 157 (ASC 820), the fair value of a financial instrument is defined as the amount that would be received to sell an asset or paid to transfer a liability, or the "exit price," in an orderly transaction between market participants at the measurement date.

We have adopted Statement of Financial Accounting Standards, or SFAS No. 157 (ASC 820) "Fair Value Measurements," which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 (ASC 820) outlines a fair value hierarchy that is used to determine the value to be reported. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (which are considered "level 1" measurements) and the lowest priority to unobservable inputs (which are considered "level 3" measurements). The three levels of the fair value hierarchy under SFAS No. 157 (ASC 820) are as follows:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2   -   Quoted prices for similar instruments in active markets, quoted prices in
              markets that are not active or financial instruments for which all
              significant inputs are observable, either directly or indirectly;

Level 3   -   Valuation is generated from model-based techniques that use significant
              assumptions not observable in the market. These unobservable assumptions
              would reflect our own estimates of assumptions that market participants
              would use in pricing the asset or liability. Such valuation techniques
              include the use of option pricing models, discounted cash flow models and
              similar techniques.

Non-Marketable Securities

The measurement of non-marketable securities is a critical accounting estimate. Investments in non-marketable securities consist of investments in equity securities of private companies and limited liability company interests and are included in other assets in the condensed consolidated statements of financial condition. Certain investments in non-marketable securities are initially carried at cost, unless there are third-party transactions evidencing a change in value. For certain other investments in non-marketable securities we adjust their carrying value by applying the equity method of accounting pursuant to APB
18 (ASC 325). Under the equity method the investor recognizes its share of the earnings and losses of an investee in the periods for which they are reported by the investee in its financial statements. The assets included in this section represent limited liability companies that are service providers and whose value is affected by nonfinancial components. In addition, if and when available, management considers other relevant factors relating to non-marketable securities in estimating their value, such as the financial performance of the entity, its cash flow forecasts, trends within that entity's industry and any specific rights associated with our investment-such as conversion features-among others.

Non-marketable investments are tested for potential impairment whenever events or changes in circumstances suggest that such investment's carrying value may be impaired.

Use of Estimates

The use of accounting principles generally accepted in the United States of America requires management to make certain estimates. In addition to the estimates we make in connection with fair value measurements and the accounting for goodwill and identifiable intangible assets, the use of estimates is also important in determining provisions for potential losses that may arise from litigation, regulatory proceedings and tax audits.

We estimate and provide for potential losses that may arise out of litigation, regulatory proceedings and tax audits to the extent that such losses are probable and can be estimated, in accordance with SFAS No. 5 (ASC 450), "Accounting for Contingencies" and FIN 48 (ASC 740), "Accounting for Uncertainty in Income Taxes". Significant judgment is required in making these estimates and our final liabilities may ultimately be materially different. Our total liability in respect of litigation and regulatory proceedings is determined on a case-by-case

basis and represents an estimate of probable losses after considering, among other factors, the progress of each case or proceeding, our experience and the experience of others in similar cases or proceedings, and the opinions and views of legal counsel. Given the inherent difficulty of predicting the outcome of our litigation and regulatory matters, particularly in cases or proceedings in which substantial or indeterminate damages or fines are sought, we cannot estimate losses or ranges of losses for cases or proceedings where there is only a reasonable possibility that a loss may be incurred. See "Legal Proceedings" in Part II, Item 1 of this Quarterly Report on Form 10-Q for information on our judicial, regulatory and arbitration proceedings.

Recent Regulatory Developments

Regulation SHO and Short Selling Rules.

On July 27, 2009, the Securities and Exchange Commission (the "SEC") made permanent the interim final temporary rule, Rule 204T, that sought to reduce the potential for abusive "naked" short selling in the securities market. The new rule, Rule 204, requires broker-dealers to promptly purchase or borrow securities to deliver on a short sale. The temporary rule, approved by the SEC in the fall of 2008, was set to expire on July 31.

Rule 204 requires that firms buy or borrow securities to close-out any fail to deliver position in an equity security resulting from a long or a short sale by the beginning of regular trading hours on the next settlement day following the date the fail to deliver position arose. In October 2008, the SEC also adopted a rule eliminating the options market maker exception to the close-out requirement for short sales under Regulation SHO and an antifraud rule prohibiting misrepresentations by a "short" seller regarding its ability or intention to deliver securities by the settlement date in connection with both long and short sales. These rules are generally consistent with the series of emergency orders issued by the SEC in September and October 2008. Rule 204 continues certain exemptions and extends the time to deliver securities to cover such short sales by up to two trading days for certain bona fide market makers (such as the businesses encompassing our Market-Making segment) in connection with their bona fide market-making activities. Based on the effects of Rule 204 and interim Rule 204T since October 2008, we do not believe these new regulations has materially affected our business, although we cannot provide any assurance that these regulations will not adversely affect us in the future. We believe that the new rules' exemptions and additional time to cover failed short positions has enabled our market-making business to comply with the new requirements of Regulation SHO while maintaining our market-making and liquidity provision obligations, but cannot provide assurance that these provisions will continue to work for our benefit.

New NYSE Market Model

In December 2008, the NYSE introduced a new market model following the approval by the SEC on October 24, 2008, that resulted in significant changes in NYSE's market structure. The new market model was fully implemented in January 2009, and the changes include, among other things, (a) specialists are now called "Designated Market Makers", or "DMMs"; (b) the alteration of NYSE's priority and parity rules, including those that will allow

DMMs to trade on parity with orders on NYSE's display book; and (iii) the introduction of new order functionality, including the DMM Capital Commitment Schedule ("CCS") and hidden orders. In order to achieve parity trading for the DMMs, the new market model eliminated the order-by-order advance "look" specialists received, but the DMM is relieved of their "negative" obligation to not trade for its own account unless reasonably necessary to the maintenance of a fair and orderly market. The role of the designated market maker remains essentially unchanged from the role of the specialist, in that the designated market maker is the primary provider of liquidity and information with respect to the companies it represents on the floor of the NYSE, but without the first look at order flow and without many of the negative and affirmative obligations to which we were subject prior to the new market model. The NYSE has stated that this change gives the DMM greater freedom to manage the trading risks associated with their reduced responsibilities to the NYSE market. In addition, DMMs will continue to be able to generate orders through an algorithm that interacts directly with the NYSE's display book. Furthermore, the DMMs will be able to commit additional liquidity in advance to fill incoming orders via the CCS, which is a liquidity schedule setting forth various price points where the DMM is willing to interact with incoming orders. The new market model was fully implemented on January 1, 2009. As stated above in the Executive Overview section, we believe we have completed the transition to the new market model, although we expect that our participation in this new market model will continue to evolve and change over time.

Results of Operations

Market-Making Segment Operating Results



                                                                                                    Three             Six
                                                                                                    Months           Months
                                       For the Three Months           For the Six Months           2009 vs.         2009 vs.
                                          Ended June 30,                Ended June 30,               2008             2008
                                                                                                  Percentage       Percentage
(000's omitted)                         2009          2008           2009            2008           Change           Change

Revenues:
Net gain on principal transactions   $    13,022    $  44,671      $  10,514      $  104,153           (70.8 )%         (89.9 )%
Commissions and other fees                13,015        3,839         21,313           9,108           239.0            134.0
Net gain (loss) on investments            27,138      (31,307 )       (1,505 )      (106,472 )         186.7             98.6
. . .