Page 1 of 6
`
`TRADING TECH EXHIBIT 2207
`IBG ET AL. v. TRADING TECH
`CBM2016-00009
`
`

`
`
`
`
`
`
`
`
`
`Form 10-K for fiscal year ended December 31, 2006
`
`
`
`Page 2 of 98
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
`See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Large accelerated filer El
`
`
`
`Accelerated filer I21
`
`
`
`Non-accelerated filer El
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). El Yes
`
`
`
`IZI No
`
`The aggregate market value of voting stock held by non-affiliates as of June 30, 2006 (based upon the closing price of
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`$12.67 per common share as quoted on The NASDAQ Global Select Market on such date), was approximately $343,677,000.
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`The registrant had 44,755,691 shares of common stock, $.01 par value, outstanding as of March 1, 2007.
`
`DOCUMENTS INCORPORATED BY REFERENCE
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Certain portions of the registrant’s definitive proxy statement to be filed within 120 days after December 31, 2006 in
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`connection with its 2007 annual meeting of shareholders are incorporated by reference ir1 Part III of this report.
`
`
`
`
`http://WWW.sec.gov/Archives/edgar/data/1111559/000119312507050815/d10k.htm
`
`9/13/2010
`TS0005178
`
`
`
`Page 2 of 6
`
`

`
`
`
`
`
`
`
`
`
`Form 10-K for fiscal year ended December 31, 2006
`
`
`
`
`Page 3 of 98
`
`
`
`Tangle of Centena-
`
`TABLE OF CONTENTS
`
`
`
`I»?
`
`\DDD--I‘-3‘-~3LIIhJId1d
`
`BUSINESS
`
`
`
`Overvieg and Recent Dgrgmpments
`‘ Bac
`d
`In ust
`.
`
`Pmgigcts fig Serving;
`S "es and Markctin
`
`
`
`Sgtfl R;1.-nticrnghipg
`
`Tee'l1nnlggy Dewlgpmcnt
`
`
`
`
`
` ¢E:m1£
`Cnmgetiginn
`
`Infiletmg! Pmpcrtv
`
` aEm
`Em
`‘asst
`
`;_lvaiI'aIJle lug rmation
`RISK F'A.CTO:RS
`
`
`
`UNR-ES OLVEJJ §TA'FF COMMEN [E
`PROPEEL [E_S_
`
`LEGAL Pit('M':EEnm@
`SUBMISSION OF MATTERS TO. A VOTE OF SECURITY HOLDERS
`
`
`
`
`
`
`
`
`
`
`
`elici
`
`a‘ E ti
`
`
`
`MARKET FOR REGISTRAN'I"S COMMON E U'lTY RELATED ST CKHO "D-ER
`
`
`
`
`
`
`
`
`
`
`
`
`Common Stank Infgrmation
`
`
`
`Diviglgng Pnlicv
`
`
`
`
`Recgt S-gjg of flnrcflstereg Securitig
`
`gg ax-E Reggglgages
`
`
`SELECTED FINANCIAL DATA
`MAI’-«'lAGE'MENT’S DISCIJSS'[O'N AND ANALYSIS OF FINANCIAL CONDITION AND
`
`
`
`
`
`
`
`
`
`RESULTS OF QPERATTQES
`Overview
`Critical Area ~ tin
`
`
`
`
`Resulg of OmratI'D1:Is'
`
`
`
`
`
`
`Yam Endeg Dfirri bg 31-, .2![§ and 2005
`
`
`
`
`
`
`Igars Ended Decemfl-'31, 2015 g-gal 20014
`
`Inenme Taxg
`
`
`Var-*ig'bi1'1v__‘ of Regulls
`
`
`
`Liguidity and Cgpjtfl fieflurcgs
`
`
`_
`_
`Standmr *1
`_
`
`
`
`9'''U,»m111AT1vE AND QUALITATTVE DISCLOSHRES ABOUT MARKET RISK
`
`
`
`
`
`
`
`
`
`
`FINANCIAL S'TATEME'NTS ANZD SIJPPL MENT
`‘Y ATA
`' REEMENTS WITH AC DUNTANTS ON ACCOUNTING ANID
`..
`.. .
`
`
`
`
`
`
`
`
`
`FINANCIAL DISQ QLOSURTE
`
`
`CONTROLS AND PRO! ;E]JURES
`OTIIER INFORJMATIDN
`
`
`-‘res
`
`DIRECTORS AND EXECE-TTVE OFFICERS OFTHJE REGISTRANT
`
`
`
`
`
`
`
`EXECUTIVE coM1=EN§ 5TION
`
`
`
`
`
`
`
`s ._C_'U_RlTY 0 '_
`-_FCE'R'_1‘_AIN_BEh_1E CIAL OWNERS AND: MANAGEMENT
`_ Rs _
`A 1) RELATED STOCK]1OL]).E'R MATTE .
`
`
`
`
`
`
`Eggit; Compensation Plan Inform-atign
`
`
`
`‘T ONSH . AND
`_'
`RE
`
`
`
`'
`
`
`
`
`
`
`
`
`
`
`
`
`
`ITEM 7A.
`ITEM 3.
`ITEM 9.
`
`ITEM 9A.
`ITEM 9]}.
`
`
`
`PART 111
`
`ITEM 10.
`
`ITEM 11.
`ITEM 12.
`
`ITEM 13.
`
`
`
`http://www.sec.gov/Archives/edgar/data/1111559f000119312507050815fd10k.htm
`
`9/13!2010
`TS00051 79
`
`
`
`Page 3 of 6
`
`

`
`
`
`
`
`
`
`
`
`Form 10—K for fiscal year ended December 31, 2006
`
`
`
`
`Page 4 of 98
`
`PRINCIPAL ACCOUNTING FEES AND SERVICES
`
`
`
`
`
`EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
`
`
`
`
`
`ITEM 14.
`
`PART W
`ITEM IS.
`
`
`
`SIGNATURES
`
`
`
`
`http://www.sec.g0v/Archivesfedgarfdataf1 11155910001 193125070S0815fd10k.htm
`
`9/13/2010
`TSOOD5180
`
`
`
`Page 4 of 6
`
`

`
`
`
`
`
`
`
`
`
`Form l0—K for fiscal year ended December 3], 2006
`
`
`
`
`Page II of98
`
`
`
`Talgle of Contents
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`price offerings during 2007. Trarfe.S‘ta£1'on (both as a subscription service and as a brokerage account trading platform) also
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`offers our Optirmf-Station and Raa’nr-Screen functions and features. ()ptian.'§'tatimt. also an award-winning technology. is an
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`options trading analysis product for equity. index and ftttttres options that enables traders to explore options trading strategies.
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`RadarScreen enables traders to scan securities markets to identify potential buying or selling opporttmitjes based upon the
`
`
`
`traders’ own trading strategies.
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`We ceased marketing our legacy software products in May 2000 and ceased marketing our subscription software services
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`in December 2000. Accordingly, in 200-t__ 2005 and 2006, and, we expect. for the foreseeable future. our brokerage operations
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`produced and should continue to produce the tnajority of our revenues. In 2004_ 2005 and 2006. revenues from brokerage
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`services (consisting prirnarily of brokerage eonnnissions and fees and net interest income) accounted for approxitnately 86%
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`89% and 92%. respectively. of our total consolidated net revenues. and software products and services accounted for
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`approximately 14% 1 l% and 3%. respectively. of our total consolidated net revenues overthat three-year period.
`
`
`Sales and Marketing
`
`
`
`
`
`
`
`
`
`
`
`
`
`.'‘.»'F'()_ and Tec’ht1icaIAt1a(1tt'i.\*
`Our marketing in 2006 consisted principally of print advertising in Ac.'r't.'e Tt'art'eJ'. F'rrtrr.I'es‘,
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`qfstoc-ks & t;‘rimttioctttie.s- tnagazines. direct mail and e-mail. sales seminars, and our Web sites. and television advcflising on
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`financial news channels. The mix and frequeney of television. print. Web-site. direct-mail and in-person marketing methods
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`that we use to try t.o achieve results will likely be continually modified as we test such methods and mixtures and analyzrtc and
`
`
`interpret the results.
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Revenues derived from customers outside of the United States for the years ended December 31. 2006. 2005 and 2004.
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`were apprmzitnately I 1%. less than 10% and approximately’ 12%. respectively. International revenues are collected in US.
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`dollars. We conduct no marketing. sales or other operations. and maintain no assets. outside of the United States, other than
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`relating to our start-up operations in London via our United Kingdom subsidiary. Tradcstation Europe Limited.
`
`
`Strategic Relationships
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`C't'enrt'ngSer1-‘ices. Our brokerages clearing services for institutional securities accounts. and for all futures accounts. are
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`currentlv provided by Bear. Stcarns Securities Corp. and RJ. O‘Brien & Associates, Inc.. respectively. pursuant to industry-
`
`
`standard clearing agreements.
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`For'e.r Dem’ .S‘erw’ccs. Our forex deal services are currently provided through an artartgettlent with GAIN Capital Group.
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Inc. Forex customers design. test. optimize and automate their forex strategies using Tmdefiflattori. then. when a deal order is
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`to be placed. the customer connects directly to GAfN Capital"s online deal system. and places the order. GAIN Capital is the
`
`
`
`
`counterpartylprincipal for each forex deal.
`
`
`Technology Development
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`We believe that our success depends. in large part. on our ability to offer unique, lnternct—bascd trading technologies with
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`state-o'f—t|1e-art order execution technologies. and continuously enhance these technologies. as well as develop and implement
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`well-designed and user-friendly Web sites. To date. we have relied primarily on iutemal development of our products and
`services. We
`
`
`
`
`
`http://www.sec.gov/Archives/edgar/datw’1ll155910001l93I250705081Sfd10k.htrn
`
`9/13/2010
`TSO0D5187
`
`
`
`Page 5 of 6
`
`

`
`
`
`
`
`
`
`
`
`Form l0—K for fiscal year ended December 3]. 2006
`
`
`
`
`Page I2 of98
`
`
`
`Talgle of Contents
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`cunently perform all quality assurance and develop user education and other training materials internally. in 2006. 2005 and
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`2004. tcclinologv development expenses were approxirriately $5.2 million $4.5 million and $4.4 million. respectively. As of
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`December 31. 2006. our tcclinology development team was comprised of 85 people. as compared to 80 as of December 3 l .
`2005. a 6.3% increase.
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`We view our technologv development cycle as a four-step process to achieve technological feasibility. The first step is to
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`conceptualixe in detail the defining features and functions that we believe our targeted rnarkct requires frain the product or
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`service, and to undertake a cost-bericlit analysis to detennine the proper scope and integration of such features and functions.
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Once the functional requirements of the product or service have been determined. the second step is to tecluiically design the
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`product or service. The third step is the detailed implementation. or errgineering. of this technical design. The fourth step is
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`rigorous quality assurance testing to ensure that the final product or service generally meets the functional requirements
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`determined in the first step. Several refinements are typically added and tested in the quality assurance phase of development.
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Once this process is completed. technological feasibility has been achieved and the working model is available for release to
`our ctrstomers.
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`The market for strategy trading software tools. streaming rcal—time market data and news services, and online order
`
`
`
`
`
`
`
`
`
`
`
`
`
`execution services is cliaiacterized by: rapidly changing tecluiology; evolving irtdustry standards in computer hardware.
`
`
`
`
`
`
`
`
`
`
`
`
`
`prograrnrning tools and languages. Operating systems. database technology and inforrnation delivery systems: changes in
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`customer requirenrentst and frequent new product and service introductions and enhancements. as well as technical
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`consolidation of products and services. Our success will depend, in part. upon our ability to develop and nraintain competitive
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`technologies and to develop and introduce new products. services and enhancements in a timely and cost-effective rnauner that
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`meets changing conditions such as evolving customer needs. existing and new competitive product and service ofierings.
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`emerging industry standards. changing tcclmology. and increased capacity and stability requirements as we grow our business
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`and as minimum customer acceptability standards for capacity and stability increase in our industry. There can be no assurance
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`that we will be able to develop. introduce and market. on a timely basis. if at all. products. services or enhancements that
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`respond to changing market conditions or that will be accepted by customers. Any failure by us to anticipate or to respond
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`quickly to changing market conditions. or any significant delays in the introduction of new products and services or
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`enhancements. could cause customers to delay using. or decide against the use of. our products and services and could have a
`
`
`
`
`
`
`
`
`
`
`
`material adverse effect on our business. financial condition and results of operations.
`
`
`
`
`
`
`Customer Services and Support and Training
`
`
`
`
`
`
`
`
`
`
`
`
`We provide customer‘ services and support and product-use training in the following ways:
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`c.'z.-.nomer- Set-vices and Support. Telephone account and technical support service is provided to brokerage customers
`
`
`
`
`
`
`
`
`
`
`
`
`through a trained customer service team. Advanced Ea.s}=Lang.rrage consulting services (services that tecluiically assist
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`customers in the use of !:'tisjvI.:mgncge to write the customers‘ own trading strategies) are available from internal resources and
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`from unaffiliated, independent Eastilariguage consultants. A substantial amount of technical support information is also
`
`
`
`
`provided on our Web sites.
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Pr'oa’t.tc'.'—t.t.\'e Trmrnng. We consider user education impouant to try to help our customers increase their abilities to use our
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`products and services fully and effectively. The majority ofour training materials consist of E!.\'lC1ISi\'C online documentation
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`and technical assistance infonnation on our Web sites. including online tutorials. as well as in-person training seminars. so that
`0111'
`
`
`
`
`http://www.see.gov/Archives/edgar/datw’1ll155910001l93l250705081Sfdl0k.htm
`
`9/13/2010
`TSDOD5188
`
`
`
`Page 6 of 6