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. This discussion includes the effects of the restatement reported in Item 1 of this Quarterly Report on Form 10-Q, which restatement affects the discussion of Cash Flows on page 43.

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

IBG, Inc. is a holding company whose primary assets are our ownership of approximately 10.4% of the membership interests of the Group.

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.

• Market Making. We conduct our market making business through our Timber Hill subsidiaries. As one of the largest market makers on many of the world's leading exchanges, we provide liquidity by offering competitively tight bid/offer spreads over a broad base of approximately 532,000 tradable, exchange-listed products. As principal, we commit our own capital and derive revenues or incur losses from the difference between the price paid when securities are bought and the price received when those securities are sold. Because we provide continuous bid and offer quotations and we are continuously both buying and selling quoted securities, we may have either a long or a short position in a particular product at a given point in time. Our entire portfolio is evaluated each second and continuously rebalanced throughout the trading day, thus minimizing the risk of our portfolio at all times. This real-time rebalancing of our portfolio, together with our real-time proprietary risk management system, enables us to curtail risk and to be profitable in both up-market and down-market scenarios.

• Electronic Brokerage. We conduct our electronic brokerage business through our Interactive Brokers subsidiaries. As an electronic broker, we execute, clear and settle trades globally for both institutional and individual customers. Capitalizing on the technology originally developed for our market making business, IB's systems provide our customers with the capability to monitor multiple markets around the world simultaneously and to execute trades electronically in these markets at a low cost, in multiple products and currencies from a single trading account. We offer our customers access to all classes of tradable, exchange-listed products, including stocks, bonds, options, futures, forex and mutual funds, traded on more than 70 exchanges and market centers and in 17 countries around the world seamlessly.

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

Third quarter results: Diluted earnings per share were $0.65 for the three months ended September 30, 2008, 23% higher than the same period last year. 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. IBG, Inc.'s diluted earnings per share were $0.53 for the three months ended September 30, 2007.

Our income before income taxes and minority interest increased 52%, to $1,249 million, during the past 12 months versus the prior 12 month period.

Consolidated: For the three months ended September 30, 2008, our net revenues were $497.0 million and income before income taxes and minority interest was $347.4 million, compared to net revenues of $445.1 million and income before income taxes and minority interest of $307.9million for the same period in 2007. Trading gains were 25% higher in the third quarter of 2008 compared to the same period last year and commissions and execution fees were up by 41% for the same time period. Our pre-tax margin, for the three months ended September 30, 2008, was 70%, compared to 69% for the same period in 2007.

Market Making: During the three months ended September 30, 2008, income before income taxes in our market making segment increased 16%, compared with the three months ended September 30, 2007, and 40% sequentially. The year over year increase is consistent with the continued growth of our global market making business. The substantial sequential increase from the second quarter was due to an exceptional market environment with high volumes and volatility, which allowed us to leverage our automated trading and real-time risk management system and reflected positively in our results. Pre-tax margin was 79% for the quarter ended September 30, 2008, highlighting leverage from automation.

Market making options and futures contract volumes increased 10% and 47%, respectively, for the three months ended September 30, 2008 from the same period last year. Trade volume was 8% lower for the three months ended September 30, 2008, from the same period last year, which reflected a lower level of stock trading. We recently discontinued a stock trading strategy that has been marginal for some time.

Brokerage: During the three months ended September 30, 2008, income before income taxes in our electronic brokerage segment increased 13%, compared with the third quarter of 2007, primarily reflecting higher revenues from commissions and execution fees. Pre-tax margin decreased to 47% for the quarter ended September 30, 2008, compared with 50% for the same period last year, reflecting:
(1) lower net interest driven by market conditions, (2) lower other income from decreased payment for order flow programs on US options exchanges, (3) increased employee compensation and occupancy expenses, primarily from an acquisition that is being integrated and (4) $2.5 million in bad debt expense resulting from extreme market conditions.

Commissions and execution fees increased 41% due to robust growth in transaction volume and customer accounts. Total daily average revenue trades ("DARTs") for cleared and execution-only customers increased 40% to 377,000 during the three months ended September 30, 2008, compared to 270,000 during the three months ended September 30, 2007. Cleared customer DARTs increased by 48%, to 338,000, over the same period. The number of customer accounts increased 19% over the year ago quarter and customer equity grew by 13% over the year ago quarter.

Annualized DARTs per average account were 814 in the third quarter of 2008 and annualized net revenue per average account was $4,483, up 25% and 3%, respectively, over the same quarter last year.

Nine months results: IBG, Inc.'s diluted earnings per share increased 60% year to date compared to the same period last year, to $1.76 for the nine months ended September 30, 2008 from $1.10, on a pro forma basis, for the same period in 2007.

Consolidated: For the nine months ended September 30, 2008, our net revenues were $1,420.8 million and income before income taxes and minority interest was $980.7 million, compared to net revenues of $1,070.7 million and income before income taxes and minority interest of $662.9 million for the same period in 2007. Income before income taxes was 48% higher in the nine months ended September 30, 2008 compared to the same period last year; trading gains were 58% higher

and commissions and execution fees were up by 46% for the same time period. Our pre-tax margin, for the nine months ended September 30, 2008, was 69%, compared to 62% for the same period in 2007.

Market Making: During the nine months ended September 30, 2008, income before income taxes in our market making segment increased 56%, compared with the nine months ended September 30, 2007, primarily reflecting higher trading gains. Pre-tax margin increased to 78% for the nine months ended September 30, 2008. The nine months ended September 30, 2008, and in particular the first and third quarters, were 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. While market making trade volume for the nine months ended September 30, 2008 was down 3% compared to the same period last year, options and futures contract volume rose 20% and 49%, respectively.

Brokerage: During the nine months ended September 30, 2008, income before income taxes in our electronic brokerage segment increased 33%, compared with the same period in 2007, reflecting higher revenues from commissions and execution fees. Pre-tax margin increased to 47% for the nine months ended September 30, 2008, compared with 44% for the same period last year, reflecting leverage from automation and decreased payments to broker-dealer customers for order flow. The increase in commissions and execution fees was related to robust growth in transaction volume and customer accounts. DARTs for cleared and execution-only customers increased 41% to 352,000 during the nine months ended September 30, 2008, compared to 250,000 during the nine months ended September 30, 2007. Cleared customer DARTs increased over the same period by 53% to 309,000. The increase in net interest was driven by the growth in customer balances and fully-secured margin loans.

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 %)



                                       Brokerage
       Market         Brokerage             Non                         Avg. Trades
       Making       %  Cleared       %  Cleared       %   Total       %    per U.S.
Period Trades  Change   Trades  Change   Trades  Change  Trades  Change    Trading
2003   32,772           22,748            2,367          57,887                230
2004   41,506     27%   28,876     27%    2,932     24%  73,314     27%        290
2005   54,044     30%   34,800     21%    7,380    152%  96,224     31%        382
2006   66,043     22%   51,238     47%   12,828     74% 130,109     35%        518
2007   99,086     50%   72,931     42%   16,638     30% 188,655     45%        752

3Q2007 27,203 19,092 3,878 50,173 796 3Q2008 25,045 -8% 32,840 72% 4,336 12% 62,221 24% 972

CONTRACT AND SHARE VOLUMES:

(in 000's, except %)

TOTAL



          Options       %    Futures*       %      Stocks       %
Period (contracts) Change  (contracts) Change    (shares)  Change
2003      194,358              31,034          17,038,250
2004      269,715      39%     37,748      22% 17,487,528       3%
2005      409,794      52%     44,560      18% 21,925,120      25%
2006      563,623      38%     62,419      40% 34,493,410      57%
2007      673,144      19%     83,134      33% 47,324,798      37%

3Q2007    178,906              22,330          12,805,676
3Q2008    205,470      15%     28,928      30% 14,489,937      13%

MARKET MAKING



          Options       %    Futures*       %     Stocks       %
Period (contracts) Change  (contracts) Change   (shares)  Change
2003      177,459               6,638         12,578,584
2004      236,569      33%     10,511     58% 12,600,280      0%
2005      308,613      30%     11,551     10% 15,625,801     24%
2006      371,929      21%     14,818     28% 21,180,377     36%
2007      447,905      20%     14,520     -2% 24,558,314     16%

3Q2007    125,720               3,805          6,867,410
3Q2008    138,294      10%      5,581     47%  6,145,983    -11%

BROKERAGE TOTAL


          Options       %    Futures*       %      Stocks       %
Period (contracts) Change  (contracts) Change    (shares)  Change
2003       16,898              24,396           4,459,667
2004       33,146      96%     27,237      12%  4,887,247      10%
2005      101,181     205%     33,009      21%  6,299,319      29%
2006      191,694      89%     47,601      44% 13,313,033     111%
2007      225,239      17%     68,614      44% 22,766,484      71%

3Q2007     53,186              18,525           5,938,266
3Q2008     67,176      26%     23,347      26%  8,343,954      41%

*Includes options on futures

CONTRACT AND SHARE VOLUMES, continued:

(in 000's, except %)

BROKERAGE CLEARED

          Options       %    Futures*       %      Stocks       %
Period (contracts) Change  (contracts) Change    (shares)  Change
2003       11,351              19,086           3,612,503
2004       16,438      45%     24,118      26%  4,339,462      20%
2005       23,456      43%     30,646      27%  5,690,308      31%
2006       32,384      38%     45,351      48% 12,492,870     120%
2007       51,586      59%     66,278      46% 20,353,584      63%

3Q2007     13,637              17,844           5,217,253
3Q2008     22,790      67%     22,892      28%  7,421,039      42%

BROKERAGE STATISTICS:

(in 000's, except % and where noted)



                                           3Q2008   3Q2007  % Change
Total Accounts                                107       90       19%
Customer Equity (in billions) *             $ 9.4    $ 8.3       13%

Cleared DARTs                                 338      228       48%
Total Customer DARTs                          377      270       40%

(in $'s, except DART per account)
Commission per DART                        $ 4.21   $ 4.58
DART per Avg. Account (Annualized)            814      652
Net Revenue per Avg. Account (Annualized) $ 4,483  $ 4,344

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

Business Environment

In the third quarter we witnessed heightened turbulence in the financial sector due to continued tightening of the credit markets, coupled with the announced failures and restructuring of large financial institutions and increased levels of federal government intervention. We have been relatively unaffected by these events. We do not hold any mortgage-backed securities or credit default swaps, which have led to massive losses across the financial sector. With the exception of spot foreign exchange, we trade and broker only exchange-listed financial instruments with a ready market and clearly determinable values. Our positions are marked-to-market every day using external closing prices published by the exchanges and clearing houses, so there is no subjective judgment used in valuing these assets.

The recent turmoil has brought historic levels of volatility and unprecedented losses across global financial markets. Despite the challenges this has brought for many broker-dealers, we continued to enjoy healthy profit growth in both our brokerage and market making businesses.

Our brokerage business continues to grow at a strong pace. Our recent marketing efforts have focused on highlighting the safety and stability of our firm. This distinction is based on our strong capital base of over $4 billion and our state of the art risk management system which was designed to curtail the risk of substantial bad debt losses. Our advanced Credit Manager System alerts customers when they approach margin violations and, if necessary, we automatically liquidate positions on a real-time basis to bring the customer's account into margin compliance. This protects our company and our

customers from excessive losses and is especially important during times of violent market swings as we have seen in recently. Other brokers-dealers may extend margin credit to their customers for up to three days, putting the company at risk for large customer losses they may not be able to absorb. In this current environment, we believe customers understand this potential risk and we have seen positive feedback in the form of customer account growth.

This turbulent environment is also productive for our market making business, which is fueled by high levels of market volatility and trading volumes. We have also benefited from a reduction in the level of competition during the third quarter. Although this phenomenon is cyclical, we have observed that during times of heightened market volatility, there is less activity by so called "high frequency traders" in the U.S. options markets. These traders utilize computerized algorithms to employ strategies to profit from certain advantages they have over market makers, including using their customer status to avoid exchange fees and to enjoy execution priority.

Another driver of our market making profits is the relationship between actual and implied volatility in the equities markets. The cost of maintaining our conservative risk profile is based on implied volatility, while our profitability, in part, is based on actual volatility. Hence, our profitability is increased when actual volatility runs above implied volatility and it is decreased when actual volatility falls below implied volatility. Implied volatility tends to lag actual volatility, as observed in the shifts during the first three quarters of 2008. While actual volatility was roughly equal to implied volatility in the first quarter, it slipped below implied volatility in the second quarter. This was reflected in the drop in our second quarter profitability from market making. However, in the third quarter, actual volatility was greater than implied volatility, which is evidenced in our market making profits. This kind of cycle has been a regular pattern in the markets historically.

Despite the downturn in global markets this year, option volumes continue to climb. 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 25.8% globally and 35.4% in the U.S. during the nine months ended September 30, 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.

According to these same sources, in the third quarter of 2008, we accounted for approximately 13.0% of the exchange-listed equity options volume traded worldwide and approximately 16.0% of exchange-listed equity options volume traded in the U.S. This compares to approximately 14.2% of the exchange-listed equity options volume traded worldwide and approximately 18.1% of the exchange-listed equity options volume traded in the U.S. in the third quarter of 2007.

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:

                                                       Three Months               Nine Months
                                                    Ended September 30,       Ended September 30,
                                                      2008          2007       2008         2007
                                                    (in millions except share and per share data)
Revenues:
   Trading gains                                         $ 361.4   $ 289.2    $ 1,006.0     $ 638.3
   Commissions and execution fees                           98.2      69.5        271.9       186.1
   Interest income                                         101.1     207.6        373.8       597.2
   Other income                                              7.1      21.6         55.6        68.9

     Total revenues                                        567.8     587.9      1,707.3     1,490.5

   Interest expense                                         70.8     142.8        286.5       419.8

     Total net revenues                                    497.0     445.1      1,420.8     1,070.7

Non-interest expenses:
   Execution and clearing                                   82.9      85.1        244.0       256.7
   Employee compensation and benefits                       39.5      31.0        119.4        92.7
   Occupancy, depreciation and amortization                 10.5       6.7         27.6        19.1
   Communications                                            4.8       4.1         13.4        11.0
   General and administrative                               11.9      10.3         35.7        28.3

     Total non-interest expenses                           149.6     137.2        440.1       407.8

Income before income taxes and minority interest           347.4     307.9        980.7       662.9

Certain actual and pro forma information with respect to the periods described above is presented below. Information for the three month periods ended September 30, 2008 and 2007, as well as, the nine month period ended September 30, 2008 is based on actual results and the nine month period ended September 30, 2007 is presented as if we had been a public company for the entire period.

                                                    Actual       Actual        Actual    Pro Forma (1)
Income tax expense (2)                                32.4          27.3          94.4            48.2
Minority interest(3)                                 287.8         258.4         813.6           569.4

Net income                                          $ 27.2        $ 22.2        $ 72.7          $ 45.3

Earnings per share (4)
   Basic                                            $ 0.67        $ 0.55        $ 1.80          $ 1.13
   Diluted                                          $ 0.65        $ 0.53        $ 1.76          $ 1.10

Weighted average common shares outstanding
   Basic                                        40,602,515    40,142,196    40,386,579      40,142,196
   Diluted                                     399,112,085   401,315,481   400,180,439     401,317,851

(1) The unaudited pro forma consolidated statement of income for the nine month period ended September 30, 2007, gives pro forma effect to the recapitalization, and the consummation of our initial public offering and our application of the net proceeds from the offering to purchase membership interests in IBG LLC from IBG Holdings as though such transactions had occurred on January 1, 2007. Pro forma earnings per share calculation includes (i) restricted shares of Common Stock that have been issued or are to be issued pursuant to the 2007 ROI Unit Stock Plan and
(ii) issuance of restricted shares of Common Stock pursuant to the 2007 Stock Incentive Plan, but excludes shares of Common Stock that are issuable in the future pursuant to the 2007 Stock Incentive Plan.

(2) Subsequent to the IPO, additional deferred income tax expense is $25.4 million, calculated on a straight line basis, resulting from the amortization of the deferred tax asset of $380.8 million arising from the acquisition of the 10.0% member interest in IBG LLC over 15 years. Of this amount, $13.1 million would have been amortizable for the nine month period ended September 30, 2007, under current tax law. This additional deferred income tax expense is, however, fully offset by reduced current income tax expense in calculating the total provision for income taxes.

(3) The pro forma period presented is adjusted for the approximate 89.7% interest in IBG LLC that IBG Holdings LLC holds arising from the . . .