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, 2007 (the "2007 10-K") and our Condensed Consolidated Financial Statements and the Notes thereto contained in this report.

Executive Overview

For the third quarter of 2008, our US GAAP net loss was $5.6 million, or $0.09 per share, compared to net income of $6.0 million, or $0.10 per share for the same period in 2007. These GAAP earnings were affected by a significant unrealized loss of $19.2 million in the third quarter of 2008 and a significant unrealized gain of $10.1 million in the third quarter of 2007 in connection with the change in value of our NYX shares. Excluding these items in each quarter, our pro-forma net income for the third quarter of 2008 was $13.6 million, or $0.22 per share, compared to a pro-forma net loss for the third quarter of 2007 of $4.1 million, or $0.07 per share.

These results include unrealized changes in the mark-to-market value of our NYX shares in the first nine months of 2008 and 2007, a $3.6 million loss on early extinguishment of our debt in 2008 and the non-cash charges related to the impairment of our goodwill and stock listing rights of $344.7 in the second quarter of 2007. Absent these amounts, our pro-forma net income for the first nine months of 2008 was $23.1 million, or $0.37 per diluted share, compared to a pro-forma net loss of $0.7 million, or $0.01 per share, for the first nine months of 2007.

Virtually all of the markets in which we provide liquidity experienced higher levels of volatility in the third quarter of 2008, with periods of extreme volatility in September. We believe that there is a continued need for market makers, especially in these market conditions, and that our liquid balance sheet puts us in a strong position to provide added liquidity in securities markets. In the third quarter in particular, our financial condition, combined with market volatility, allowed us to take advantage of opportunities to provide greater liquidity to the markets. While our newer business lines performed well and constituted a majority of our revenues, our traditional cash equities specialist business posted its best results since the introduction of the NYSE's HYBRID market. In addition, the steps we have taken in reducing costs and overhead during past years have enabled us to improve cash flows at our operating companies.

We believe that new trading venues will continue to converge and that global securities markets will increasingly interact with each other. We continue to look for opportunities in markets outside our traditional cash equities specialist business. As a result our newer businesses today represent the majority of our specialist and market-making revenues, especially as we rely upon and further develop our electronic trading strategies to interact with the global electronic marketplace.

We are also continuing to build our Institutional Brokerage business. Although our Institutional Brokerage segment showed a loss in the second and third quarters of 2008, we believe much of these results are mainly attributable to start-up costs and our initial facilitation trading results. We have made key hires of sales and position traders that we believe will help us build our Institutional Brokerage business into an operation that meets the needs of today's institutional customers.

We are actively taking steps to further reduce our operating expenses. The largest of these expenses is the interest on our public debt, which was approximately $47.6 million per year until 2008. Following the repurchases and retirement of $249.9 million of our outstanding debt in the first half of 2008, $209.9 million of our 11% Senior Notes due 2012 remained outstanding until October 2008 when we repurchased an additional $7.6 million of our remaining notes. Following this October 2008 repurchase, our remaining annual interest expense is approximately $22.3 million versus $47.6 million in 2007. 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. Prior to the repurchases described above, our negative carry would have been $10.2 million per quarter, based on current short-term interest rates. Following our repurchases to date in 2008, the negative carry will be reduced to approximately $5.1 million per quarter, based on current short-term interest rates. The repurchase of our public debt also has enabled us to improve our consolidated fixed charge coverage ratio to 3.7:1 at September 30, 2008, which evidences our growing flexibility to strategically utilize our capital by considering a broader spectrum of opportunities.

As we have explained in the past, our ownership of 3,126,903 shares of NYSE Euronext Inc. common stock (the "NYX shares") resulted from the exchange of our NYSE memberships, or "seats" in connection with the NYSE's mergers with Archipelago Holdings and Euronext. Before the exchange of our NYSE seats into the NYX shares, we believed that our seat ownership was integral to our position in the industry. Though the value of our NYX shares has been volatile over the past two years, the value of our seats prior to their exchange were volatile as well. Our management will remain flexible regarding our continued ownership of 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 strong and very liquid. We believe we have ample capital to maintain and grow our business. We are continuing to concentrate on building our business in London and Hong Kong, in which we see trading opportunities in those markets in ETFs and other products.

In October 2008, the SEC approved an NYSE proposal to further change its market model, changing the role of specialists to "designated market makers", or "DMMs", who will still provide liquidity, but without the bulk of the negative and affirmative obligations that could, at times, adversely affect our profitability. The rule changes would change the timing of when the designated market-maker can see orders, but would provide us more flexibility in

trading for our own account. We believe that some of these possible market structure changes would allow us to interact in the market more efficiently and also allow us to benefit from organizational changes and integration, because some of these changes presumably would remove the informational barriers that have caused us to maintain our specialist and market-making businesses as separate broker-dealers. We currently are unable to project if or when any of these market structure changes, or other informational barrier changes will be formally implemented, if at all.

The restructuring of certain of our specialist and market-making subsidiaries has allowed us to develop those operations across various domestic and international exchanges and marketplaces. The organizational structure of our Specialist and Market-Making segment, therefore, is intended to enable us to better allocate and deploy our capital, workforce and technology across our operations in order to more efficiently seek out opportunities as they arise.

Regulation G Reconciliation of Non-GAAP Financial Measures

In evaluating our financial performance as described above in "Executive Overview," management reviews operating results from operations, which excludes non-operating charges. Pro-forma earnings per share is a non-GAAP (generally accepted accounting principles) performance measure, but we believe that it is useful to assist investors in gaining an understanding of the trends and operating results for our core business. In this report, our pro-forma operating results in the periods presented exclude certain extraordinary and/or non-recurring items, such as, for example, the unrecognized loss on the Company's NYX shares and the costs associated with the early retirement of our Company's outstanding senior indebtedness, neither of which are, in management's belief, reflective of the Company's day-to-day operating performance or cash generation, and neither of which affect the Company's actual income or cash. Pro-forma earnings per share should be viewed in addition to, and not in lieu of our 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 September 30,
                                                         2008                                              2007
                                    Amounts as         (1) (2)           Pro forma     Amounts as         (1)              Pro forma
                                     reported        Adjustments          amounts       reported      Adjustments           amounts
Revenues, net of interest
expense                            $     47,014     $      31,937 (1)   $    78,951   $     41,716   $     (16,877 )(1)   $    24,839
Total expenses                           55,881                -             55,881         34,810              -              34,810

(Loss) income before (benefit)
provision for income taxes               (8,867 )          31,937            23,070          6,906         (16,877 )           (9,971 )
(Benefit) provision for income
taxes                                    (3,280 )          12,775             9,495            903          (6,751 )           (5,848 )

Net (loss) income applicable to
common stockholders                $     (5,587 )   $      19,162       $    13,575   $      6,003   $     (10,126 )      $    (4,123 )

Basic per share                    $      (0.09 )   $        0.31       $      0.22   $       0.10   $       (0.17 )      $     (0.07 )
Diluted per share                  $      (0.09 )   $        0.31       $      0.22   $       0.10   $       (0.17 )      $     (0.07 )

                                                                     Nine Months Ended September 30,
                                                         2008                                              2007
                                    Amounts as         (1) (2)           Pro forma    Amounts as           (1)             Pro forma
                                     reported        Adjustments          amounts      reported        Adjustments          amounts
Revenues, net of interest expense   $    32,111     $     144,389 (1)    $  176,500   $    78,416     $      41,910 (1)    $  120,326
Total expenses                          147,319            (6,005 )(2)      141,314       630,989          (499,364 )(3)      131,625

(Loss) income before (benefit)
provision for income taxes             (115,208 )         150,394            35,186      (552,573 )         541,274           (11,299 )
(Benefit) provision for income
taxes                                   (48,046 )          60,158            12,112      (184,077 )         173,488           (10,589 )

Net (loss) income applicable to
common stockholders                 $   (67,162 )   $      90,236        $   23,074   $  (368,496 )   $     367,786        $     (710 )

Basic per share                     $     (1.08 )   $        1.45        $     0.37   $     (6.00 )   $        5.99        $    (0.01 )
Diluted per share                   $     (1.08 )   $        1.45        $     0.37   $     (6.00 )   $        5.99        $    (0.01 )

(1) Revenue adjustment reflects loss (gain) 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.

(2) Expense adjustment reflects costs associated with early extinguishment of debt in accounting period.

(3) Relates to the write-down of the carrying value of the Company's goodwill and stock listing rights to reflect the results of the Company's impairment evaluation under SFAS No's 142 and 144.

New Accounting Developments

Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS 157 nullifies the guidance in EITF 02-3 which precluded the recognition of a trading profit at the inception of a derivative contract, unless the fair value of such derivative is obtained from a quoted market price, or other valuation technique incorporating observable market data. SFAS 157 also precludes the use of a liquidity or block discount, when measuring instruments traded in an active market at fair value. SFAS 157 requires that costs related to acquiring financial instruments carried at fair value should not be capitalized, but rather should be expensed as incurred. SFAS 157 also clarifies that an issuer's credit standing should be considered when measuring liabilities at fair value. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and was adopted by the Company as of January 1, 2008. SFAS 157 must be applied prospectively, except that the provisions related to block discounts and the guidance in EITF 02-3 are to be applied as a one time cumulative effect adjustment to opening retained earnings in the first interim period for the fiscal year in which SFAS 157 is initially applied. The adoption of SFAS 157 resulted in no cumulative change to the accumulated deficit. Please refer to Footnote 11 of our Condensed Consolidated Financial Statements for additional information and disclosure.

In February 2008, the FASB issued FSP FAS 157-2 which delays the effective date of Statement 157 to all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in an entity's financial statements on a recurring basis (at least annually to fiscal years beginning after November 15, 2008. Such items include a) nonfinancial assets acquired and liabilities assumed in purchase business combinations and b) intangible assets and goodwill.

In October of 2008, the FASB issued FSP FAS 157-3 which clarifies the application of FASB 157, Fair Value Measurement, in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that asset is not active. The FSP shall be effective upon issuance, including prior periods for which financial statements have not been issued. Revisions resulting from a change in the valuation technique or its application shall be accounted for as a change in accounting estimate pursuant to FASB 154. The disclosure provisions of Statement 154 for a change in accounting estimate are not required for revisions resulting from a change in valuation technique or its application. As of September 30, 2008, we do not hold any securities that would be subject to change based on FSP FAS 157-3.

Accounting for Fair Value Option for Financial Assets and Financial Liabilities

In February 2007, the FASB issued SFAS No. 159, "Accounting for Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. We currently report the majority of our financial assets and liabilities at fair value in compliance with industry guidelines for brokers and dealers in securities. The Company elected not to apply the fair value option for any applicable assets or liabilities.

Derivative Instruments and Hedging Activities

In April 2007, the FASB issued a Staff Position ("FSP") FIN No. 39-1, "Amendment of FASB Interpretation No. 39." FSP FIN No. 39-1 defines "right of setoff" and specifies what conditions must be met for a derivative contract to qualify for this right of setoff. It also addresses the applicability of a right of setoff to derivative instruments and clarifies the circumstances in which it is appropriate to offset amounts recognized for those instruments in the statement of financial position. In addition, this FSP permits offsetting of fair value amounts recognized for multiple derivative instruments executed with the same counterparty under a master netting arrangement and fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from the same master netting arrangement as the derivative instruments. The provisions of this FSP are consistent with our current accounting practice. This interpretation is effective for fiscal years beginning after November 15, 2007, with early application permitted. The adoption of FSP FIN No. 39-1 did not have a material impact on our consolidated financial statements.

In March 2008, the FASB issued FASB Statement No 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement
133. SFAS 161 amends and expands the disclosures required by SFAS 133 so that they provide an enhanced understanding of 1) how and why an entity uses derivative instruments, 2) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and 3) how derivative instruments affect an entity's financial position, financial performance, and cash flows. SFAS 161 is effective for both interim and annual reporting periods beginning after November 15, 2008, with early adoption encouraged. The Company is not subject to SFAS 133 at this time. Since this amendment relates solely to disclosures related to SFAS 133, there is no potential effect on the financial position of the Company.

The Hierarchy of Generally Accepted Accounting Principles

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS 162"). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). SFAS 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Adoption of SFAS 162 will not have a material effect on the Consolidated Financial Statements.

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, "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 nine months ended September 30, 2008, 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.

Another of our intangible assets, as defined under SFAS No. 142, 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 nine months ended September 30, 2008, 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.

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, 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.

Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards, or SFAS, No. 157 "Fair Value Measurements," which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 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 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 investments 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 investments we adjust their carrying value by applying the equity method of accounting pursuant to APB
18. 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 investments in estimating their value, such as the financial performance of the entity, its cash flow forecasts, trends within that entity's industry and any . . .